Daily Archives: February 9, 2018

Crazy Happenings In The World Of GHG Phase 2 And Trailers

While they may initially seem like not-too-exciting topics, GHG Phase 2 rules and trailers have been heating up in the news lately. Court filings have begun to stack up as GHG Phase 2 rules are challenged on trailer-related provisions.

The newest of these came in the form of an October 12 filing, in which the Environmental Defense Fund, along with a coalition of health advocacy groups, asked that the U.S. Court of Appeals for the District of Columbia Circuit reject another motion filed by the Truck Trailer Manufacturers Association (TTMA).

The statement released by the group argued that the Phase 2 trailer provision motion to stay “attempts to artificially divide the tractor from the trailer to claim that TTMA’s members cannot be regulated directly because they are not manufacturers of motor vehicles.”

The group went on to note that the TTMA “has likewise failed to demonstrate that its members will be irreparably harmed absent a stay of standards that simply require manufacturers to equip more of their trailers with widely used technologies that deliver fuel savings.”

So, What’s the Deal?

As you likely know, business people really dislike uncertainty. And they got a full dose of it when the Environmental Protection Agency (EPA) announced it would potentially roll back the trailer and glider kit provisions spelled out in the GHG Phase two fuel efficiency regulations.

Jointly written by the National Highway Traffic Safety Administration (NHTSA) and put to paper October of 2016, GHG Phase 2 was designed to reduce carbon emissions. It builds on the work previously completed on GHG Phase 1 regulations.

As the rule is laid out, Phase two rules were set to go into effect for trailers beginning in January of 2018. Limitation of glider kit production began last January. The rule also spells out how manufacturers should design equipment for the next decade. The goal of the rule was to reach emissions reductions by cutting the amount of fuel burned while sidelining older technologies – thus clearing the way for newer, more fuel-efficient technologies.

The change comes in the form of an August announcement from both the EPA and NHTSA that they may in fact reconsider the rules. Specifically, targeted were regulations regarding box-type trailers. This definition includes dry and refrigerated freight and glider kits.

While neither agency has come out with specifics on what a potential rollback may look like, they have clearly laid out there intent to review the rules, which are set to go into effect in less than 60 days. This is where the uncertainty question comes in.

The original fight started when the TTMA filed a lawsuit in December of 2016 requesting that the D.C. Circuit throw out the trailer section of the GHG Phase 2 rule set to go into effect in January 2018.

In their initial argument, TTMA stated that “most heavy-duty trailers are custom-ordered, and the required lead time for scheduling production means that trailer manufacturers are having to quote orders for 2018 delivery that will force customers to purchase equipment they do not want and that will not produce any fuel efficiencies in the customers’ operations.”

The case has also been joined by California – who we will talk more about later – and Connecticut, Washington, Vermont, Iowa, Massachusetts, Rhode Island, Oregon and Vermont. In a joint statement released by the EDF, associated groups and the states represented, the groups stated that granting a stay of the rule would “delay these critical health and environmental protections for the duration of the litigation, which could last for years.”

The attorney representing the groups released a separate stating that “the trailer provisions of the [GHG Phase 2] Clean Truck Standards are based on cost-effective and widely available measures that have long been used by industry leaders, and have been effectively incorporated into state standards for the past decade. It is critical that these common-sense protections remain in place to reduce the dangerous pollution that causes climate change and save money for American families by reducing the costs for shipping goods.”

At the same time, the TTMA has been hard at work lobbying on behalf of regulatory relief across the board where trucking rules are concerned. Still, neither agency involved has yet taken any action, despite notifying the TTMA that they agree further rulemaking is needed.

Despite the recent litigation, many companies are operating as though there will be no change. In fact, most large fleets have already invested a lot of time and energy into complying with a rule most in the industry expected to stay intact. Still, that doesn’t mean everyone is on board.

The Trailer Industry Speaks Out

The trailer industry itself has had mixed reactions to the news. While one manufacturer was quotes in a news outlet as saying that they “We are encouraged by the EPA’s decision to reconsider the trailer provision in the GHG2 regulation,” others have complained that they need more certainty, for both them and their customers. Not knowing what equipment to include or not include puts some manufacturers in a bind.

Still, the TTMA couldn’t be more pleased by the news, arguing that the rule puts onerous requirements on trailer manufacturers whether the benefits of said requirements are proven or not. They specifically mention:

  • Aerodynamic enhancers
  • Special tires
  • Tire-pressure-monitoring systems

In their argument, the agency stated that many trailers operate at very low average speeds or sit a lot while loading and unloading. In these scenarios, they argue there would be little to no gain in fuel savings under the GHG Phase 2 trailer rules.

Another trailer manufacturer was quotes as saying that while they support efforts to make trailers more efficient, “the current EPA regulation for trailers is flawed in that it takes a ‘one size fits all’ approach, which in some cases offers no fuel savings and arguably increases fuel consumption, and even puts some fleets at a disadvantage.”

In the meantime, the other big player in the room, the American Trucking Associations (ATA) came out strongly against the move to squash the regulation, saying that rolling back the regulation would “upset national uniformity.”

In a statement released by their CEO, the ATA stated that in their belief, “by reopening the rule to reexamine trailers and glider kits, EPA has opened the door to California taking the lead, and a more aggressive track, in setting trailer standards. As representatives of an interstate industry. ATA believes a single national standard, set by federal regulators, is preferable to at worst, a patchwork of state standards or at best, a de facto national standard that is set without the appropriate opportunity for the entire regulated community – many members of which are not based in California – to weigh in.”

So, what, exactly, does California have to say?

The California Air Resources Board (CARB) has certainly made a statement regarding all this action around an otherwise back-of-the-room rule. According to an industry insider, CARB is quite likely to finalize its own regulations next year, lending credence to the ATA’s claim. It has even been reported that if the EPA plans on scrapping the rule, California may push even more aggressively on their regulations, setting up quite an intriguing showdown next year should all this come to pass.

Where many think there may be movement is in the area of glider kits.

What Are Glider Kits?

Glider kits are essentially new trucks powered by older, rebuilt or repurposed diesel engines and drivetrain components. Fleets operating specialty trucks have been known to utilize big rigs with reused engines and other components in a bid to save money. Certainly, there is nothing wrong with wanting to cut costs.

The problem is that under current GHG rules, starting in January of 2021, they will only be allowed into circulation as reclaimed equipment from junked commercial motor vehicles. The EPA’s assertion at the time was that glider kits using older, less-efficient diesel combustion engines produced far more emissions.

The EPA in their original ruling sited an increase in sales of glider kits from just a few hundred per year a couple of decades ago to more than 200,000 a mere two years ago. While some may have been designed in an effort to get around emissions, most were from fleets who simply had a cost-analysis that required them to look at used components to ensure the bottom line didn’t lurk into the red.

Under the new Phase 2 regulations, glider kits were to come under increasing restriction, with a whole new round set to go into effect this coming January. If the rule does not go into effect, it is likely we will see environmental groups take this battle to the courts.

Once stuck in the courts, any changes to the rule’s publication could be drawn out for years, in which case manufacturers will have already shifted into the new paradigm. What does this mean for the trucking industry? That uncertainty we were talking about is sure to stick around for some time longer.

Why Have Commercial Insurance Costs Shot Through The Roof?

You would think that with all the new safety technologies being equipped on modern commercial motor vehicles these days that commercial motor vehicle insurance should be lower than ever. Unfortunately, you’d be wrong. If anything, they seem to be on a never-ending upward trajectory.

Whether you are an owner-operator or one of the largest fleets in the trucking industry, insurance costs are going to put you in a pinch. But why?

For many fleets, a major expense item is represented by specific claims on the insurance line. Yet, this increase is not because there have been more accidents, but rather a result of inflation and rising trucking industry litigation costs. Even for a fleet not impacted by these factors will see a hit in their insurance.

So, what’s the total cost? Well, for 2016 alone, more than $700 million in claims were made against commercial motor vehicles, including trucks., according to a report completed by American Public Media’s Marketplace. These losses directly translate into rising premiums for industry businesses.

According to another report completed by a San Diego-based insurance group explains that over the last few years, there have been almost uninterrupted rate increases, for both small and large motor carriers, no matter the insurance type.

Fleets across the nation have been hit with higher premiums as a result. Whether local, long-haul, general freight, reefer or otherwise, everyone is feeling the pinch. Of course, some business lines see a more rapid rise than others, but no industry player is spared.

A Confluence of Factors

The reason why this is happening can be seen in several factors that all converged at the same time. First, it is critical that you understand how insurance works. Insurance companies generally make money in two different ways.

First, they profit off underwritten policies. Second, they invest customers’ premiums. Now consider that it can take up to seven years to close a claim. As a result, insurance companies will sometimes have to play the long game, with seven years to make money in the premiums paid until the claim must be settled.

Why does this matter? Remember the two ways insurance companies make money. If they aren’t making it on underwriting, they must make it back investing in the premiums paid. Since margins are so low on either, if there are inflationary trends or a greater number of claims coming in, the insurer has little choice but to hike rates to stay competitive.

In today’s case, these headwinds remain. Return on insurer investments have been low, which forces them to then look to make that money back on the policies they underwrite. Insurance costs to cover accident claims have also spiked in recent years.

Why? Because the economic recovery has put a lot more cars and trucks on our nation’s roads, which – by the law of averages – results in a higher rate of accidents.

It is true that highway fatalities had been on the decline for nearly a decade, thanks to safety advances, seat belt laws, new braking systems, and so much more. But in recent years, as we’ve reported, fatalities have risen alongside the rising national economy.

Shouldn’t Safety Cancel Out Increased Traffic?

One question on the mind of many an industry insider surrounds the reasons why fatalities have increased. Conventional wisdom says that even if there is more traffic on the roads, a far richer safety technology environment should mitigate any added risk, right? Wrong.

Remember, safety technology has come a long way, but so has technology in general. People behind the wheel are more distracted than ever, whether through a big, shiny tablet or smartphone or an in-dash entertainment system.

The increased frequency at which these technologies have invaded the space inside our vehicles directly correspond with an increased accident rate. When insurers evaluate claims, they do so based on the number of fatalities or severe injuries in an accident. Since 2010, the severity metric has been rising.

As trucks become more complex by the day, the costs associated with repairing such vehicles also rises. Since healthcare costs have also been rising at a rapid rate, situations where medical attention is required generates even more expense in litigation.

Believe it or not, insurance prices can also be directly correlated with the truck driver shortage. Since trucking companies have been hiring more and more younger, inexperienced truck drivers, accidents are happening in greater frequency. Truck drivers under 30 tend to get into more accidents than those over 30, and that trend is reflected in rising premiums.

Since there are few haven investments for insurers, as loss number increase, insurers are increasing truck insurance rates at a rapid clip. For insurance rates to fall, the insurance industry will need to see one or both of their income streams have a better long-term outlook.

This means insurers will have to start posting profits for several quarters before fleet premiums begin to drop. Any new insurance companies will likely face the same headwinds current market participants do, so added competition would do little to drop rates.

There is no Easy Answer

The problem is that there is no easy answer. It is a multifaceted issue. While continuing to increase safety technology usage is a start, it won’t go all the way. Whether it be through a reduction in distracted driving or a lowering of health insurance, a noticeable change in several factors would certainly help.

Consider that distracted driving is an easy one for fleets to address. One way is through creating and enforcing a policy banning cell phone use while driving. There are even apps that can be installed that will shut the phone down when the vehicle is in motion. Better training and incentives also go a long way in decreasing distracted driving.

Another problem easily addressed by a fleet, whether through technology or otherwise, is speeding. Fleets have turned to speed limiters, telematics, video-based training or otherwise, ensuring fleet vehicles run at a safe speed is not difficult.

It Isn’t Always a Novice Trucker

For many fleet managers, the automatic assumption when an accident occurs is that it was the work of a novice truck driver. Yet, it is just as important to pay close attention to behaviors of truck drivers who have been with the business for a long time.

As a matter of fact, the longer a truck driver gets away with a bad habit, the more ingrained and harder changed that habit becomes. Far too often, experienced truckers fail to take “near-miss” accidents seriously. When bad truck driving behaviors become hard-wired, crashes occur.

The best way to mitigate this effect is to address truck driver complacency in your training programs. Don’t hesitate to appeal to your truckers’ values and priorities as truck drivers. Make operating as safely and professionally as possible rewarding for your truck drivers. By showing them the impact they have on the road, you may get greater buy-in for your safety initiatives.

Relying on Safety Equipment

At some point, the rise in advanced safety technology use in trucking is going to start counteracting other factors that have results in insurance premium increases. Telematics, video and other safety technologies helps stop unsafe driving behaviors and provides guidance on how such behaviors should be addressed.

Another place where safety can play a key role is in spec’ing your vehicles for safety straight from the manufacturer. If anyone is taking safety technology seriously these days, it’s the OEMs. Utilize their expertise to your advantage.

There are seven major areas where safety technology can help you radically reduce your insurance premiums:

  1. Anti-lock brakes
  2. Stability control
  3. Lane-departure warnings
  4. Blind-spot warning devices
  5. Collision-avoidance systems
  6. Camera systems
  7. Sensor systems

GPS tracking technology has also proven itself in this arena. Stolen or lost freight does no favors for your insurance premiums. Having the technology in place to ensure your fleet assets can be tracked at all times will help lower costs.

In the case of lost or stolen vehicles, it is notable that law enforcement assigns a low priority to these cases. So, having technology in place that essentially does the job for them could help you big time in the long run.

In fact, fleets who choose to utilize GPS or other advanced safety technologies may find themselves on the receiving end of special rates or policy discounts from their insurer. Insurance companies often refer to these as anti-theft devices and the more of them you have installed in your fleet vehicles, the better.

In states where it is compulsory for insurers to offer discounts for using advanced safety technologies, installing them seems like a no-brainer, yet too few fleets actually do.

Is your fleet suffering under the burden of high insurance rates? If so, consider what you are doing to enhance the level of safety and security in your fleet. Are you doing enough to lower rates? Of course, there are many factors outside of your control, but that doesn’t mean you shouldn’t try.