The impact of hours of service changes to motor carrier profitability and productivity

With the major change to the Federal Motor Carrier Administration (FMCSA) Hours of Service rule (HOS) announced in late 2011, there have been several studies regarding highway safety and the health of truck drivers but relatively little research on the impact on profitability of firms. The Regulatory Impact Analysis (FMCSA, 2010) includes an estimate of the cost of reduced productivity at the macro level but not at the firm level. The estimates used to calculate reduced productivity were also called into question in a paper prepared for the American Trucking Association (Edgeworth Economics, 2011). The last major change to HOS was in 2003 and went into effect in 2004. This 2003 HOS reduced the total allowable on duty time by one hour and increased the allowable driving time by one hour; however, the real maximum driving time in 24 hours was effectively reduced from 16 to 14 with the requirement of 2 additional hours off duty. Before the final 2011 HOS were publicized, there were options to decrease the maximum driving time by 1-2 hours and to decrease the maximum on-duty time. The final 2011 HOS did not make any changes to the maximum driving time but the FMCSA retained the option to make further adjustments as more studies on the impact become available. Furthermore, the new rules will have minimal impact on the maximum on-duty time for many carriers and with long detention times. While the maximum on-duty time is technically reduced with the addition of a mandatory 30 minute break in addition to the 10 hours off duty per day, the definition of on-duty time will no longer include time in the truck waiting to be loaded or unloaded. Looking at the impacts of the previous change to HOS should give a good indication of the impact to carriers if maximum driving time is further reduced in the future. This paper investigates the actual impact of the last major change to the HOS on profitability and productivity of publicly traded motor carriers. Quarterly data from 1997-2010 for 14 publicly traded motor carriers was used. To see the impact on profitability, Operating Ratio (OR) and Return on Assets (ROA) were dependent variables in two separate models. The variable of interest was a dummy variable with a value of one for the time periods after the change to HOS (2004-2010). To see the impact on productivity, a similar model was tested with sales per employee as the dependent variable. Results of the estimations indicate that the 2004 HOS led to an increase in both productivity and OR, or costs as a percentage of sales, and no significant change to ROA.