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Analysts See Little Change In Capacity From New CDL Rule

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Analysts See Little Change In Capacity From New CDL Rule

Some analysts don't believe an easing of instruction and testing rules for issuing commercial driver's licenses will meaningfully change the current tight supply dynamic that exists in trucking.

Federal regulators recently issued a final rule allowing a third-party skills instructor to administer both instruction and qualifying testing to the same driver applicant. Previously, both functions could not be performed by the same instructor for one candidate. States will now have the discretion to decide whether they will allow qualified third-party trainers to complete both functions.

The proposal to change the rule was undertaken in 2019 following complaints that the process was too cumbersome. The Federal Motor Carrier Safety Administration said the change will reduce testing delays and costs and improve the turnaround time for licensing.

Data from the Truckload Carriers Association shows the requirement for the separation of duties was a contributor to the equivalent of 6.4 million in testing delay days, more than 250,000 jobs being placed on hold and $1.5 billion in lost wages during 2016.

In a note to clients, Morgan Stanley (NYSE: MS) analyst Ravi Shanker said the rule may "relieve an operational restriction hindering some CDL applicants," but noted larger headwinds to capacity like the Drug & Alcohol Clearinghouse, low driver school enrollment and insurance costs outweigh the move.

"A move like this may help to ease on the margin but ultimately we do not believe this will have a significant impact on the supply side and don't expect a flood to the market with new commercial driver licenses," Shanker continued.

Deutsche Bank's (NYSE: DB) Amit Mehrotra said, "We view this as a positive for carriers to expand the pool of qualified drivers offsetting the current wage inflation (i.e., competitive pay rates/recently announced driver pay increases) and in turn relieving some margin pressure." He continued by saying any addition of incremental capacity would be a negative to the supply-demand balance but he doesn't believe the change will be overly impactful.

As COVID-related demand has prompted the continuous need for and restocking of retail consumables and household goods, the need for truck capacity has surged. However, capacity has contracted largely due to declines in the number of qualified drivers. CDL issuances have been reduced by more than 100,000 and only 10% of the 46,000 drivers with drug and alcohol violations have returned to duty.

Those opposed to changing the rule cited concerns around fraud, conflicts of interest and bias on the part of the examiner. A 2013 change to the rule gave driver schools the ability to provide testing and training, but not by the same instructor as a means of preventing fraud.

"Removing the restriction is expected to reduce skills testing delays and thereby allow drivers to obtain gainful employment sooner, according to the FMCSA. "In addition, the increased efficiency in skills testing will benefit third-party testers and CDL applicants by reducing the time and cost spent to complete skills testing. FMCSA believes this change will not undermine the integrity or effectiveness of CDL skills testing."

The rule will be effective following a 60-day period after the date of publication in the Federal Register.

Click for more FreightWaves articles by Todd Maiden.

 

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