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TRUCC myths debunked

By Joe Rajkovacz
OOIDA regulatory affairs specialist

 

In the May issue of Land Line Magazine there was an editorial titled “Damned if you do, and damned if you don’t” by OOIDA President and CEO Jim Johnston. That is such an appropriate title for a discussion about the TRUCC Act – the Trust in Reliable Understanding of Consumer Costs Act: damned if you do, and damned if you don’t.

OOIDA worked to encourage the introduction of this legislation in response to the overwhelming concerns of its members about the fact that fuel surcharges are not being passed through by brokers to the people who actually pay for the fuel. But not every trucker is happy with the bill.

On the one hand, we have many truckers asking for help on this issue. On the other hand, a very vocal minority is against this legislation, mostly because of an ideological belief that we have a completely free market and nobody should interfere with it. Then there is the school of thought that anyone who is not smart enough to get operating costs covered should go the way of the dodo bird.

The free-market sentiments are not completely misplaced. However, the TRUCC Act has nothing to do with setting rates. Let’s not forget, as pleasing as it is to mouth the words “free market,” truckers actually work in a highly regulated industry and no amount of banter about a free market will change that simple fact.

However, requiring brokers and motor carriers to pass through fuel surcharges that were allegedly collected to offset increased fuel prices is not government intervention in the marketplace. It is not rate-setting. It is not a coddling of those who supposedly have less business acumen.

The TRUCC Act is about transparency and solidifies a regulation that is already on the books. That simple truth, however, has been lost in a web of disinformation being spun by opponents of the TRUCC Act.

Two other primary arguments are being made against the TRUCC Act, and they sound as if they were written by and for brokers. These deceitful arguments purposely fog how rates and fuel surcharges actually work in the marketplace.

Argument No. 1: If the fuel surcharge pass-through is mandated, brokers and motor carriers will simply stop collecting a surcharge from shippers, thus depriving truckers who currently receive one from getting it at all.

This false argument presupposes that if a broker is collecting a surcharge and not completely passing it through, we should be happy that we’re at least getting a small bite of the apple instead of the whole apple. This logic also implies that if the brokers cannot profit from collecting a fuel surcharge, they’ll quit billing for one, thus depriving the trucker of any surcharge. This is fear-mongering that ignores marketplace realities.

The reality is that base freight rates have remained essentially unchanged, and truckers cannot haul anything at current fuel prices for those cheap rates. Brokers and shippers know this reality. They also know it’s not to their advantage to completely force truckers out of business with low rates because that would cause a shortage of available trucks.

Shippers will continue to pay fuel surcharges for two primary reasons: to stabilize the number of  available trucks and to keep base freight rates from spiraling out of control.

Argument No. 2: If the fuel surcharge pass-through is mandated and brokers cannot profit from collecting it, they’ll simply quit billing a surcharge and raise base freight rates so they can maintain their profit margins.

This argument also ignores how the marketplace actually works. Shippers shop first by rate. That is how they do their comparisons.

For example, if a broker comes in with a base rate of $1.35 per mile plus a full fuel surcharge and another broker submits a flat rate of $1.85 per mile and no fuel surcharge, the first broker will win the contract almost every time. This is because shippers view surcharging as a necessary, but temporary, adjustment to the base rate. They do not want to renegotiate rates with every fluctuation of the commodities market.

Yes, payments can go up, but they’re also just as likely to drop. Right now you can read and listen to Wall Street analysts who say they wouldn’t be surprised to see fuel prices drop to half of the current prices one year from now.

We don’t have supply-side problems as we did in the ’70s driving fuel prices. It’s mostly speculators using commodities as their craps table, driving their profits at everyone else’s expense.

Federal regulations already in existence require brokers to provide information to truckers about how much loads pay. The same is true for motor carriers leasing owner-operators who are paid by percentage.

The TRUCC Act will simply improve on the requirements for disclosure. Everybody is better off with that kind of transparency: the trucker, the shipper, and the consumer who is ultimately paying the freight bill. Everybody wins.

So does the free market because no longer will transaction details, which current law allows truckers to view in certain scenarios, be shrouded in secrecy to the benefit of one party, the broker.

Opposing transparency for this part of trucking transactions makes as little sense as it would for leased owner-operators who are paid on a percentage basis to oppose their rights to see rated freight bills. You can oppose that protection given to you by law, but then don’t cry when you’ve been shortchanged. If you are opposed to this legislation on “free-market” principles, then to be consistent you’d have to oppose current law, which protects you from not being paid your contracted percentage of gross. How many of you are willing to give up that protection?

Free markets work best when everyone is happy with the outcome. In trucking, too many of us have been thousands of miles from home and have been taken advantage of by brokers. That’s not a free market; it’s a not-too-subtle form of exploitation. LL

joe_rajkovacz@ooida.com