Dedicated Revenue Mechanisms for Freight Transportation Investment (2012)

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C-1 Overview Electronic on-board data recorders (EOBRs) and associated communication systems (telematics) are possible implemen- tation tools for VMT fees. The use of such devices is limited at present, however, and the future requirements and appli- cations are only now being developed. The surge of interest is in part attributable to the expectation that motor carriers will gravitate to some sort of EOBR for the benefit of their own operation or in response to government mandate. When sup- plemented by global positioning system/automatic vehicle location (GPS/AVL) capabilities (often called “telematics”), EOBRs become multipurpose devices capable of supporting time/location VMT options. EOBRs would not ordinarily have dedicated short-range communications (DSRC) or radio frequency identification (RFID) functions to communicate with roadside readers or toll systems. EOBRs are primarily intended to record data on vehicle operations and driver hours of service to meet the company’s need for management information and regulatory compliance. EOBRs can record miles traveled, as well as hours operated, fuel consumption, and so forth. EOBR mileage data, remotely accessed or downloaded, could be used to calculate or assess VMT fees without adding any new equipment to the vehicle. To the extent that EOBRs are adopted by the industry for other reasons and can be used successfully in VMT imple- mentation, marginal implementation time and cost would be reduced. Development of the devices is not yet mature. The require- ments for the devices are not yet fully developed, particularly those that might be mandated by federal regulations. Devel- opment of supporting software is evolving rapidly. For larger fleets with many drivers, the existing devices and application support is performing as anticipated, thereby encouraging adoption by others. Some specialized applications are already in operation and working successfully. For many motor carriers and drivers, particularly for a very small fleet (e.g., one to five trucks/tractors, which is the majority of commercial trucks), the value of such devices, the supporting software, and the supplemental administration of the data are still debatable. A minority of the approximately 10 million medium- and heavy-duty trucks and the approximately 3.0 million drivers with a commercial driver’s license will be involved in most of the pending FMCSA regulations. In particular, the scope of the pending, revised Hours of Service Regulations is likely to cover only a minority of commercial trucks. Technology Electronic on-board (data) recorders and telematics systems include various devices used to communicate data among the truck, its driver, and a home base. These devices come in many forms and have evolved significantly. All current devices require applications software to convert the data to actionable information, alerts, and a permanent record, and to integrate with trucking company information and accounting systems. Applications include the following: • Customer service, shipment status reporting, contingency planning. • Dispatch instructions, equipment utilization. • Time of day, location, mileage readings, routings, vehicle miles, and estimated times of arrival (ETAs). • Fuel consumption and fuel tax reporting. • Driver comfort/convenience, phone calls, text messaging, and Internet access. • Document transmission, order management, and signed delivery receipts. • Hours of service and electronic logging. • Vehicle maintenance, service due, parts and components used, warranty support, and engine diagnostics. In private trucking, the justification for most installa- tions has been a combination of customer service and fuel A p p e n d i x C On-Board Devices in Trucking

C-2 consumption considerations. In for-hire trucking, the justi- fication for most installations has been single entry of data to avoid clerical mistakes, customer service considerations, and engine diagnostics. These devices typically connect to the “engine bus” within the truck’s factory electronic system to obtain data on vehicle operation, fuel consumption, and engine performance. They can use either GPS or global system for mobile communication (GSM) cellular technology for vehicle location and movement information. The EOBRs themselves can be relatively small, such as a one-way tracking or more elaborate, such as a com- prehensive two-way system. Suppliers There are many vendors of the devices, applications, and systems integration. Commonly known device vendors include Qualcomm, XATA, NAVTEQ, Sprint Nextel, and AT&T. Applications software vendors include FleetMatics, SkyBitz, Cheetah, PeopleSoft, IBM, Comtech, Manhattan, Innovative, and RASTech, as well as engine manufacturers such as Cummins or Daimler Benz and fleet operators such as UPS Technologies and Ryder Systems. Systems integrators include TMW Systems, Oracle, McLeod, and IBM, as well as niche integrators such as Internet Truckstop. Some suppliers tend to concentrate on for-hire trucking; others concentrate on private trucking or trucking that does not involve intercity freight such as service, work, or vocational trucks. Hours of Service (HOS) Regulations Part 395 of the Code of Federal Regulations (CFR) governs the Hours of Service (HOS) for a commercial vehicle driver. These rules govern the driver’s duty status 24 hours per day and 7 days per week in four categories. Drivers must keep a Daily Driver’s Log to record each change of duty status and the duration in the status category. In CFR Part 395.1, however, there are exceptions (b) through (q) that relieve some drivers of requirements either all or part of the time. The net result of these exceptions is that over 50% of commercial truck drivers do not have to comply with HOS regulations. CFR Part 395 also provides certain regulations in Part 395.15 governing automatic on-board recording devices to record the driver’s hours of service. The data that must be kept include total miles driven each day; however, that mileage does not have to be detailed by state or by vehicle when more than one vehicle is driven in a day. The existing regulations in Part 395.15 imply, but do not specify, that a given EOBR is permanently installed in a specific truck. Pending Developments As of October 2010, there are five pending legislative and regulatory developments, which, until firm, make the outlook for EOBRs very uncertain. Most of these developments focus on the responsibilities of the FMCSA. Effective June 2012, companies that historically have had compliance issues with the federal Hours-of-Service (HOS) regulations were going to be required to equip their trucks with an EOBR that reports hours of service by individual driver. In August 2011, however, the U.S. Court of Appeals for the Seventh Circuit vacated the rule and sent it back to FMCSA for review on the grounds that the agency did not provide enough detail on how it intends to prevent carriers from harassing drivers through the use of EOBRs. As of January 2012, the future of the rule is still unknown. A new Hours-of-Service (HOS) Final Rule was issued by FMCSA on December 22, 2011. The new rule makes a number of detailed changes to HOS regulations, but does not otherwise materially change the implications for EOBR use. The new Compliance, Safety, Accountability program (CSA, previously “Comprehensive Safety Analysis”) promul- gated by FMCSA is being progressively implemented in 2011 and 2012. These rules and procedures, enforced by FMCSA in cooperation with state police, create new measurement systems for both drivers and motor carriers. The FMCSA has announced rules and procedures for this implementation. The goal is to score each driver and each company based on performance. One of the performance metrics is HOS compliance. A planned “Use of Advanced Information Technologies to Monitor Compliance” protocol to be issued by the FMCSA would effectively require any GPS tracking and dispatch sys- tem information to be made available for HOS compliance audits. Such audits are one of the processes embedded in the CSA. A current research initiative by the FMCSA called “Wireless Roadside Inspections” (WRI) will be voluntary for carriers that have demonstrated effective safety and compliance management capabilities, presumably by virtue of the CSA analysis. The WRI will serve to automate safety inspections covering carrier and driver credentials, electronic driver logs, and selected vehicle safety systems status. The goal of WRI is to automate inspections and avoid time lost where non- compliance is a minimal risk, thereby enabling law enforce- ment to better leverage roadside resources toward higher risk carriers, vehicles, and drivers. It will enable participating carriers to minimize time lost with roadside inspections while also getting positive credit in their CSA safety perfor- mance ratings. The expected congressional legislation to renew the Federal Highway Program, including new funding of the Highway

C-3 Trust Fund, could include a mandate for use of EOBRs for HOS compliance and vehicular accident prevention. That mandate could extend to vehicles and driving situations presently exempted from HOS regulations. Carrier Motivation There is substantial industry interest and action in EOBRs for cost and service reasons. In for-hire trucking, the justifi- cation for most installations has been single entry of data for service planning (avoiding clerical time and cost), customer service considerations, and engine diagnostics. In private trucking, the justification for most installations has been a combination of customer service and fuel consumption considerations. Larger fleets have achieved productivity gains that have justified such investments. In doing so, trucking management has had to overcome the risk of alienating drivers who may dislike the idea of a recording device installed in the truck cab. It is not yet clear whether smaller fleets (e.g., less than 10 trucks) can get sufficient payback on what, for them, are substantial capital and operating costs. Somewhat ironically, some drivers now have become so adjusted to having such communication devices with them at all times that sometimes they will not work for a trucking company that does not provide the “right kind” of communication technology and operations support systems. Cost The overall cost of EOBRs depends on initial acquisition and installation costs, servicing and maintenance costs, the costs of acquiring and operating the necessary software and communications links, and the costs of integrating the system with others used by the motor carrier. The unit cost is affected by the state of development and number of sales of the devices and software. At least in theory, the price charged by each of the suppliers involved should be declin- ing as market penetration increases. On a unit basis, this has been occurring, and discounts from list price have been significant, particularly when a large fleet decides to start installing units. Cost estimates vary significantly. A survey published in 2006 by the American Transportation Research Institute (ATRI) reported “purchase costs” (however defined) by interviewees that had installed EOBRs as shown in Table C-1. Causes of the wide variance in costs were not reported, but are likely to include differences in hardware specifications and software applications. In addition, reporting carriers stated that, “on average,” monthly maintenance costs were $21.41 per truck, monthly wireless subscriptions (when applicable) were $33.71 per truck, and annual software updates were $33.86 per truck. The annual total operating costs would be $695.30 per truck/unit. Three-quarters of the respondents indicated that it took less than 3 years to achieve the expected return on the investment. Respondents estimated the life span for the device at approxi- mately 8 years (although, apparently, no units had yet been installed for that long). Benefits and Impacts of Installation The ATRI report stated that 93% of respondents indicated some benefits to tracking HOS via EOBRs compared to other methods. Benefits reported include regulatory compliance (46% of respondents), safety (34%), and productivity (20%). Other positive impacts were also included. Seventy-six per- cent reported improved driver morale, 62% reported that driver retention was not impacted, and 78% said that use of EOBRs improved company productivity. Of the motor carriers responding that were not using EOBRs (81% of respondents), the primary reasons for not using EOBRs were as follows: • 24% currently in compliance, • 22% concerned about privacy/ownership/security, • 22% concerned about impacts on driver retention, and • 20% no government mandate. When asked about additional features that might be of interest should the use of EOBRs for HOS record-keeping be required, 63% selected management of International Fuel Tax Agreement (IFTA) regulations, the most of any response category. As compared to other carriers, owner-operators were less likely to want features of vehicle operating cost, business management, or real-time communications. Private fleets were more likely to want IFTA compliance functions. Truckload Table C-1. Reported cost of truck EOBRs. Source: ATRI.

C-4 carriers were more likely to want real-time communications functions. EOBR Market Penetration There is no known public data on market penetration for EOBRs or telematics systems. Private parties that sell the devices may have internal, confidential estimates. No public survey or research on the size of the market is known to exist. Market penetration would increase if HOS regula- tion mandated EOBRs on all vehicles or on all vehicles used in categories other than those exempted in CFR 395.1 (b) through (q). In the mid-2000s, ATRI stated that only 1 or 2% of new trucks and tractors were being built with some sort of EOBR installed at the factory. That is not a good indicator because retrofitting tractors (even brand new tractors) is the dominant method of installation now and for the foreseeable future. Historic rates of penetration would be meaningless if the federal government issued a mandate to use EOBRs in some applications. This may occur sometime after 2010 for carriers with deficient compliance scores in CSA, hazmat carriers, new carriers, and carriers that fail a FMCSA audit. However, that is not likely to be more than 100,000 trucks in total. Common wisdom in the industry is to wait to see what federal agencies mandate and not to do anything immediately. The economy has been so bad that truckers are not investing in accessorial equipment and new software. Cycle and Lead Times The lead time for installation of devices, software, commu- nications capability, training of personnel, and acceptance by all involved is substantial in either the simple or the complex case. This lead time would be controlled by the rate of attrition of older power units whether by wear and tear, technological obsolescence, or government-mandated obsolescence. Like all capital equipment, trucks and tractors have a life cycle controlled by the owner and the service in which the equipment is operated. Life cycle is measured in miles or hours of operation (useful life), not in months since manufacture. Trucks can and do last 20–30 years, although the majority are retired in 15–20 years. Class 7 and 8 tractors tend to be cascaded down through applications that are progressively less stressful, with less justification for after-market installation of EOBRs. Some tractors cascade into local or seasonal use in one-driver “fleets.” Other reasons for not installing EOBRs include unwillingness by a new owner to make the invest- ment and use in an HOS-exempt service. EOBRs would have to penetrate the applicable truck population for other reasons, usually service performance and cost reduction, which are internal to the trucking company and/or owner-operator. Such justification would not be the same for a smaller fleet, particularly a one-truck operator, as it is for a larger fleet. However, if either technological or government-mandated obsolescence were to occur, the governing conditions would likely be the maximum output of the equipment manufactur- ing sector and the ability of truck owners and operators to cope with the new requirements.