Onboard computers may encourage fleets to hire employee-drivers

As DOT prepares to change hours-of-service rules, "black boxes" such as onboard computers are sure to be part of the mix. That prospect makes a new study of other effects of onboard computers quite relevant.

Business school professors George Baker of Harvard and Thomas Hubbard of the University of Chicago looked at the effect of trip recorders, as well as satellite communications and monitoring equipment, on fleets' use of owner-operators vs. company drivers. "Contractibility and Asset Ownership: On-board Computers and Governance in U.S. Trucking" was recently published by the National Bureau of Economic Research (www.nber.org/ papers/w7634).

The connection between onboard computers and choice of independent contractors or employees may not be obvious. But trip recorders make it easier for fleets to find out whether drivers are driving safely, using fuel frugally, and taking care of the engine. This information enables companies to deliver freight more cheaply, even when they share some of the savings with drivers through bonuses for safe or fuel-efficient driving.

Although owner-operators could also install monitoring equipment, they already know how they're driving. The added information they gain from the equipment is less valuable to them or the company they contract with. Thus, onboard computers may tilt the preference of trucking management toward employee drivers.

Data from the Census Bureau's 1987 and 1992 Truck Inventory and Use Surveys shows that the percentage of owner-operated trucks fell from 14% to 11%. At the same time, company-owned trucks installed monitoring systems, especially on longhaul trucks, at a much greater rate than owner-operators did. Why?

The authors estimate that "trip recorders' incentive effect improved fuel economy by at least 0.16 miles per gallon ... a $620 savings per year" based on a truck that travels 100,000 miles per year and pays $1 per gallon for fuel. With mileage and fuel costs each about 50% higher today, the savings are now more like $1,400. Additional savings can be gained if mechanics learn more about vehicles' operating performance so they can better plan maintenance. Those figures are enough to get many fleets to switch from owner-operators to company drivers.

What are the lessons for tomorrow's rulemaking? Regulations that hold fleets accountable for drivers' behavior - observing speed limits, hours of service, or drug use - make them more interested in equipment that gives them reliable information about that behavior. This information can make it possible to structure incentives appropriately, making fleets more likely to turn to employee drivers.

But that doesn't necessarily mark the end of the road for owner-operators. Some forms of technology may work in their favor. For instance, the Internet dramatically lowers the cost of matching buyers and sellers. That capability can make it easier for owner-operators to find a new load to haul.

The bottom line: Every type of technology contains a "black box" of unexpected consequences. Even when a technology is available equally to company drivers and to independent contractors, they are likely to differ in their adoption of it. And even if government mandates that all drivers or vehicles adopt a certain technology, fleets are likely to alter the type of driver they use because the technology changes the value of employees relative to owner-operators. Therefore, fleets should always be open to changing their contractual or employment relationships as either technological or regulatory conditions warrant.