Standard practice: deep roots of the NOS

By: Rob McKay


Getting up their NOS 2: a look at how National Operating Standard idea and its predecessors have risen and fallen over decades, through the prism of four documents

Standard practice: deep roots of the NOS
The NHVR would likely control the NOS if it was agreed to

 

May saw the still rather new Infrastructure and Transport Ministers’ Meeting (ITMM) consider Heavy Vehicle National Law (HVNL) reform proposals.

This was a crucial time for the trucking industry and the transport & logistics (T&L) sector as a whole, as what is defined now could remain unchanged for a decade or two.

Amongst the ideas put forward for consideration is the Australian Logistics Council’s (ALC’s) National Operating Standard (NOS) idea, which, it says, is different in conception to the ‘operator licensing’ proposal it has championed for much of its existence.

In its March edition, ATN looked at NOS, as the ALC explains it, while noting the challenges it faces getting any sort of trucking industry backing for it.

Since then, it has appeared before the Senate’s April Rural and Regional Affairs Committee meeting in Canberra seeking its backing for the planks of the NOS – creating a list of operators, making safety management systems mandatory, ensuring an operator has the capital to maintain a heavy vehicle, mandatory collection of data – to be incorporated in the reformed HVNL.

What may be less obvious to many is that NOS and its predecessors, sometimes under slightly different names have been part of T&L policy discourse for more than four decades.

Indeed, industry observers note with a sort of resigned dismay that any archive of trucking news will show debates on a range of issues of yesteryear are endlessly recycled with little progress to show for the effort.

A quick look at documents from the neglected history of freight transport policy formulation seems to bear this out.

And while the detail may differ, the urge for regulatory intrusion into the market is constant amongst licensing proponents.

1984

If you were born in 1964, you would have been 20 years old when the federal government released its National Road Freight Industry Inquiry report.

Written by just three people, inquiry chairman Thomas May and members Professor Gordon Mills and Jim Scully, for newly minted federal transport minister Peter Morris, it was a broad and intermodal look at the industry and its task.

And it did support operator licensing, of a particular sort and with a wealth of detail, but rejected other related proposals.

Contact signed22.jpg

Licensing proposals have a long history

 

Among other things that still resonate today, the report examined two approaches to linehaul trucking.

The first was termed ‘capacity licensing’.

The second was that there should be legislation to control rates, especially for subcontractors.

It should come as little surprise that, even back then, the latter was a goal of the Transport Workers’ Union (TWU) and that the outcome should be "sufficient to cover cost of running a vehicle and a wage component".   

But it may or may not raise the eyebrows of some that the TWU was also in favour of the former.

"Those who propose entry restrictions aim to increase the financial return to people working in the industry," the report states with admirable brevity.

"The method is to control the amount of trucking capacity.

"The mechanism requires licensing of truck operators, with limitation on the number of licences issued."

It is possible to discern some frustration from the report’s authors that proponents provided little clues to practicalities, such as to how any such system should be designed.

For instance, "Transfer of licences was rarely discussed in the submissions, and the system for allocating additional licences (if any) was also neglected."  

As with later analysis, the inquiry looked at how licensing schemes performed in other countries.

It notes a US scheme which restricted holders to a particular cargo on a single route was later dismantled.

The evidence from Canada "suggests that regulation often leads to operating inefficiencies".

The Canadians found ‘empty miles’ difficult to reduce’ and costs tending to rise.

Though precient in some ways, the report was also a document of its time.

But while the ALC is not advocating anything like, say, route restrictions, a reduction in company numbers seems unavoidable under NOS, with resultant impacts on specific sectors due to the dislocation.

The 1984 report pointed to unintended consequences for brick and concreate sectors due to abrupt changes affecting related haulage structures and cheaper outside solutions sought causing dislocation for those who invested under the status quo previously prevailing.


Read the first part of our feature on the NOS, here


In the end, report supported neither option.

"The analysis undertaken by the Inquiry reveals that any effective scheme for rate regulation and/or capacity licensing in linehaul work would need   to be very complex, and is likely to be particularly difficult and costly to enforce," it finds.  

"The Inquiry believes that the introduction of such schemes:  

  • would lead to an overall decline in the economic efficiency of the industry, and hence to an increase in charges to the customers  
  • may lead to some improvement in road safety, but the amount  of such improvement is likely to be small.  

"In the Inquiry's judgement, the introduction of capacity licensing:  

  • would not bring immediate financial benefit to existing subcontractors, but should bring some benefit after a few years
  • would not bring financial benefit to  subcontractors  entering the  industry in  future, and is likely to make their position more  difficult.  

"Regulation by law of owner-driver rates:  

  • would be particularly difficult to enforce  
  • would be especially damaging to the economic performance of the industry  
  • may yield some financial   benefit   to   existing   owner  drivers, and rather greater benefits in terms of reduced hours of work etc  
  • is likely to bring major benefits to employed drivers (and possibly, the railways) rather than to the existing owner-drivers.  

"After weighing the arguments, the Inquiry concludes that there is no case on economic grounds for the introduction of rate regulation or capacity licensing."

It also believes that, "for line-haul owner-drivers, the improved working conditions which are desirable on social grounds can be more effectively secured by other means . . ."

So far, so plain – at least, for those two concepts. But the wisdom of the ages does give support to the premise that NOS and operator licensing had earlier been based on.

That is the lack of training, understanding and acumen at the smaller end of the market is a safety issue that would be addressed by an operator management-training program.

Though this would be non-compulsory, it would be open to all.

But it goes further, and in ways that look progressive even now.

For, if there is to be one for owner-drivers and fleet operators, it has to extend to freight-forwarders agents and brokers "to ensure that all the major participants in the road freight industry are brought within the ambit of the safety regulations".

Even back then, the ability of customers to over-demand to the detriment of safety, particularly on speed and over-loading, was a serious concern.

The solution was about accountability, in this case to an operator licensing authority.

2003

Fast-forward two decades and, while The Road Transport Reform (Compliance and Enforcement) Bill Regulatory Impact Statement (RIS) has not a cast of thousands, there are 30 names representing 17 organisation or government departments, plus five consultants and three project people.

Put together by Jaguar Consulting, it noted that while the 1984 report backing operator licensing was enacted, it was never enacted. It also noted that the report of an inquiry into safety in the industry conducted for the NSW Motor Accidents Authority also recommended the implementation of a licensing scheme.

For operator licensing proponents, the RIS starts promisingly enough, recognising other countries and industries have something similar – with the US, the UK and Finland displaying lower fatality rates – and that European Union countries demand licence applicants must demonstrate they:

  • are of good repute
  • have appropriate financial standing
  • are professionally competent or employ persons who are professionally competent
  • have suitable vehicle operating centres and maintenance facilities or arrangements
  • have environmentally acceptable vehicle operating centres and vehicle maintenance facilities or arrangements.

The ALC has backed away from some of these but, in language similar to that which it uses for the NOS, the RIS notes that "it can be argued that the presence of a licensing scheme would constitute an effective substitute for some of the complex array of sanctions contained in the proposed Bill.

"That is, if the option of suspension or cancellation of a licence were available, there may not be a need for other penalties such as commercial benefits penalties.

"Thus, licensing could be seen as a means of simplifying the regulatory system."

Yet the overseas experience shows devils in its details.

In the US, a 1999 audit of the Office of Motor Carrier Safety program by the Inspector General raised considerable doubt about the effectiveness of the program and its enforcement and major reforms were subsequently advised.

Certainly that and research from 1992 found safety outcomes were small and gaps in coverage, data, audit and enforcement were wide.

In the UK, seen then as a stricter jurisdiction, a survey found 25 per cent of vehicles surveyed had faults that would warrant prohibition of the vehicles’ use if repairs were not carried out and 12 per cent of trucks checked had faults that were sufficiently serious to justify immediate removal from the road.

"In sum, the experience of jurisdictions that have long experience of licensing schemes appears to cast doubt on their efficacy in practice," the RIS stated.

There were devils seen here, too, such as, conflict with competition rules.

"The fundamental concern with the use of business licensing is that of its anti-competitive potential. In the Australian context, any licensing scheme would necessarily need to be subjected to the public benefit test as per the National Competition Policy Agreements," it continues.

"The anti-competitive impact of a licensing scheme derives from its tendency to limit entry to a market."

It points to issues of regulatory capture of licensing authorities, resulting in fewer sanctions for those regulated, and holds up the situation at the time with taxi regulation, which saw taxi numbers declining to the detriment of the public.

NSW police Austrans.jpg

Skill-set concerns were raised

 

The RIS authors observe objections that licensing schemes’ tendency whereby "the qualifications required are often either of limited relevance to the regulatory objective, or are by nature susceptible only to subjective analysis and so tend, in practice, to lead to arbitrary and ineffective decision-making by regulators, with limited benefits".

Regarding the skill-sets concern, it was, again, the regulatory flaw was identified as a weakness.

"Such requirements have the obvious difficulty that they can lead to a regulatory official being in a position of having to assess the business skills of a professional business person," the RIS said.

"Moreover, they necessarily constitute a very indirect approach to the problem of improving safety performance, being based on the limited and not entirely established correlation between business skills, subsequent financial status of the business and the tendency to adopt or encourage unsafe practices."

And it warns of the risk of ‘grandfathering’, where exemptions protect existing industry players to the detriment of new ones.

On financial-stability requirements, the RIS authors identified the setting of a financial threshold as impractical, citing the disconnect in the UK in 2000 between the government requirement of 3,600 pounds and a parliamentary committee review that put it at more like 20,000 pounds .

On the proposal that a business plan and proof of OHS knowledge, the RIS went back to the regulatory hitch: of  "the need for a businessman’s proposed modus operandi to be scrutinised and approved by a regulatory official, whose claim on superior expertise in the subject area is likely to be slender.

"The latter provision, of requiring demonstrated knowledge of OHS issues, might be regarded as being little more than a codification of the general duties of employers under occupational health and safety legislation in most jurisdictions.

"However, it would appear to have the potential to be used in a highly restrictive manner, given the complexity of such legislation."

The RIS allowed that there may be value, theoretically, in licensing schemes and left open the possibility of its use in the future.

But, as the new millennium began, more traditional approaches were seen as desirable and likely to provide the similar outcomes.

2020

Given federal government positions on trucking regulation seem to come every two decades.

The latest examinations on the issue come courtesy of last June’s National Transport Commission (NTC) Consultation Regulation Impact Statement, also called an RIS, written by Frontier Economics, and the Deloitte Access Economics’ assessment of the aspect of it relating to operator licensing, on behalf of the Australian Trucking Association (ATA) and the National Road Transport Association (NatRoad).

It is the only examination focused on what this layer may cost the industry and, to a lesser extent, the federal government.

whsq-inspectors.jpg

Government reports wonder if operator licensing outcomes would be any different to those existing under OHS 

 

As a consultation document, the NTC’s effort admitted to a lack of clarity on the NHVR’s powers, its ability to further identify high-risk operators and how effective early regulatory intervention might be.

"The effectiveness of such intervention is particularly unclear when there is uncertainty about what risk management actions are appropriate to effectively manage risk in a particular operational context," it says.

"A key difference between the sub-options is that, unlike enrolment, licensing would enable the regulator to cancel or withdraw an operator’s licence.

"It is unclear whether the ability to cancel an operator’s licence would be more effective in driving compliance compared to relying on penalties currently enabled through the HVNL."

It offered four options which Deloitte costed in its ‘HVNL reform assurance and accreditation models’ report, which is unreleased but which ATN has seen.

Those were:

  • 7.1(a) voluntary enrolment of operators
  • 7.1(b) mandatory enrolment
  • 7.1(c) operator licensing of all operators
  • 7.1(d) operator licensing of operators that the RIS assumes to be high risk.

Crucially, Deloitte examined costs both for the hire and reward (H&R) and the ancillary sector – the issue of ignoring the latter’s fleets is raised elsewhere in this edition by T&L expert Professor Kim Hassall.

Nationally, the voluntary option between 2021 and 2050 was estimated at $16.7 million a year for operators, $7 million for National Heavy Vehicle Regulator (NHVR) and $23.7 in total, while the mandatory option came in at $6.4614 billion and $38.9 million, totalling $6.5003 billion.

For HVNL states, it was $16.7 million, $7 million, $23.7 million and $5.7630 billion, $35.5 million, $5.7985 billion.

Restricted Access Vehicles (RAVs) would bear the brunt of costs at $3.2005 billion, $19.5 million $3.2200 billion

"The compulsory options under 7.1(c)-(d) involve significantly higher compliance costs due to the need for auditing and inspections," Deloitte said.

"It has been assumed that operators are responsible for paying these additional auditing costs directly and so this creates significant costs for the industry.

"The costs for the regulator are also higher due to the increased need for administrative management.

"An important finding of this analysis is that, although the options give the appearance of covering significantly different parts of the industry (All vehicles, >8t vehicles and Restricted Access Vehicles (RAVs), it is likely that most operators will, at some point, operate a vehicle >8t or a RAV and so there is little distinction between these proposed classifications."

The voluntary/mandatory division between the three sizes of fleet were put at:

  • Small – $556 million/$39.538 billion
  • Medium – $1.112 billion/$10.170 billion
  • Large – $2.224 billion/$656.512 billion.

But Deloitte saw more costs to be added.

"The impact on registration here is just for the proposed regulatory changes specifically analysed," the report stated.

"These are just one component of the regulatory changes proposed in the consultation RIS.

"In practice, the changes discussed in this report would be accompanied by other changes that would also likely increase registration charges."

The ALC insists the relevant NOS technology costs would be in the range of as little as $2,500, including $360 initially and $30 monthly  per truck, while the ATA CEO Andrew McKellar states the true figure is more like $12,000.

Deloitte, writing four months before the ALC costing emerged, could not be in this particular debate but did note that the RIS saw a Safety Management System (SMS) –  an item central to the NOS – as part of an ‘enhanced’  National Heavy Vehicle Accreditation System (NHVAS) , as a required under its licensing options.

"Advice from the Deloitte Risk Advisory team, who manage implementation of SMSs for many clients, indicated that the cost of an SMS is typically between $10,000 and $15,000," it said.

"These figures were tested and verified against other publicly available information. In particular, Frontier Economics estimated the one-off compliance cost related to ‘developing and implementing compliant vehicle maintenance processes and procedures’ to be $25,000, noting that this would vary based on operator size and other factors."

Under those estimates the cost of a new SMS for small, medium and large operators was put $10,000, $15,000 and $25,000 respectively, with audit costs at $2,500, $5,000 and $6,000.

The no-end game

This examination is by no means academic or comprehensive.

Rather it aims to open a window on what has been and continues to be part of a debate that mostly failed to gain political and therefore regulatory traction.

The only time such an initiative was made a reality, it resulted in the Road Safety Remuneration Tribunal (RSRT), spurned by those it was hoped it would help and the memory of which eventually became mourned only by the TWU.

No wonder a sense of futility emerges in many minds when thoughts turn to industry reform, when even the effort in the 1980s was enacted but not implemented.

There was not space here to reveal all the Deloitte findings and costings and the ALC failed to supply even a modicum of such analysis beyond a couple of figures.

Despite the Deloitte report being commercial in confidence, it seems a pity ATA and NatRoad were unable to find some way to make it public to further the debate.

Still, on past performance and despite ministers letting the NOS idea slide this time, there should be an opportunity to do so in another two decade’s time.

 

You can also follow our updates by joining our LinkedIn group or liking us on Facebook

 

Trucks For Hire | Forklifts For Hire | Cranes For Hire | Generators For Hire | Transportable Buildings For Hire