Trucker Shortage Continues to Garner Headlines

Stephen DeAngelis

February 28, 2012

Mark Yonge, vice chairman of the Marine Highways Cooperative, told the editorial staff at SupplyChainBrain that “the continuing driver shortage in trucking and ever more congested roadways argue in favor of using marine highways.” [“The Importance of Marine Highways to Cargo Transportation,” 13 October 2011] That may (or may not) be true (for a more thorough discussion, see my post entitled Upgrading America’s Maritime Infrastructure). The point is that a number of analysts continue to insist that a shortage of truck drivers could have a significant negative impact on supply chains in the months and years ahead. For example, Lora Cecere writes, “We have always assumed that supply chains can keep on trucking, but has all this changed? Supply chain applications matured based on the assumption that manufacturing was a constraint and transportation was abundant. Transportation is now anything BUT abundant.” [“Keep on Truckin?” Supply Chain Shaman, 28 April 2011] She continues:

“What has changed? Why is it so important now? The answer is three fold: equipment, labor and regulation. Equipment shortages abound, and driver shortages are now acute. With the rise of gasoline, these shortages are coupled with escalating pricing. It is unprecedented. Historically, transportation availability was a given; and as a result, the focus was on getting the best price. Traditional supply chain processes focused on manufacturing constraints and minimization of these impacts. As a result, this new wave of transportation issues are catching some supply chain leaders by surprise, and our historic supply chain policies are not aligning the functional teams to solve the problem. Instead, they are often putting supply chain functions at odds.”

When anyone, especially someone as knowledgeable as Cecere, calls a problem “acute,” you know it’s time to pay attention. She insists, “Now is the time to act.” She goes on to point out that a number of factors are creating a perfect storm for supply chains. “Available trucks for over-the-road shipments in the United States have never been tighter,” she writes, “however, companies still want to negotiate price using strong-arm tactics. The price of oil is at a record high, road congestion has never been higher, but customer dock requirements have never been stricter.” However, the one factor that is on everybody’s mind is the shortage of truck drivers. Cecere explains:

“Based on the Council of Supply Chain Management Professionals (CSCMP), there is an expected shortage of drivers of 400,000 by the end of 2011. This will be acerbated by retirement. In the United States, 1 in 6 drivers are nearing retirement age of 55 in 2011. Yet, there are few young drivers. The number of drivers under the age of 35 is less than 25%. There is also a shortage of equipment. Over 2000 trucking companies went out of business in the Great Recession of 2009, and available over the road truck capacity is expected to fall another 40% between 2009 and the end of 2011. Increasing regulation and government intervention will make this a stewpot that will boil over.”

Cecere has some recommendations for how companies can deal with the trucking challenge, but I’ll discuss those in a future post. In this post, I want to concentrate on what commentators are saying about the driver and truck shortage. An article in American Shipper asserts, “The commercial truck scarcity predicted for the past two years is starting to become reality, forcing shippers to rethink how to keep their supply networks functioning smoothly.” [“Where did all the trucks go?, 24 October 2011] The article continues:

“U.S. truck capacity is so tight that analysts and trucking executives are warning of serious shortages at the slightest sign of improvement in the economy. ‘Sometime in 2012 there is a reasonable probability of sporadic supply chain failures based on capacity,’ freight industry economist Noël Perry … said at the Council of Supply Chain Management Professionals’ annual conference in Philadelphia. Transportation constraints, once isolated to certain long-distance truckload routes, are now widespread as demand increases for trucks to move goods to and from ports, distribution centers, farms and factories, according to industry experts.”

Like the analysts cited above, the folks at American Shipper insist “the capacity crunch is a function of two variables — not enough equipment and drivers.” Concerning equipment shortages, they write:

“During the economic downturn, which started in 2007 for the trucking industry, motor carriers significantly reduced their fleets by selling used tractors at home or overseas and deferring purchases of replacement equipment. Thousands of trucking companies, most of them small outfits, went out of business. And investment in new vehicles remains difficult for many companies because of the high initial cost for trucks that carry clean emissions technology, higher maintenance costs and tight credit from banks. The truckload industry lost about 20 percent of its capacity since late 2006, but shippers didn’t feel the impact because freight tonnage plunged about 30 percent. Supply and demand are almost in equilibrium now as the economy has rebounded from its depths in 2008. Tonnage is almost at the same level as in late 2006. That means motor carriers are busy keeping up with orders. The shortage is most acute in the flatbed sector because it was the first to feel the impact of the freight recession that began five years ago and pulled back on equipment buys, experts say.”

Turning to the shortage of drivers, the article covers much of the same information provided by Cecere above.

“More than 13 percent of the driver workforce left the industry during the past four years and there are fewer young people entering the market to replace an aging driver pool. The trucking industry was short about 190,000 drivers during the middle of last decade, when the economy was strong. That figure is about 125,000 today because the recession and slow growth have temporarily suppressed the need for trucks, according to Perry. Logistics professionals warn that pending federal safety regulations for trucking will exacerbate the capacity shortfall and raise motor carrier costs. The Federal Motor Carrier Safety Administration’s new Compliance, Safety and Accountability initiative has increased the level of motor carrier scrutiny by scoring and ranking companies based on more timely and accurate data from roadside inspections, state-reported crashes and periodic safety audits. The new system for the first time creates a mechanism to track violations of individual drivers, which will now be factored into a carrier’s overall safety score. Carriers are becoming more particular about the drivers they choose because driving records will stay on their ledger even if an employee leaves the company and because shippers are selecting safe transportation providers to minimize any potential liability from an accident.”

For more information about the Comprehensive Safety Analysis (CSA) 2010 program, read my post entitled Truck Transportation Safety and the Supply Chain. Another regulation change that could exacerbate the driver shortage involves hours-of-service. The article explains:

“There is also trepidation about new hours-of-service rules that would reduce the driver’s workday by an hour to 13 hours and set limits on the use of the 34-hour rest period that restarts the weekly duty clock. The agency is also considering reducing the daily duty period behind the wheel from 11 hours to 10 hours.”

The article was written before the new hours-of-service rules were actually announced. To learn more about what regulation changes were made, read my post entitled Trucking Outlook for 2012. According to the article, providing drivers with better working conditions and more pay may be the only way to attract new drivers into the industry. It states:

“Industry observers and executives say that raising driver pay and getting truckers home more often are the only solutions to the driver shortage, but Perry said carriers won’t do that until freight rates go up at least 10 to 15 percent. Scheduling long-haul drivers to be home every week instead of every other week adds $30,000 to $40,000 in annual cost per driver, he said.”

How much will drivers’ pay have to increase? “According to [the latest quarterly report from Transport Capital Partners, based on a survey of CEOs and other executives at truckload carriers], 65% of the trucking executives surveyed said that wages must rise to more than $60,000 annually to attract and retain drivers. That’s versus averages wages of about $48,000 in 2011, according to US Bureau of Labor statistics.” [“Carrier CEOs Says Driver Pay Must Rise to over $60,000 – but will Shippers Come Along?Supply Chain Digest, 25 January 2012] The article states:

“There is a growing sense of urgency about a current shortage of over-the-road truck drivers, with deep concern that the problem is likely to get much worse over the next few years, causing a capacity crisis in the industry not for shortage of tractors or trailers but the drivers needed to move them. … Analysts at FTR Associates, a transportation related research firm, have estimated the driver shortage in 2012 will be about 180,000, with several pundits, such as transportation economist Noel Perry, saying that could rise to as high as 350,000 over the next few years. That would be similar to levels seen in the 2005 era, when the driver shortage played a strong role in the extreme capacity crunch that drove rates much higher and caused much shipper angst for nearly two years.”

The article concludes by estimating what kind of impact rising driver wages will have on freight rates. It reports:

“If we … said a 30% increase in wage rates are needed in the industry, how would that filter down into increases in the rates shippers pay? A recent study by the American Transportation Research Institute found that driver wages and benefits comprise 36.5% of a carrier’s total cost per mile. If those costs were to rise by 30%, it would mean the total cost per mile would increase by about 11% (.365 x .30). (Note: we are also allowing the benefits costs to rise by 30% as well given health care cost escalation, etc.) Shippers could then expect freight rates to also rise by about 11% based on the increased driver wages alone, before any other cost factors.”

With economy still being relatively flat, an 11 percent increase in shipping rates is a very inflationary number. It is doubtful that shippers can absorb that kind of rate without having to pass some or most of it along to consumers. No wonder the shortage of drivers continues to garner headlines.