Economics 101 students learn about the term “perfect competition”, which means a market in which buyers and sellers have complete transparency about a product or service and comparing prices of those products or services is easy because they are the same as each other.
Trucking can certainly be described as close to one. No company can make subjective pricing decisions without considering the current market price and all are subject to the directional winds of overall market conditions. This is not to suggest that certain carriers don’t get slightly higher premiums than the market for better service, drop trailers, or technology, but the pricing delta on a high-volume, consistent contract lane is pretty narrow between carriers.
In times of high demand, carriers hold the edge in the pricing negotiation. In times of low demand, shippers hold the edge. The pendulum swings with market cycles. Right now, pricing power is most certainly in the hands of the carriers. They have all the power. Shippers are willing to take large contract rate increases, knowing that if they don’t risk paying high spot premiums, or worse, deal with freight being left on their docks.
In times like this, we would expect fleets to be expanding their truck counts and buying new trucks, but something is off. Used truck pricing is near historic lows. The secondary market is not showing higher demand. Large fleets are actually downsizing truck counts.
Why? Because of a lack of drivers.
Fleets simply can’t keep their trucks seated. Bob Costello, chief economist for the American Trucking Associations (ATA), said the driver shortage is expected to reach 50,000 drivers this year and could balloon to 174,000 by 2026 if more drivers are not brought into the industry.
Derek Leathers, CEO of Werner Enterprises, says the issue isn’t a lack of candidates, it’s a lack of qualified candidates. With drug testing eliminating some candidates, the CSA safety program and insurance companies demanding drivers with clean records, and more tools to effectively screen candidates, many simply can’t pass the first stages to be considered.
“It’s a quality driver shortage,” Leathers said, speaking at the ATA’s Management Conference & Exhibition in Orlando last week. “It’s the ability to find drivers who meet all the criteria. Part of that is more transparency into past transgressions.”
Werner has received over 100,000 driver applicants this year, but has a hiring rate of just 2.7% because many are not qualified, he said.
With fewer drivers, that means more trucks parked. And a truck parked against a fence doesn’t generate revenue, yet the fleet is still paying for tires, insurance, and the bank note.
The root cause is simple - a tight labor market with unemployment hovering around 4.4% and growth in other job sectors, such as construction, pulling away potential driving candidates.
Drivers are important, but often the work is hard and thankless. These hard-working souls are the backbone of our national economy, but few people outside of our industry recognize it. Most are ignorant to how the industry works and because it so optimized, they don’t have to worry about it. It’s like electricity, you never appreciate the power company until your power is out.
When other sectors of our economy are booming and the labor market is tight, people choose other lines of work. This year has seen some extreme impacts that make it even worse. A crackdown on immigration, three major hurricanes, and a booming construction market all have taken place at a time when our economy is firing on all cylinders.
Construction jobs often pull truck driver candidates, offering similar skill sets and the opportunity for generally higher pay and local jobs that allow the employee to be home at night. There are currently about 247,000 construction job openings, according to the Bureau of Labor Statistics. The industry hired 387,000 people in August.
One thing that is also exacerbating the shortage is that many drivers are retiring and there is not enough young drivers entering the industry to replace them.
According to Rebecca Brewster, president of the American Transportation Research Institute (ATRI), 55% of the current driver workforce is over the age of 45 and only 4% is between the ages of 20 and 24. “We are not bringing in the people to the industry we need to fill those retirements,” she said. Just 28% of the schools in America have any programs that highlight the trucking industry as a potential career, she added.
Many larger carriers have their own training schools, but even those are not getting younger drivers. Clarence “C.L.” Werner, speaking on a panel at the American Trucking Associations’ Management Conference & Exhibition, said the average age of someone in his fleet’s training school is 30. “They’ve already had a couple of careers by then,” he said.
The fact that the minimum driving age for an interstate truck driver is 21 means that many qualified workers that would find driving a truck as an attractive option end up finding careers in alternative industries.
There is a push to create an apprenticeship program that could funnel younger people into trucking and some, such as John Smith, chairman of CRST International, believe immigrants could provide a partial solution.
The common assumption is that the issue is not a shortage, but rather a pay issue. This is partially true. If the industry raised wages, driving would be more attractive and would mean more folks will enter the industry. But pay increases are long-term decisions that a fleet is stuck with indefinitely.
Once a fleet increases the pay across the driver pool, they will never be able to lower it, so they take these pay increases with great caution. They often only increase driver pay if they can get pay increases from customers in the contract market.
Yes, they wait to see if customers will bear the increases before deciding how much budget they can afford to increase driver pay. The spot market might be on fire right now, but tried-and-true truckers know that nothing is for certain and the spot market is where they make margin, not what pays the truck payment.
If contract rates increase by 5-10%, you can expect driver pay to increase at least that much, but even this might not be enough to starve off the driver shortage. After all, with employers in construction, agriculture, oil fields, and other markets experiencing shortages of similar demographics, those industries will also be increasing pay to attract labor.
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