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2018 is the year of the trucking capacity crunch

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Freight trucks are the lifeblood of America’s consumer economy—they represent 70.9 percent of the nation’s freight by tonnage shipped and 81.5 percent of the nation’s freight by cost spent, according to data from the American Trucking Association (ATA). Wages continue to rise for America’s truckers as the trucking industry contends with driver shortages coupled with an increased demand for shipping services.

A recent study by the ATA of more than 100,000 employees and contractors showed the median salary of a U.S. truckload driver increased about 15 percent to $53,000 from 2013 to 2017. Pay for a private fleet trucker jumped almost 18 percent to more than $86,000. That outpaces the 10 percent average hourly earnings for all private workers in the U.S. during the same period, according to the Bureau of Labor Statistics.

However, not even a surge in driver pay will solve trucking’s capacity problem. The trucking industry is already facing a historic shortage of drivers and sky-high labor turnover rates, and the April 1 “hard enforcement” of the ELD mandate threatens to squeeze trucking capacity more. As of March 26, nearly 10 percent of drivers still hadn’t installed the logging devices, potentially putting thousands of vehicles out of service depending on how serious the enforcement becomes. Many suggest it’s higher than 10 percent. Regardless, even 10 percent could squeeze an already tightening situation into something more like flat-out desperation.

These factors are not only creating uncertainty in trucking inventory, they’re wreaking havoc in other areas of the logistics industry too. Many ocean carriers are being forced to sit longer at port waiting for trucks to pick up the cargo, which, according to JOC, has prompted some to impose emergency intermodal fees or stop door delivery in response. Meanwhile, rail is lagging, and so far the data isn’t showing that they are helping the situation.

Shippers are on the hook in a serious way. As FreightWaves previously reported, the FTR Shippers Condition Index slid to -11.1 in January, continuing a declining trend that began in the middle of 2017. FTR defines the index as being constructed using four components: freight demand, freight rates, fleet capacity and fuel price. It said a positive score represents “good optimistic conditions.” A negative score is the opposite. To ensure shippers can access the capacity they need at reasonable rates, they need to improve their technology to drive information accessibility, visibility and efficiency.

This increasing cost of transporting goods has hit the bottom lines of companies across the U.S. The industry’s tight labor market is prompting carriers to offer more competitive benefit packages. Ninety percent of truckload fleets offer paid leave, while four of every five private carriers offer a 401(k) plan and matching contributions, according to the ATA study.

“Fleets are reacting to concerns about the driver shortage by raising pay and working to make the job more attractive,” said Bob Costello, chief economist at ATA. “I expect that trend to continue as demand for trucking services increases as our economy grows.”

Higher trucker pay is hurting some companies that have steep shipping bills. It’s already happening in some cases, as FreightWaves has reported on from General Mills to Walmart to Hershey to Amazon. 

The rising pay rates is due to a perfect storm of increasing e-commerce retail, an uptick in construction and manufacturing, all fueled by a strong economy and rising wages and virtually full national employment. Top it all off with several consecutive massive weather events especially across the northeast, and the supply of trucks and truckers have been drastically squeezed, pushing up rates.

According to trucking industry data tracker DAT Solutions, the national average spot rate for freight trucking was $2.13 per mile in February, a 31 percent gain from $1.62 per mile during the same month a year ago. Fuel prices are also on the rise, up 1.3% over the past week, and 19% year-over-year between Feb. 2017 to Feb. 2018.

As the cost of producing and moving goods increases throughout the supply chain, it’s only a matter of time before companies pass these higher costs on to consumers, thus further driving inflation and potentially leading the Federal Reserve to hike interest rates more aggressively.

Avery Vise, FTR’s vice president of trucking research, said what was unique about the current tight trucking market is how long it has lasted. “The last time we saw this was for about 3-4 months in 2004, and we’re already passed that length,” he told FreightWaves. FTR expects lower freight rates by the end of the year, but Vise said it was only going to “settle down gradually.”

Others expect the trend to remain even longer. “We expect labor shortages to persist in trucking for at least the next two years, as the economy remains strong, and as even in the best-case scenario, truck driver employment tends to lag rising wages,” UBS economist Seth Carpenter wrote in a February note to Business Insider. 

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