Calling it his "warning shot to the industry," the chief economist of the American Trucking Associations foresees a grim future for the supply of truckload drivers in the U.S. over the next eight years.
Bob Costello, who also is a senior vice president of the ATA, reviewed recent turnover numbers, projections of demand and the potential universe of future truck drivers in a webinar sponsored by the transportation analysis group of Stifel, one of the most respected in the industry. "If things do not change, we could get to 175,000 short by 2026," he said.
But a number of 175,000 does not mean anything without context. Costello showed a slide that attempted to move down the scale of available supply.
- The CDL universe is 10 million CDL holders. But as Costello noted, that includes his grandfather, who still has his CDL license and hasn't driven a truck in 20 years. That's indicative of the 10 million number not meaning all that much. It also includes jobs like limousine drivers.
- Using Department of Labor data, Costello estimates that within that 10 million there are 3.5 million drivers who would be considered truck drivers.
- Of those, about 1.7 million would be considered heavy and tractor-trailer drivers. But that includes drivers like cement truck or dump truck drivers, and they aren't part of the driver shortage.
- The Department of Labor lists 864,000 drivers as "for-hire trucking heavy and tractor trailer drivers." But Costello said that does not consist solely of over-the-road drivers, where the problem lies.
- Costello estimated that number is 500,000. Referring to his estimate of a 50,000 shortage of over the road drivers in 2017, "if I said we were short that on a base of 3.5 million truck drivers, you'd say what's the big deal? But when I say we're short 50,000 on a base of half a million, that's a big deal."
Costello got to his 175,000 number by taking current shortages, projected demand, and the fact that the industry is going to need to mint 900,000 drivers over the next 10 years just to replace drivers leaving the industry, mostly through retirements.
With a shortage of 175,000 drivers, "the industry is in for a lot of hurt," Costello said. Given the key role of trucking to commerce, "so is the economy."
Costello's data showed that turnover rates in the industry last year were about 87%, but in the less than truckload sector, it was 9%. Why? Because, as Costello noted, the LTL drivers generally get home at night.
The turnover rate in the first two months of 2017 was in excess of 90%, he said, and had actually fallen to less than 90% in the fourth quarter, which by all accounts was a stronger quarter for the trucking market. But Costello said that could be explained by the impact of higher pay and other retention steps kicking in and keeping more drivers with their existing employer.
The highs and the lows of that number, according to Costello, were about 50% in 2009 and 2010, after the great recession was in full swing. (Drivers were actually in surplus then, he said). And the all-time high turnover rate for turnover? It was in 2005, at a whopping 136%, which Costello said is not likely to happen again, because companies are smarter now about retention.
The driver shortage is occurring as truck productivity is beginning to slide, Costello said, though they are not necessarily unrelated. "It used to be commonplace for a truck to get 125,000 to 130,000 miles per year," he said. "Now they struggle to get 100,000 miles."
He did not take the bait on a question about ELDs creating this problem. Rather, Costello said. data from ELDs can actually help a fleet become more efficient because it has a greater data trove to work with to improve operations. The small fleets that he said were probably the ones holding out in installing ELDs until the last minute--which was April 1--will not benefit from their own in-house data for awhile.
Time = money
One of the best ways to improve efficiency, Costello said, is more efficient use of time. "Drivers are only driving today a fraction of what they could be doing," he said, blaming such things as delays at shipper facilities.
But ELDs have created the problem where truckers will shut down for the day early if they see available parking. It all goes together: "If we just spent less time waiting at shipper facilities, but also not be concerned about finding parking, you could get driver productivity up without doing a whole heck of a lot," Costello said.
Costello reviewed widely-known data points in his bullish forecast for the trucking market, including unemployment and housing stats. But he also pointed to the inventory to sales ratio as signaling that current market strength might continue.
Several times during the presentation, Costello spoke about the strong market of 2014 turning into the weak ones of 2015 and 2016. The inventory to sales ratio during those years climbed above 1.4, but it has since dropped back to less than 1.35. Still, it's higher than what Costello showed on the chart for 2014.
"Inventories are no longer a drag on truck freight volumes," he said.
But even though inventories haven't returned to the levels of four years ago, Costello said the nature of the market has changed and that comparisons with the past are not always indicative of the strength of a market. The rise of e-commerce means that "when we demand to have it in just a couple of days, if I order something here (in Washington, Costello's home area), it's sitting outside of DC, it's not coming from California." To enable that, greater inventory is needed, Costello said. "We will cycle through it faster, but we will have more of it."
Costello saw the enemy to the strong freight market, and apologies to Pogo, but he is us. Risks to the strong economy are "self-imposed," citing trade wars and the tariffs that go along with that.
In his position as chief economist of ATA, Costello said he has been an observer to current NAFTA negotiations, a process he called "very interesting." His numbers on the impact of an abandoned NAFTA deal seemed narrow, but he took a very NAFTA trucker-specific approach, citing 47,000 jobs in transport and 31,000 of those specifically truck drivers. But as has been noted by many observers, the impact of a NAFTA that dies to the economy could be far greater than just jobs that can be tied specifically to the free trade deal.
The negotiations are coming to a head, Costello said, and the risks are high; the July 1 date of the Mexican election puts an unofficial deadline on the talks. A new round of talks begins in a few days, "and the administration is getting antsy," he said. "They want to announce something with Canada and Mexico and there are still things hanging out there," describing the Canadian and Mexican negotiators are "uncomfortable."