Popping open the bubbly

Trucking companies are basking a bit in the rate renaissance that began in the fourth quarter of 2017, with Stifel’s conference last week showing it may only be the beginning.    It’s rare to call a group of people dressed in business casual attire sitting in a conference room buoyant.
   But then it’s rare to see a situation like the current state of the North American trucking industry.
   Last week, I attended Stifel’s annual Transportation & Logistics Conference in Miami. The event, put on by the investment bank’s staff of freight experts, has become a rite of passage in the trucking industry. Broadly, it’s a chance for publicly-held trucking companies, freight brokers, and logistics providers (both domestic and international) to stump for their companies in front of a crowd of investors hungry for information on the sector.
   Sprinkled into the event are some panels where private sector stakeholders give their views on the topic of the day.
   In general, the event is great because it’s heavy on reality and light on wishful thinking. It is not a place to ponder the potential of our robot-guided future. It is a place to lament whatever ails truckers and brokers.
   Over the past few years, it’s been a place where those companies have been able to grumble about the confluence of two dastardly dynamics: low rates and high driver turnover. Those dynamics placed the industry in a precarious spot. The rates weren’t high enough to stymie driver turnover, and the driver turnover was rotting the industry from the inside out. It costs a lot for trucking companies to recruit, train, and retain drivers. And the turnover was impacting service, which led to shippers feeling justified in seeking out low rates. It was a vicious circle.
   All the while, the folks at Stifel have been predicting a massive driver shortage looming in the near future. That shortage has been based on three primary factors: reduced capacity available when hours of service regulations fully kicked in; the relative unattractiveness of trucking as a profession; and the fact that a small uptick in the U.S. GDP might drive demand skyrocketing past available supply.
   In the fourth quarter of 2017, those factors started to create the situation everyone had been nervously waiting for. On the aggregate, capacity is tighter than a drum in the U.S. trucking industry these days. It’s even tighter in certain markets. And things could worsen when a federal electronic logging device (ELD) mandate goes from being enacted to enforced at the start of April.
   All of which left the trucking companies in attendance in Miami last week positively bubbly. Pumped. Grinning from ear to ear.
   Rates are up, and are likely to stay that way well into 2018. One prominent private company said it had negotiated a 19 percent rate increase in February with one of its top five customers. Others spoke of double digit increases as a baseline, not an aspiration.
   In light of those numbers, one veteran said, “Truckers are elated when they get a 5 percent increase. This just doesn’t happen.”
   And a familiar refrain throughout the two days was this: all this tightness and rate robustness for carriers was coming in January, typically one of the two worst months for trucking demand in North America (the other being July). If this is happening in January, watch out for the rest of the year.
   This is not to say that a giant elephant doesn’t remain in the room. It does. The driver shortage has not gone away. In fact, you could say the shortage will get more acute as demand spikes and the ELD regulation squeezes capacity from the system.
   Interestingly, one speaker said he’s heard some independent owner/operators will wait until they’re caught to comply with the law. Others will be forced to use an ELD when they need to renew their insurance policies. In other words, the crunch won’t all be felt in early April when enforcement begins, but in waves as uncompliant drivers slowly get on the wagon.
   The industry is not short on ideas about how to combat the driver shortage. There are the soft inducements, like shippers offering better driver facilities during unloading times or rest periods. There are more systemic ones, like optimizing networks so drivers use their time more efficiently and have better quality of life. There’s the “driver pay will need to go up” solution that many companies loudly championed last week (easier to do when the rates are much higher, or course).
   And then there was the other elephant in the room – autonomous vehicles. One panel at the Stifel conference focused entirely on the physical elements of this emerging industry. It was in the weeds discussions of battery life, total cost of ownership, and raw material production. But the underlying implication was that these vehicles will be here, and they could well be a solution to excess capacity required but not fulfilled by a generation not very interested in driving.
   Robert Voltmann, president and chief executive officer of the Transportation Intermediaries Association (TIA), in one of the last sessions of the event urged the audience to flip the discussion of the driver shortage on its head. He implored the industry to sell driving as a noble profession, one that required skill and responsibility and paid a head-of-household wage in many parts of the country.
   The implication, coming soon after the panel on autonomous vehicles, was that this job would be changing in the coming years as well. As the diesel-powered internal combustion engine slowly gives way to electric, battery-powered engines, and as computers start to take some of the heavy lifting away from the driver, the profession is clearly headed in a new direction.
   But in the meantime, truckers are a happy lot, and who can blame them.