The title says it all. Haven’t we been talking about this for a long, long time now? It seems like the truck driver shortage problem just won’t go away. Today, as economists from all sides talk about how close the United States is to full employment, there is one part of this discussion left out. There are some critical constraints on the labor market that could have lasting impacts.
Let’s look at a couple of examples. If there were a shortage of chefs in the United States, the economy would adapt. Either wages would rise, eating out would be more expensive, or consumers would choose to stay at home and eat instead. The same applies to shortages of employees in many other jobs. The economy relies on the trucking industry in a way that it relies on few other industries.
Truck drivers are critical for many reasons. Keeping freight moving across the nation’s roads and highways is vital to our supply chain and continued economic growth. Consider that the trucking industry represents 70 percent of U.S. freight movement by volume. That is a huge number. Without enough truck drivers on the road to get that 70 percent where it needs to go, a confluence of factors – none of them good – could result in some serious problems.
The Full Story
Imagine shipments across the country facing intractable delays and producers having to pay much higher prices as a result. As we mentioned before, the truck driver shortage is something the trucking industry has been talking about for a long time. At this point, however, real numbers are pointing to the fact that the truck driver shortage is starting to have a real business impact on the economy.
Other industries that were facing shortages have not been experiencing the same problem. Take the construction industry as one example. Construction companies have been facing a shortage of construction workers for many years, yet in the past 12 months, the construction industry has added hundreds of thousands of workers. Somehow, they cracked the code. Can the trucking industry do the same?
Perhaps. Perhaps not. Just look at the numbers. According to the Bureau of Labor Statistics’ employment report, trucking employment has remained essentially unchanged since mid-2015. Yet, during that same time, economic growth has skyrocketed. We now have one of the lowest unemployment rates we have seen in many, many years. Coincidentally, the trucking employment peak we are working with now coincides with the peak we attained in the last economic cycle of 2006.
As a result, companies across the board have been signaling freight constraints in their fourth quarter earnings calls. The result? Higher operating costs and lower profit margins. Take Hershey has one example, they recently noted that their gross margin dropped by 180 basis points. The reason they point to? Higher freight costs.
As higher transportation costs weave their way through the economy, gross margins will continue to fall. As wages continue to rise, could we see this create greater inflationary pressures as well? Now the question is: will this situation change anytime soon?
If there is one bit of depressing news to report on regarding the trucking shortage, is that no one expects the labor situation to change anytime soon. To make matters worse, all the talk of the town is on self-driving trucks – yet no one seems to be considering the impact that discussion has on perspective truck drivers, who must commit to multi-week classes to get their CDL. Are they making this commitment within an environment that may soon go away? Another constraint on the truck driver shortage can be found in the recent ELD mandate. By no longer allowing truck drivers to use paper logs to keep their time on the road, the ELD mandate could result in even more reduced capacity.
Even more, economists point to that even though the unemployment is very low, the employment-to-population ratio for workers trying to find jobs during their prime age range of 25 and 54 is still a bit below the peak. What does this mean? The labor market is likely still not operating at its full potential. Even worse, if motor carriers can’t fill the seats in their cabs, this could create undue strains on other markets and put a cap on the kind of employment growth the U.S. is looking to see.
Just imagine for a moment if an established – or new – company wants to open a new factory but cannot find additional truck drivers to facilitate that transition. Same if someone wants to build and ship new products but the costs of freight are too high. If it becomes uneconomical for said company, the nation’s economy loses a measure of economic output as a result.
What you will see coming on the heels of this paradigm is what is considered surge pricing. If moving stuff around the economy becomes a lot more expensive, it would be like trying to call a ride-sharing car during peak hours. Prices go up and everybody pays more.
Whether it be Amazon trying to make deliveries or restaurants trying to get foodstuffs on their shelves, companies end up paying more, and you know who they pass those costs on to: consumers. When demand outstrips supply, this is what we see occurring. In these situations, prices rise until demand dampens. The cyclical nature of the economy demands these kinds of shifts. But what are companies doing about it?
How Companies Cope
The surge in transportation demand is causing trucking companies to charge up to 30 percent more than they normally would for long-haul routes. With the truck driver shortage doing nothing to ease concerns, where will we see this paradigm end?
As we also mentioned a moment ago, higher freight costs add to concerns that inflation will continue to heat up and cause the Federal Reserve to once again raise interest rates. Average hourly earnings also increased 2.9 percent in January from a year earlier. There are both opportunities and problems with how companies are dealing with the problem.
One transportation company has begun offering a staggering $40,000 (you read that right) bonus to persuade truck drivers to operate in teams. Doing so allows truck drivers to have one person rest while another takes the wheel, thus increasing the amount of time that the truck can stay on the road. Other long-haul operations are making the decision to move their freight movements to rail or other intermodal methods.
Even more, the problem exists north of the border as well. Because of the increased demand, railroad operators such as Canadian National Railway Company are struggling to keep up with demand within their own rail capacity.
Motor carrier consolidation further clouds matters. Still, the increases in trucking rates are hitting companies across the board, so no one competitor is gaining an edge over the other. This is an industrywide issue that is impacting nearly every company operating in every sector within the economy.
The Hard Truth
So, how many truck drivers are needed to address the problem? The numbers don’t look good. Roughly 90,000 new truck drivers will be needed each year through the next five years if economic growth continues to expand at its current rate. By the end of 2018 alone, it is estimated that the trucking industry will need another 50,000 more truck drivers. Where will all these truck drivers come from if the economy is currently sitting at near-peak employment?
Many are saying that once there is a truck driver shortage of 100,000 or more on a per-year basis, we could start to see major problems up and down the supply chain. From product shortages to delivery delays and major inflation. But what is causing the shortage?
Some say the truck driver lifestyle can be hard. From extended periods away from home to sleeping in the cab of a truck on most nights for long-haul truck drivers. Still, there are upsides to being a truck driver, from seeing all the states, to going different places, experiencing different things, and meeting lots of different people.
If there is one thing that the truck driver shortage is resulting in, it is greater bargaining power for potential truck drivers themselves. Many can shop around, looking for gigs with companies that offer higher bonuses, greater starting pay, better amenities and so much more. Even truck stops are getting into the game, with the Iowa 80 truck stop holding an annual Truckers Jamboree, where recruiters come in looking for potential truck drivers. This year? More than 44,000 people attended. It is true, we have entered a hyper-competitive employment market for truck drivers, which is driving positive change for those working behind the wheel.
Still, trucker median pay sits at around $41,000 a year. Is this enough to lure enough potential truck drivers into the cab? Only time will tell. For now, both the trucking industry and the economy will be looking for just about any resolution they can to solve the ongoing truck driver shortage issue.