No matter the cost, manufacturers are stuck on trucking. “There’s really no other option for us. Using (intermodal) rail is too slow, and just not cost efficient,” said the head of operations for an aluminum manufacturing plant in the US Northeast who agreed to be interviewed on the condition of anonymity. “And, you know, most canals are shut down,” he laughed.
Most manufacturers expected to see freight rates fall with the price of oil in 2014, but the trucker shortage has prevented that relief from being realized. Plants in the Northeast like our source’s are experiencing the brunt of the shortage’s effect on national shipping costs. The flatbed trucks required to haul the massive rolls of aluminum his plant produces cost 29% more per mile than the next most expensive region, the Midwest.
“We just have to ship our product using trucks, and it’s costing us more and more.”
While rates for all types of truck tonnage are higher in the Northeast, the nation’s busiest region, hikes are being felt across the entirety of the US—last November, dry van freight rates posted a 16% increase in cost per mile over 2013.
Already Severe Trucker Defecit Shows No Signs of Letting Up
It’s no secret that this trucker shortage has been giving supply chain managers headaches since 2013. Trucking companies traditionally experience an annual turnover rate of around 90%, but eight straight quarters of turnover rates close to 100% are worrying even the largest of trucking companies. In a 2014 survey conducted by the American Trucking Association (ATA), 90% of carriers said they couldn’t find enough drivers who met Department of Transportation criteria to meet demand. By the end of last year, the industry reported a deficit of 35,000 drivers.
Demand isn’t showing any signs of slowing down, either. Growth in freight volumes transported by truck is already outpacing the 2.8% per year increase the American Trucking Association (ATA) predicted in 2012. If this labor shortage continues, some analysts are predicting that the 35,000 trucker deficit could grow to nearly 250,000 by 2023.
Regulatory Obstacles Create Roadblocks To New Driver Growth
In 2013, new federal hours-of-service went into effect, requiring at least 34 hour hours of rest if a driver worked more than 70 hours in 7 days. Having fewer working hours in a profession that largely pays by the mile has proven to be massively discouraging to new drivers. Since then, more than 80% of trucking companies have reported a loss in productivity and required more drivers to haul the same amount of freight.
Stagnant Wages Discourage New Drivers
During its Q2 2014 earnings call, Swift Transportation, the largest truckload carrier in North America, committed to improving quality of life for its drivers and spending more in wages to help draw in more drivers and reduce turnover. Significant investments will be needed if Swift and the rest of the trucking industry are going to succeed in making trucker wages attractive and competitive—since the turn of the century trucker wages have stagnated in relation to the rest of the US economy. In 2001, the gap between the average truck driver wage and the US national average was 2%, as of 2015 the difference has grown to 12%.
An Aging Workforce Continues To Reduce The Number of Available Drivers
During the 1990s, trucking companies were dominated by young adults; nearly 60% of all truck drivers were under the age of 45. Over the last two decades those numbers have shifted dramatically. Between 1994 and 2014, the number of drivers aged 25-34 has dropped 48%, and the number of drivers aged 55-64 has more than doubled. To put that in perspective, the total population of the US workforce age 25-34 has dropped only 3% during the same period.
The trucking industry has become increasingly dependent on a specific “trucking generation”, those aged 45-64 who currently represent 60% of all truck drivers. Even more stress will be applied to the shortage of truckers as this core trucking generation begins to enter retirement age at the beginning of the next decade.
The Bottom Line
The importance of the trucking industry to the United States economy cannot be understated. In 2014, 67% of all freight tonnage was transported by trucks—that share is expected to rise to 70% by 2023. With no sign of demand slowing down, the shortage of truckers in the US threatens to hinder freight expansion. However, an aging workforce, increasing regulatory wages, and unattractive wages combine to paint a bleak picture for the likelihood of the US trucker shortage being resolved in the near future.
To mitigate the effects of price hikes, manufacturers are being forced to not only tighten their belts to ensure a cushion exists for rising freight prices, but also shore up their manufacturing processes. Smaller manufacturing plants whose production rates fluctuate heavily month-to-month are looking to stabilize output to take advantage of cheaper, longer-term freight contracts. Short notice contract prices for van freight increased up to 12% in some regions in 2014, while long contract rates increased only 4-6%.
Additionally, small-fleet trucking companies are likely to be hit the hardest by the shortage as they struggle to compete with the better employee benefits larger companies can provide. Establishing relationships and locking in rates with bigger providers could protect supply chains from rate hikes more likely among the smaller providers.