Hey! What Gives Here?
There are two obvious realities about the supply of drivers that present a puzzling contradiction. The first is the obvious point that persuading a man to sleep in a truck while being away from home up to 26 days a month is a difficult task. No wonder there is a driver shortage! The second reality is logically obvious, but seldom understood: If there is a driver shortage, some of the freight is not being delivered. Yet, somehow, the freight is being delivered, occasionally late, but, still, it gets there. So, apparently, there is no driver shortage.
OK, It’s Hard to Find Drivers
Here’s the explanation. There is a shortage of “easy-to-hire” drivers. Put differently, the industry exhausted the supply of nomadic men and women who loved the open road; we must now persuade, normal people, like you and me, to sleep in a truck. That takes a lot of searching, persuading and training. Even after signing up, the new drivers often change their minds after experiencing the actuality of the lifestyle and soon quit. The most difficult segments have turnover rates of 100% or more. No surprise. It follows that organizations have to build prodigious hiring pipelines to acquire the one million drivers they need per year. The pipeline requires the work of something close to 200,000 people when one factors in all the workers, carriers, and suppliers of hiring services. Those harried people handle roughly 100 million documents per year.
Help! I Can’t Keep Up
Here’s the point: That pipeline takes mucho work and is hard to adjust if conditions change. Three times since 2000 – 2004, 2014 and 2017/2018 – the requirement for drivers accelerated faster than the pipeline could expand. You can see those dynamics in the accompanying chart, which shows the long-term trend in driver hiring compared to the short-term demand. The carriers staff to supply the red line and must scramble when demand surges. When those scrambles fail to match demand we get “driver shortages.” I use quotation marks there to point out that, even at the worst times, the freight moves, just a bit more slowly. Importantly, the big effect is raised rates and the requirement for a lot more work to source drivers for recruiters and capacity for brokers and traffic managers. I conclude that the great driver shortage of 2017-2018 was more about the moaning of financial types and traffic managers than a real physical shortage of drivers. Sure, some loads got there late, but the loads did move.
Come on, Noël, Something Happened!
This is not to say nothing important happened. At one point spot prices were up 42% YOY, while the average for 2018 was up 16%, including contract freight. Trucking accounted for 40% of U.S. inflation last year – a big deal! Yep, the financial guys moaned a lot. One concludes that prices are a great proxy for driver supply.
Is the Crisis Over?
The chart above shows spot prices when compared to the underlying trend in costs. It shows a dramatic retreat of prices from the 2018 peak, suggesting strongly that the recent driver shortage is over. This makes sense because the sketchy data of physical additions to the driver population all show increases – hiring, tractor sales, etc. We also know that the aggressive growth in driver hiring demand is also over. Freight growth is less than a third of 2018 levels and productivity is positive, in contrast to the negatives (ELD’s) of 2017 and 2018. I feel very confident regarding this change, in part because I forecast it in early 2018 when the market was in crisis. That forecast was a very easy one, based on strong data and theory. That it turned out is further confirmation of these economics. I’ll put it very simply. The 2017-2018 driver shortage event is over!
What About the ATA Statistics About a Worsening Driver Shortage?
We are back to where this article started. How one talks about the driver shortage depends on definitions. Clearly the process of finding drivers is getting just a little harder every year. Compound that over 10 or 20 years and you get substantial changes in, again, the work it takes to hire drivers. That is what the ATA data means. In economic terms, it is a pressure index, and that pressure is getting worse. I interpret that data this way: As the pressure increases, as the ATA ‘shortage’ numbers rise, the next surges in hiring demand will put more pressure on prices and the recruiting/capacity-acquisition effort. The market is becoming more volatile. Importantly, the more the pressure, the closer we will get to actual shortages. Should that occur, things would get real squirrelly. It is impossible to establish at what level of pressure that would happen. All we know is that we are getting closer. I characterize the risk this way. We have enough capacity in the system to endure one more ‘normal’ surge without shortages. Only a major outlier would put us over the edge – the probability of such an outlier is around 20%.
There Is a Big Light at the End of the Tunnel
Fortunately for the shippers, each passing year brings us closer to automated trucks and the end of the driver shortage. The first hints of that phenomenon should be apparent by 2025, meaning that we have one remaining 6-year window of vulnerability. This pressing vision of the future reveals a common fault in many current mid-to-long-range forecasts, including some of my own. Those forecasts are based on a continuation of historical conditions, a dangerous assumption given the tidal waves of technical change sweeping toward us. I will be writing on those changes extensively during the next year, including some of its major implications for brokers. At this point, just make a note of the revolutionary implications for the currently most important issue in trucking – drivers. If technology can change those dynamics, it can change anything in the rest of our business.
Noël Perry is Principal with Transport Futures, located in Lebanon, PA. He can be reached at firstname.lastname@example.org.
Images courtesy of Noël Perry