Saturday, July 26, 2014

Drivers Wanted

The truck driver shortage has finally reached the tipping point. The shortage has been around in varying degrees for over 30 years. After the industry was deregulated, truckload carriers started growing like crazy. Supply chains were redesigned and truckload carriers began hauling direct from manufacturing plants to store shelves. Truckload networks evolved to optimize service, utilization and empty miles. Drivers were not paid much, the trucks were plain vanilla and they stayed on the road 2-3 weeks at a time.

Pretty soon the industry figured out that there were not enough people willing to drive those trucks, for that pay, under those conditions. So the trucks got nicer, the pay got bumped up a few cents per mile and efforts were made to get drivers home more frequently. This formula was updated and used repeatedly depending on the state of the economy and the demand for trucking services. In addition to nicer trucks, more home time and a little extra money; carriers tried to become more “driver friendly”. Different approaches were tried operationally to improve communication and make sure that driver needs were being met. All sorts of programs and gimmicks were utilized to attract and retain drivers. Just make the job not suck and convince the drivers that they were highly valued team members and you might win the driver battle. And winning the driver battle meant beating your competition. It’s like the old joke about two hikers being chased by a bear. You don’t need to outrun the bear, just the other hiker. No one was really “winning” the driver battle. Some carriers just ran faster than others.

But now the industry is facing the perfect storm. It’s hard to find anything positive in the driver supply formula. Demographics, negative. There simply aren’t enough qualified younger people entering the workforce to replace the older drivers.

Regulations, negative. The regulatory environment has effectively taken drivers out of the pool either directly or the drivers have just given up on the industry and walked away.

Working conditions, negative. While the trucks may be nicer and easier to drive, and drivers get home more often; it’s still a tough job. Traffic congestion in particular has gotten much worse. Drivers are being paid by the mile and end up spending a lot of time just sitting in traffic gridlock hell. It’s much worse than it was only a few years ago.

Compensation, negative. When all of the hours are taken into account, not just “on duty”, the effective pay rate per hour is pretty marginal.

Competition from other industries, negative. There simply aren’t enough literate, drug-free, legal workers available for blue collar jobs that require literate, drug-free, legal workers.

This week Swift, the nation’s largest truckload carrier, stock dropped 18% when the company said that it was “constrained” by a challenging driver market in the second quarter, that turnover was higher than anticipated and offered guidance that EPS for the current period would be 3-7 cents below analysts’ estimates.

I predict that more large carriers will report that the driver shortage is having a major negative impact on earnings. I think we are on the cusp of a mega shift in the trucking industry. Rates will go up dramatically. There is no other option. By 2020, I predict that rates will be 40-50% higher than they are today (net of fuel surcharges). Some of that will go directly to drivers. Some will go toward equipment. Some will go to cover the cost of training and retaining drivers. This increased cost of moving freight over the road, will push more freight to the rails, elevate inventory levels and significantly impact the locating of manufacturing, processing, assembly and distribution points. And just about everything is going to cost a bit more. We’ve enjoyed a long run of relatively low logistics cost, much of it on the backs of working folks who just drive trucks for a living. Nothing last forever.

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