Thursday, June 7, 2018

Supply and Demand

I'm in the middle
The middle of life
I'm a boy and I'm a man
I'm eighteen and I like it.

Lyrics from the Alice Cooper song, “I’m Eighteen”

In the past I’ve commented on the truck driver shortage. I’ve even said that one possible solution would be to lower the age for interstate truck drivers from 21 to 18. But, I never said it was a good idea for the trucking industry. It may be a good idea for shippers and therefore for consumers (as long as the younger truck drivers don’t run over too many folks). But, I question why the trucking industry would want this.

There is now a bill being proposed in congress that would lower the age for interstate truck drivers to 18. There are restrictions designed to make it safer for these young newbies to drive trucks all over the country. On the surface it sounds like a good idea. We have a shortage of truck drivers, so increase the pool of available drivers and problem solved right? Well, that depends on the problem you’re trying to solve and the unintended consequences that are likely to accompany your solution.

When it comes to the truck driver shortage, it’s more of a supply problem than a demand problem. Yes the economy is growing and so is the population. So there is more freight. But, the population has grown enough that, all things equal (which they never are), we should have enough truck drivers. Especially given the way trailer sizes have increased over the last 40 years, the expansion of containerized intermodal transportation and the reduced size and improved packaging of freight.

But since the industry was deregulated in 1980, truck driver wages have declined dramatically. When adjusted for inflation, a driver today would need to earn over $100K per year to be on par with the drivers in 1980. Add in increased regulations and traffic congestion and the job is just not worth it anymore. Capable people who can pass a drug screen and are willing to work can find better things to do.

So over the past year we’ve seen driver wages and freight rates accelerate dramatically. They still have a long way to go, but they are trending in the right direction. And carriers are making more money which is not a bad thing if we want them to survive. But trucking companies are notorious for shooting themselves in the foot. Creating more capacity with an influx of 18-20 year old drivers may be doing just that. It will create some additional driving capacity in the short run, but with that additional capacity and the likelihood that the economy will slowdown in 2019 or 2020, we might well see freight rates drop and driver pay increases hit the skids.

We do need an entry point for 18, 19, 20 year old drivers. That should be AND IS intrastate driving. The intrastate restrictions do create some anomalies where a driver can drive hundreds of miles across the state, but not across the state line next door. Given that a lot of our major markets, especially in the eastern half of the country, are located near state lines this needs to be addressed. With today’s technology it would be easy enough to simply restrict younger drivers to a distance radius from their domicile. And that might vary by geography. A 300 mile radius for a young driver based in DFW might be just fine, but not so good for one based based in Pittsburgh. And maybe it’s 500 miles for a young driver in Billings, Montana.

But the industry should think twice about opening the doors too much in their efforts to increase the driver pool. To build a safe, sustainable population of drivers the compensation has to make sense. Get the freight rates where they need to be in order to do that. And then if you still have a shortage of drivers….raise the rates some more.

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