The driver shortage alarm

| February 01, 2016

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Trucking has trumpeted a driver shortage over most of the last 10 years and beyond. Major studies by the American Trucking Associations have generated much coverage inside and outside the industry, making the idea an unquestioned assumption.

Yet during the last decade, driver pay hasn’t risen in a way that would reflect such a strong labor demand. And some forecasts have turned out much less drastic than predicted.

Company driver pay over the same period hasn’t even kept up with the rate of inflation, while owner-operator net income has just barely done so, if 2015 estimates hold.

With the exception of 2014-15, pay evidence of a supply/demand imbalance in OTR truckload drivers’ favor is not found during 2005-15, during which a driver shortage was documented for nearly every year by one analyst or another. Click on the image to pop out a larger view, or follow this link for more related to this graph, including a timeline of events over 10 years relative to the notion of a driver shortage.

With the exception of 2014-15, pay evidence of a supply/demand imbalance in OTR truckload drivers’ favor is not found during 2005-15, during which a driver shortage was documented for nearly every year by one analyst or another. Click on the image to pop out a larger view, or follow this link for more related to this graph, including a timeline of events over 10 years relative to the notion of a driver shortage. (2015 income/pay figures above are estimated.)

“If someone cannot find a driver to deliver a load at the rate they want it delivered at, they whine ‘driver shortage,’” longtime owner-operator Jeff Clark said during a 2010 interview. “It’s analogous to this: ‘I want to buy a new Cadillac for $10,000. They would not sell it to me. Hmm, must be a Cadillac shortage!’”

From a fleet perspective, the shortage is often seen as a given. Truckload turnover rates in more sizable fleets can exceed 100 percent, so recruiting is a tedious, expensive process that never stops. Trucking regulations make it harder or less appealing for drivers to get in or want to stay in the industry. Likewise, fleets can hurt themselves by hiring drivers who are marginally qualified, so many companies screen more rigorously.

Even so, would higher pay bring in enough qualified drivers to keep carriers happy?

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Large carrier turnover rate hits 100 percent, ATA reports

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The annualized turnover rate for large truckload carriers rose 13 points to 100 percent in the third quarter of 2015, ATA reports.

That’s a moot issue as long as freight rates won’t support it, says Gordon Klemp, principal of the National Transportation Institute, longtime publisher of the National Survey of Driver Wages. Klemp routinely hears from many of the largest fleets about their recruitment challenges and has measured their pay packages for decades.

The ability to command better rates is a primary component of fleets’ ability to raise driver pay. Truckload linehaul rates, adjusted for inflation, show patterns similar to those in driver pay and owneroperator income over the period most associated with a driver shortage. Rates, by this estimation having returned to their pre-recession highs, bode well for driver pay. These numbers are derived from Cass Information Systems’ Truckload Linehaul Index, which tracks fluctuations in rates and separates out fuel’s volatile effect. Index averages over these years are adjusted for inflation by 2015 dollars. Year 2015 excludes December data, unavailable at press time.

The ability to command better rates is a primary component of fleets’ ability to raise driver pay. Truckload linehaul rates, adjusted for inflation, show patterns similar to those in driver pay and owner-operator income over the period most associated with a driver shortage. Rates, by this estimation having returned to their pre-recession highs, bode well for driver pay. These numbers are derived from Cass Information Systems’ Truckload Linehaul Index, which tracks fluctuations in rates and separates out fuel’s volatile effect. Index averages over these years are adjusted for inflation by 2015 dollars. Year 2015 excludes December data, unavailable at press time.

Driver demand and rising freight rates contributed to a round of strong pay raises in 2014-15, but demand has now softened. “Rates are not supportive of additional increases,” Klemp says.
Many in the driving community, like Clark, see the hiring problem in simpler terms.

Given that carriers are recruiting constantly, for-hire truckload driver pay becomes a function of “what you can be replaced for,” and not what the work is or should be worth, says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association. “Carriers can make money off a truck even if its driver doesn’t make enough to survive,” Spencer adds.

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And if there were truly a shortage of drivers, freight rates would certainly reflect that and move up substantially, say many Overdrive readers.

Contract linehaul rates have been fairly flat overall this past year, but spot market rates have been on a downswing. “Rates are down so low because of demand that it feels like there are too many truck drivers,” says owner-operator LeAnn McKee.

Adjusted up to 2014 dollars and despite recent gains, most average annual driver compensation and owner-operator income levels in recent years have been well below highs experienced for company drivers and independent contractors more than a decade ago.

Inflation-adjusted company driver pay rose sharply between 2003 and 2004, hovering at just above $59,000 annually in 2005 before dropping before and the hovering flat during the 2008-09 recession. Owner-operator income was steadily about $61,000 between 2003-06 before also dropping.

Those earlier periods were times of relatively high demand during which income levels rose in tandem with the inflation rate, showing little year-to-year variation when adjusted.

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Factors affecting the fall in income following those years include a marked reduction in annual miles per truck during the recession, ATA says, softening the effect of any pay rate increases. For owner-operator clients of ATBS, average annual miles dropped from almost 140,000 in 2003 to 108,000 in 2014.

Warnings of current and future driver shortages, after abating slightly during the last recession, returned quickly following it. But inflation-adjusted income continued flat for a few more years before finally rising in 2014 and, based on estimates, in 2015, as shown in the graph above and at this link.

The most high-profile recent quantification of a driver shortage was ATA’s 2015 “Truck Driver Shortage Report.” Its projection: “If the current trend holds, the shortage may balloon to almost 175,000 [drivers] by 2024.” ATA’s 2012 estimate had predicted a bigger gap, occurring earlier: “The shortage could balloon to as much as 239,000 by 2022.”

[gtblockquote quote_text_style=”normal”]Timeline2005 – Amid a years-long wave of “labor shortage” studies from other industries, release of the ATA-commissioned driver shortage report spawned other trucking shortage estimates.

Perhaps the first-ever major documentation of a driver shortage was in 2005, when the business community at large was worrying over its aging workforce, a reality that’s more pronounced in trucking. ATA commissioned an IHS study that sounded familiar notes, predicting that a wave of Baby Boomer retirements, among other things, would lead to a shortage of 111,000 drivers in 2014. However, when that date rolled around, ATA pegged the shortage at a mere 30,000, based on its 2012 analysis.

Armed with such statistics, mainstream media coverage of the driver shortage places trucking job opportunities in the minds of readers, listeners and viewers who may never have considered them.

[gtblockquote quote_text_style=”normal”]Timeline2006 – “I call it the ‘driver shortage hype,’ like the Y2K hype.” – Shipper GEA’s Traffic Manager Ron Hazel, on the period following the first “driver shortage” supply/demand quantification

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Texas-based owner-operator Allan Lester faults the industry in this. “Instead of working with the talent that it has” to keep seats behind the wheel occupied, “we’ve shot ourselves in the foot” with so much emphasis on recruiting, he says. So many companies bring in newbies and “train them enough to get their license, then train them for a few more weeks. How do you take a guy like that and put him up the Rockies?”

Owner-operator Allan Lester sees the driver shortage discussion as the “same old thing we’ve been talking about for the last 30 years” – namely, how to pay drivers adequately. Lester drives this 2014 Peterbilt 579 and 48-foot Reitnouer all-aluminum trailer.

Owner-operator Allan Lester sees the driver shortage discussion as the “same old thing we’ve been talking about for the last 30 years” – namely, how to pay drivers adequately.

Some commenters wonder whether heavy mainstream press coverage in fact attracts too many workers, skewing the balance of labor supply and demand. Noted Richard Verdejo, among others with similar thoughts under an OverdriveOnline.com poll, “Sounds like ‘the industry’ is just trying to flood the driver rolls to help keep wages low.”

“We have seen no evidence of this yet,” responds Bob Costello, ATA senior vice president and chief economist. Trucking isn’t a job, after all, “where you just go down to the local store, fill out an application and get hired. Can we soften the shortage? Sure. Will we completely eliminate it anytime soon through pay hikes? Probably not.” –Max Heine contributed to this report

Next in this series:

Framing the trucking labor situation: Shortage at what price?

“Labor shortage” can mean different things to different people, whether a supply/demand imbalance at "current market prices" or "at any price" -- the latter ...

 

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