For over a year, industry pundits have predicted that in 2018, we would experience a significant increase in rates for both truckload and LTL shipments. Many were predicting another “perfect storm”. While I think the storm might have been somewhat overstated, it appears that basically, they were correct. ACT Research has said “Clearly, truckers are entering 2018 in the best negotiating position in many years”. The expected general rate increases have been announced at 4-6%, but it looks as if we will go well beyond these. According to Bloomberg, spot rates through March 23, were 28% higher than the same period last year. FTR Transportation Intelligence predicts that even the longer term, more stable contract rates will rise by 12% this year. This compares to about 4% in 2017. While there are several reasons for the increases, i.e. weather, higher demand, etc. the most often discussed are the lack of capacity and the competition among carriers for qualified, responsible drivers.
Earlier this year, the Washington Post, following a survey of 1600 shippers, concluded that trucking capacity (or lack thereof) would be the industry’s “primary hurdle” this year. Much of the blame for the capacity shortage has been laid at the feet of the Electronic Logging Device (ELD) mandate. Since they were first suggested several years ago, it has been predicted that they would result in decreased capacity. After several attempts to block their installation, they finally were mandated to be in place by December 18, 2017. Strict enforcement however, was to be delayed until April 1, 2018. Most large carriers installed theirs years ago, but the smaller carriers and particularly the owner-operators, have resisted right down to the wire (and beyond). With full enforcement in effect, a broader adherence to the driver hours of service rules is expected, which in turn will reduce capacity. The log “fudge factor” has been taken away. It is hard to believe that forcing drivers to comply with the rules will make that much difference, but capacity losses have been estimated to be between 4 and 7%. We will know more as we get more experience. It is clear now however, that more drivers will be needed to meet the current demand.
The second contributing factor is the competition for qualified drivers. Rarely, is a capacity problem caused by lack of equipment. More often than not, it results from the lack of drivers to operate it. The shortage of drivers is well known, and I won’t belabor it here. There is an underlying issue with which we deal every day. Now however, as carriers start to compete for those in the driver pool, salaries finally are increasing. Carriers willing to pay more are finding their capacity issues reduced. Those who are not are paying the price through loss of business and increased driver turnover. According to the American Trucking Associations (ATA) driver salaries rose 15-18% from 2013 – 2017. A private fleet driver now can earn as much as $86,000 annually, plus benefits. Salaries for entry level truckload drivers have risen 15% from 2013, to about $53,000. A number of carriers have added several cents per mile to driver compensation, and some are offering substantial “sign up bonuses”.
An interesting contradiction to the driver shortage is the fact that carriers are ordering new equipment at a rapid pace. During the first three months of this year, they ordered about 134,000 heavt duty trucks – almost double last year’s purchases for the same period. The new tax laws have freed up cash for many which is being used to upgrade fleets and add capacity.
Hopefully better pay and more equipment will help negate the driver shortage and the capacity shortfall in the entire industry, but the improvements will come at a price that will ultimately be paid by the shippers.