Costello2 Photo: Sean Kilcarr/Fleet Owner
ATA's Bob Costello

Navigating the twists and turns in trucking

Freight is booming, but drivers are scarce and operational costs are rising.

NASHVILLE, TN. The trucking industry is poised to experience some of the best of times in terms of higher freight demand and rates for hauling it. Yet other issues, notably the increasing shortage of truck drivers and rising operational costs, could dampen the industry’s good fortune to a degree.

In a presentation here at the Omnitracs Outlook 2018 user conference, Bob Costello, chief economist for the American Trucking Associations (ATA), reinforced positive trend lines he described during an earlier talk at NATSO Connect 2018; the annual convention of the trade group formerly known as the National Association of Truck Stop Operators.

Costello said TL freight volumes increased 2.8% in 2017 versus 2016, more than surpassing the weak 0.1% increase in TL volumes that occurred in 2016 versus 2015. On top of that, TL freight volumes surged 7% in the fourth quarter of last year and the pace hasn’t let up yet. Tax reform has added 0.3% to gross domestic production (GDP) growth forecasts and though interest rates are increasing, that is a “good thing” as it will improve margins for banks and thus improve their “willingness to lend,” he explained.

“This has already been the third longest economic expansion in U.S. history and by spring it will be the second longest,” Costello added. “Usually by this point [in an economic expansion] we’re starting to slow down. Instead we have the opposite happening. We’re in uncharted territory tight now.”

Contract freight rates were up 7% in the fourth quarter of last year, as well, he noted, which is also good news particularly for the TL sector, added Ray Greer, the newly-installed CEO for Omnitracs.

“Pricing power has shifted back to the carriers; that’s long overdue,” he said.

Yet there are some not-so-good trends trucking faces, ATA’s Costello noted, particularly where drivers are concerned.

He said the industry will need about 900,000 new drivers over the next decade or so largely as replacements for an expected wave of retirements. According to ATA’s research, 49% of those 900,000 will be needed to cover driver retirements, with only 28% required to handle ongoing freight growth. The reason for that “retirement spike” is that the average age of a U.S. truck driver now hovers around 50, compared to 42 for the average U.S. worker, Costello noted.

He pointed out that the industry was also short about 51,000 drivers last year, based on freight demand, which is expected to jump to 174,000 by 2026 if the trend lines don’t change. “That does not sound like a lot when you compare that to the often-cited 3.1 million truck drive population figure,” Costello said. “But when you whittle it down, 1.7 million of them are tractor-trailer drivers and 500,000 of those are in that long-haul irregular route TL segment, which is where most of the shortage is. And being short 51,000 drivers in a population of 500,000 is a bigger deal.”

In a separate presentation, Dan Murray, vice president of the American Transportation Research Institute (ATRI), stressed that truck driver age levels are a “sobering issue” as the industry has one of the smallest percentages of younger workers. “And trucking is 5% of the nation’s GDP,” he added.

Murray added that trucking’s operational costs are largely unchanged over the last two years despite fuel becoming “dirt cheap,” in his words, during that time frame. Fuel prices have risen to $1.592 per mile in 2016 from $1.575 per mile in 2015.

The reasons for that, he said, are higher driver wages and the rising costs to repair and maintain today’s modern trucks. “It’s no secret today’s new trucks are expensive; they are packed with computers, their replacement parts are expensive, and the diagnostics required to maintain them are expensive,” Murray noted.

Another issue ATA’s Costello highlighted is the high cost of driver turnover. The TL segment has the highest rates of driver turnover at 86% for 2017 as a whole, though it spiked to 95% in the third quarter last year. That’s compared to 8% turnover in the LTL sector, he noted. “LTL carriers have far less turnover because their drivers are home more often and make more money,” Costello said.

Overall, when turnover hits 90%, that represents a roughly $1 billion annual cost to motor carriers, he added.

Costello also pointed out that rising pay in the TL sector – it is now averaging $55,000 to $60,000 a year, according to ATA’s data – isn’t enough to match pay in certain “specialty segments” like oilfield operations, which is seeing renewed demand. “Some oilfield drivers can make $100,000 and they don’t have to drive that much,” he explained.

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