Trucking industry volumes less than usual, driver pay continues to rise

Trucking volumes to start the second quarter of 2019 were lower than expected levels for this time of the year as truck driver pay increases.

In a recent industry update, analysts Benjamin Hartford and Andrew Reed, both of Baird, noted demand trends in May were “sluggish,” and this was reflected in Internet Truckstop’s Market Demand Index at the start of the second quarter. The index declined 48% for weeks 19-22, from the same period in 2018. Since February, freight demand has been soft because of increased inventories as a result of the inventory pull-forward in late 2018, lower than average spring temperatures, uncertainty related to tariffs and trade, and rising capacity.

Volume is expected to improve in June as U.S. temperatures rise and other seasonal freight trends come into play, but some are concerned about a “falloff in volume” in the third quarter, according to Hartford and Reed. Contract pricing, especially in intermodal, has been more competitive over the past four to six weeks, and this is likely a result of lower spot prices as truckload capacity has risen. In May, dry van spot truckload rates fell 16.9%, from the same month in 2018, according to DAT Solutions.

The lower spot prices are expected to slow contract pricing growth in the second half of 2019 and into 2020, Hartford and Reed said, adding that intermodal and truckload contract rates look to fall 5% in the 2020 bidding season.

Short-term freight volume is expected to rise as a result of the expected tariffs on the remaining more than $300 billion of imports from China, according to ACT Research. The tariffs are expected to lead to a short-term rise in shipments before the tariffs go into effect.

“Timing is uncertain, but assuming some talks, there may be enough to temporarily snatch the cycle from the jaws of freight recession in the near-term,” said Tim Denoyer, vice president and senior analyst for ACT Research. “But the mid-term freight outlook is hurt by the recent yield curve dynamics, and pre-shipping will eventually result in an inventory overhang.”

While freight demand has been moderating, carriers have continued to increase pay for truck drivers but at lower levels, according to the National Survey of Driver Wages report for the first quarter of 2019. The National Transportation Institute (NTI) recently produced the report, according to a recent FreightWaves article.

“Our subscribers tell us that while freight has dropped and driver churn [turnover] has increased, the need to monitor driver pay attributes that produce desired outcomes remains especially high,” said Leah Shaver, chief operating officer at NTI. “Some of these outcomes include referrals, safe, productive driving and fair compensation for downtime. We’re in a market with near full employment, and driver expectations are raised after a record year in 2018. In these conditions, the driver situation changes rapidly.”

Carriers are paying drivers up to 65 cents per mile, the report shows, and NTI founder and CEO Gordon Klemp told FreightWaves that the top 10% of carriers in the survey have increased their per mile pay rates by about 23%, or 12 cents, over the past year. The pay rose about 5 cents per mile in the first quarter.

A large number of carriers also continue to offer signing bonuses, but the size of the bonuses has been falling, Klemp said, adding carriers that have offered some form of guaranteed pay have seen a positive impact on turnover and hiring.

Truck drivers are less likely to be unemployed than other workers, according to the U.S. Census Bureau. Only 4.1% of drivers are unemployed, compared to 5.3% for all workers. The average pay for long-distance drivers is $48,290, according to the Census Bureau.

Carriers operating primarily in the spot market that have increased driver pay are at the greatest risk to cease operations when the next freight recession happens, according to Bob Costello, chief economist for trade organization American Trucking Associations. Costello recently spoke at the National Shippers Strategic Transportation Council in Washington, D.C., and he expects the next recession to be mild for the economy at large but have a significant impact on the trucking industry, according to a recent FreightWaves article.

“I’m already hearing of fleets that have provided pay increases — which by the way I think needed to happen, and the market dictates that — are under a lot of pressure,” Costello said, noting that pay decreases are difficult to implement. “So how do you continue to make payroll when you’re seeing spot market pricing going down? In fact, I predict a large number of trucking companies will go out of business.”