Trucking industry might have hit inflationary peak; labor challenges persist

The trucking and transportation industry looks to have reached an inflationary peak in rates in the fourth quarter of 2020 and is headed toward a deflationary market, according to a recent report from a third-party logistics company of UPS. Meanwhile, the industry is struggling with labor issues.

The report by Coyote Logistics shows its spot rate index fell by 37.6% in February, from the same month in 2020. However, the market is expected to remain inflationary in the first quarter and won’t be worse than the fourth quarter of 2020. But spot market rates and capacity are expected to be volatile.

For the week ending March 28, dry van spot rates rose 1.1%, from the previous week, according to DAT Freight & Analytics. The rates ended the month where they started.

Carriers have been investing in trucks, and as this capacity comes into the market later in 2021, spot rates are expected to become deflationary, according to the Coyote Logistics report.

In the second quarter, spot truckload rates are expected to fall before becoming deflationary in the fourth quarter of 2021, the report shows. Meanwhile, contract rates are expected to rise as 2021 bids go into effect with shippers favoring “flexibility and peace of mind over rate reductions,” according to Coyote Logistics. The report attributed the projected decline in spot rates to an expected oversupply of capacity.

However, capacity remains as tight as it’s been since the Great Recession, according to DAT. And the industry faces a challenge to hire drivers to fill the seats of this capacity.

In a separate report, Coyote Logistics studied the labor supply problem. The report attributed the problem to four factors: slow rising wages, the difficulty of the job, limited growth opportunities and barriers to enter the field.

A recent Centerline study shows 76% of truck drivers said competitive pay is the top factor to take a job, but half reported existing wages are not competitive.

“Trucking compensation is not a simple matter of abysmal wages,” according to Coyote Logistics. “But the industry is dealing with a perception of slow wage growth for a job that was once a proverbial example of blue-collar work that provided high wages and a comfortable middle-class lifestyle.”

Half of long-haul drivers do not feel safe on the road, according to Centerline. And according to the Bureau of Labor Statistics (BLS), trucking was the sixth most dangerous occupation group in 2018. BLS data also shows median pay for drivers was $45,260 in 2019.

Most existing truck drivers tend to remain truck drivers, according to Coyote Logistics. And the largest skill gap to become one is obtaining a commercial driver’s license (CDL). A CDL is required to become a truck driver, and earning it often requires an investment of time and money in a truck driving school. Existing job openings show the worker bears that cost, according to the Coyote Logistics report. And most job openings also require experience, which might be why most existing truck drivers come from previous truck driving jobs.

Trucking companies won’t grow the labor pool and change the age composition of trucking unless more firms are willing to train new workers, the report shows. Nearly 57% of truck drivers are older than 45, and 23% are more than 55 years old. About one-quarter of drivers will be retirement age in 10 years, and this doesn’t include the 8% who have already reached that age.

In the fourth quarter, the driver turnover rate was flat at 92% for truckload fleets with more than $30 million in annual revenue, from the third quarter, according to American Trucking Associations (ATA).

“With the continued tightness in the driver market, it may seem surprising that the turnover rate didn’t jump in the fourth quarter as economic activity and freight traffic increased,” said ATA Chief Economist Bob Costello. “However, paradoxically, strong freight demand may have actually contributed to turnover staying steady by keeping drivers – particularly those engaged in the dry van and temperature-controlled sectors – too busy to change jobs.

“With the impact of recently passed fiscal stimulus, and the quickening pace of vaccinations in the U.S., we are likely to see continued improvement in the economy which will drive not just healthier freight volumes, but are likely to create even more demand for drivers, tightening the market, so motor carriers need to remain focused on driver retention,” Costello added. “While the driver shortage temporarily eased slightly in 2020 during the depths of the pandemic, continued tightness in the driver market remains an operational challenge for motor carriers, and they should expect it to continue through 2021 and beyond.”

A recent Tenstreet survey showed pay was the top issue that carriers need to address to retain drivers. Tenstreet produces a proprietary analytic called the Stay Index that identifies issues contributing to high levels of driver dissatisfaction and are more influential in a driver’s level of commitment to a carrier. The survey for the second half of 2020 reflected what differences existed between men and women with regard to what items impacted driver satisfaction. Pay was No. 1 for men and women. No. 2 for women was whether the people they work for keep their promises. The issue was No. 3 for men. No. 2 for men was fair wages for the amount of work they do. This was No. 5 for women. Work-life balance was No. 3 for women. It was No. 7 for men.