State of the State 2022: Trucking industry demand to persist amid labor, equipment shortages

The trucking and transportation industry is expected to continue to meet freight demand while struggling with tight capacity resulting from labor and equipment shortages, inflationary concerns and uncertainty caused by the COVID-19 pandemic.

Shannon Newton, president of the Arkansas Trucking Association, said from an economic perspective the industry has fared well because of the increased demand.

“We benefited from the attention brought to the workforce that we employ,” Newton said. “We appreciate and want that recognition for them as to how important the movement of goods is to all segments of our economy and our society.”

As the world went into lockdown at the onset of the pandemic, the industry continued to move freight amid a lot of uncertainty, she explained. And in 2021, the rise in consumer spending and freight demand superseded the headwinds, including the driver shortage and port congestion. Newton said the first half of 2022 is expected to be similar to a continuation of 2021 with demand remaining strong and capacity tight. She noted that the projections of empty stockings and shelves over the holidays didn’t come to fruition as the industry continued to meet consumer expectations.

This was confirmed by the December Cass Transportation Index Report that showed the shipments component of the index increased by 7.7% in December, from the same month in 2020.

“Though the record backlog of 105 containerships off Southern California and sharp declines in intermodal volumes in early 2022 still demonstrate capacity constraints on freight volumes, the strong finish to 2021 shows progress as the trucking industry has begun to build driver and equipment capacity in spite of extraordinary challenges,” the report shows.

Still, Newton said some ATA members ordered new trucks to be delivered in the second half of 2021, but they didn’t arrive, requiring carriers to drive equipment longer than expected. And this might contribute to increased maintenance costs for the carriers.

“They have pretty big depreciation schedules that they weren’t able to meet, so they’re going to have an increased tax burden for 2021 because they weren’t able to switch out that equipment and take advantage of those tax consequences of that transaction,” Newton said. “We’re kind of stuck with the number of drivers and the number of equipment that we have to continue to try to provide the service that is needed.”

Kevin Williamson, CEO of Chicago-based RJW Logistics Group, also expects capacity to remain tight and freight demand strong. RJW, which has a Bentonville office, provides transportation and warehousing services for consumer packaged goods (CPG) companies. He said consumer demand has led the companies to not only replenish inventory but also look to build that inventory to prepare for capacity crunches.

“Consumer demand changed in 2021, and as we got into 2022, I think that demand is going to continue, especially with the omicron variant,” he said. “During the pandemic, I look at it as somewhat of a gold rush.” He added that CPG companies that can meet the demand will gain market share.

He expects freight to be hauled with older fleets as carriers struggle to add new trailers and trucks amid a lack of components to build them. He also expects the labor challenges to remain with an aging driver population. Meanwhile, the number of new drivers will be limited by equipment shortages.

Though capacity will be tight this year, he expects shippers to be more prepared for the squeeze that’s expected in March and April and lead through the remainder of the year. He noted an important factor is building inventories early. In 2021, a labor shortage led transportation and manufacturing companies to increase wages, contributing to inflation and higher product prices, Williamson said. He said the inflationary pressures exposed the supply chain issues that began in 2020; however, he doesn’t expect the issues to be resolved in the food and beverage industry until the supply chain can keep up with the production of materials that are needed downstream.

“There’s that constant demand of getting products where they need to be, but it’s probably going to be another 18 months before you start seeing everything get caught up to meet that demand and start building the inventory levels,” he said.

He noted the Federal Reserve increasing interest rates could help to slow consumer spending. However, he said the shift in consumer spending toward e-commerce over the past two years has become normal. And he doesn’t expect this to change. Also, he doesn’t expect costs to rise as they did in 2021 but to plateau.

Donnie Williams Jr., executive director of the Supply Chain Management Research Center at the Sam M. Walton College of Business at the University of Arkansas, said the supply chain performed well in 2021, and a lot of the widely reported bottlenecks were a result of pent-up demand from 2020. Goods demand rose to a record high, and ports handled a record amount of goods.

“I think the supply chain performed admirably with the fluctuations in demand, the bottlenecks we did experience and the fact that we had relatively small amount of shortages across all sectors, other than semiconductors,” he said.

Andy Balthrop, research associate in the Supply Chain Management Research Center, noted that throughput at the Port of Los Angeles was up 20% in 2021, from 2019 levels.

Williams explained that the multiple rounds of stimulus led the economy to accelerate, contributing to increased demand across various industries. He added that the new COVID variant and inflation have created concern and uncertainty for 2022. Balthrop expects demand and inflation will moderate as the stimulus wanes. Williams expects the tight capacity to continue until at least late spring or early summer, but he doesn’t expect rates to fall as transportation companies recoup rising costs and invest to increase efficiency, especially in final mile logistics.

“I think the complexities of our system are going to continue to drive those costs up because it takes a lot more equipment, more people to manage that final mile delivery than it ever has before,” he said.

Editor’s note: Link here to connect to the State of the State section.