Can a U.S. labor force that’s growing at 0.22% over this decade keep up with an economy growing at 2% per year? Fleets that figure out how to best use the smaller labor pool—and retain good drivers—could take advantage of resilient consumer spending as inflation decreases this year. One keyword: Retention.
One of the hardest-hit labor markets is trucking, particularly the long-haul segment. But trucking has been facing a driving shortage for a long time. American businesses have constantly been concerned about having enough men and women to move their goods across the country—since before the interstate system.
Bob Costello, chief economist for American Trucking Associations, has warned that the current 80,000 truck driver shortage could double by 2028. He’s warned that if trucking doesn’t find younger drivers to replace the older ones, the supply chain problems of 2021 would just be a preview of the future.
See also: How to appeal to a changing truck driver demographic
ACT Research’s Steve Tam found a Traffic World article focusing on the driver shortage in December 1914. “Think of the commercial vehicles that were in service in December 1914,” Kenny Vieth, ACT president, said after seeing the article.
“We have an 80,000 driver shortage relative to the current situation,” Vieth explained during ACT Research’s Seminar 66 in Columbus, Indiana, on Feb. 23. “We’ll pay drivers more and pretty soon we won’t have a driver shortage—because freight’s going to roll over at some point.”
Vieth noted there are “roughly twice as many people with CDLs in the United States as there are [truck] drivers in the United States.” Truck driver turnover rates exceed 90% for large, long-haul carriers and 72% for smaller carriers, according to DOT.
“If you have near 100% turnover, you don’t have a driver shortage, you have a retention problem,” Vieth said. “That’s probably an unfair take. Some of it lies with the problem that trucking is a hard job that not everybody can do.”
But retention is going to be a key for carrier success this decade, when the U.S. labor force is projected to grow just 0.22%, according to the U.S. Census Bureau. That’s going to make finding workers in trucking and manufacturing difficult, Vieth said. “We’re looking at a lot of goods inflation right now. But what does labor inflation look like in the coming four or five years?”
Economic whiplash and inflation
That goods inflation that picked up in 2021 could play a role in trucking in 2022 and beyond. The economic whiplash caused by the COVID-19 recession has the U.S. economy out of whack.
Unlike the three previous major recessions, dating back to the early 1990s, the country rebounded quickly from the pandemic recession, leading to inflation and other problems. While those problems are causing consumers to expect the worst this year, economists speaking at ACT Research’s Seminar 66 expect inflation to slow while the economy keeps growing into 2023.
The compressed economic cycle caused by the pandemic—where it took just one year to get back to pre-recession industrial output—put extra strain on the supply chain, according to Jim Meil, ACT Research principal and industry analyst. While the previous U.S. recessions took months for industrial output to slow and even longer to rebound, the recession during COVID-19 took just four months to bottom out and 12 months to return to where it left off in spring 2020.
The Great Recession of 2008-09, for example, was driven by the collapse of the housing market and record oil prices. But the economy then took 18 months to bottom out and another 31 months to return to its pre-recession peak, Meil explained.
This abnormal recession and the inflation it is causing is worrying consumers more than most economists, though. While 2021 saw inflation reach 4.7% and continue to grow into 2022, the surge in prices is expected to taper off as the year continues, according to Bryan Bezold, senior North American economist with Ford Motor Co. Citing recent Blue Chip Consensus economic indicators, Bezold said inflation could even out to 5% by year’s end and decrease to 2.5% in 2023.
Speaking shortly after Russia invaded Ukraine last week, ACT’s Vieth noted that “North American and global economic data is solid—at least for now. Since Russia started a war yesterday, we’ll have to see how all that progresses.”
He noted that consumer and business fundamentals remain strong—for now. “We’ve never had greater wealth in the United States,” Vieth said. “Savings rates are good. Debt obligations are very low right now after years of very low interest rates. So everything is looking pretty good. Real disposable income grew at over 2% last year in spite of plus-7% inflation.”
Services catching back up with goods spending
This comes as trucking fundamentals remain strong, with the goods sector driving the economy, according to ACT.
Despite inflation worries, consumers are still spending money. But how they are spending money could be changing. For the past two years, Americans have been more focused on buying goods than services. Retailers, many of which are still trying to catch up with the ecommerce boom, are still focused on restocking inventories, which is good from a trucking perspective, according to Tim Denoyer, ACT VP and senior analyst.
“There is a lot of pend up demand, but there is also a likely reversion on goods spending,” Denoyer said during the seminar. “Services are starting to catch up with durable and nondurable goods spending.”
The bad news for the economy, however, are those vendor concerns about inventory strains, particularly for semiconductors. Along with rising oil and fuel prices, there are still port delays and what Vieth called a “frayed global transportation network.”
The Class 8 vehicle market is still facing an “everything shortage” as constraints to move freight build, he said. Demand for heavy-duty trucks remains at record levels, and inventory is low after “under-builds” last year and so far this year. ACT’s current assumptions pin pent-up North American demand at 150,000 units by year-end—120,000 of that in the U.S.
OEMs are struggling to get all the components in trucks—from the semiconductors that process some vehicle systems to body parts to seats and mattresses, Vieth said. “Another thing that is somewhat shocking on this list is drivers to deliver the trucks from the OEM assembly plants,” he said. “How bad is it when a truck manufacturer can’t find someone to drive trucks?”
Semiconductors continue to be hard for truck makers to get. Vieth noted that the automotive industry only uses about 10% of the chips in the world. “So the automotive industry is the tail of the dog after computing, wireless, and consumer products.”
And while the U.S. does not rely on Ukraine for imports, Vieth worries that Vladimir Putin’s invasion of the former Soviet state could set a precedent for China to attempt to take control of Taiwan, where 60% of the world’s semiconductors are produced.
The Ukraine invasion is already contributing to rising oil prices. Diesel is averaging more than $4.10 per gallon this week, and market forecasters expect oil to near $115 per barrel this year.
“We’ve been trimming our freight volume forecasts for several months as oil prices and inflation have pressured the consumer spending outlook, and crude oil at $100 per barrel means more inflation and less cash in consumers’ pockets,” Denoyer told FleetOwner earlier this week.
After record freight growth in 2021, this year is still seeing a “very positive supply-and-demand balance” for trucking operations despite some lower numbers in the ACT For-Hire Carrier Survey, Vieth said. “There’s more freight than there is capacity coming into the market.”
After the surge of the omicron COVID-19 variant—which led to more work absences in trucking and other sectors at the start of the year—subsided, the for-hire carriers in ACT’s survey were still reporting strong freight rates, he added.
“It’s not how much freight the economy is creating; it is how much freight there is relative to the amount of trucks, which determines how much money the truckers are making,” Vieth explained. “That’s the important thing out here.”
