The long-awaited capacity crunch is here, with the national load-to-truck ratio hovering well above normal levels for this time of year, and shippers grudgingly accepting higher rates.
Fortunately, the trucking industry is racing to add capacity, both by purchasing new equipment and hiring new drivers. Orders for new trailers skyrocketed by 36 percent in March and truck conglomerate PACCAR (which owns Peterbilt, Kenworth, DAF) posted record revenues and is opening new facilities worldwide in anticipation of continued demand. Meanwhile, carriers are aggressively courting drivers with raises and cash incentives; according to the National Transportation Institute, average sign-on bonuses in February 2018 were over three times higher than the same date in 2017. However, both these efforts may prove insufficient if the cost of raw materials continues to rise, and the labor pool continues to be plagued by tepid recruiting and high turnover.
American trailer manufacturers have been reporting robust orders since last year, a boom led by flatbed and dry van orders. Manufacturers are reporting full orders through the end of this year and, and according to ACT research, “Depending on the OE and the trailer category, a fleet placing an order now may well receive a 2019 delivery date.” Despite this, trailer makers are not as jubilant as one might expect, owing to concerns about the cost and availability of raw materials. US tariffs and sanctions are already increasing production costs and driving down profits for manufacturers, with Hyundai’s Chief Sales Officer telling Transport Topics that steel and aluminum costs have taken “a big bite, and it has been swift.”
Steel prices have already spiked as much as 30 percent since the tariffs were announced, though the NAFTA exceptions may calm them somewhat. Meanwhile, according to the Wall Street Journal , sanctions against Russian aluminum producer Rusal caused April to be the single most volatile month for aluminum pricing since at least 1997, the first year for which data is available. The uncertainty surrounding the possible ripple effects from any tariffs have trailers manufacturers reluctant to issue quotes for new orders. In an interview with FreightWaves, Charles Wilmott of The Strick Group, a trailer maker, addressed these concerns, saying: “The proposed tariffs have totally disrupted the domestic material and component markets which were already running at maximum capacity.”
Even if trailer manufacturers are able to meet demand, no amount of equipment can do much good if there is no one drive it. The American Trucking Associations estimates that the industry is still short roughly 50,000 drivers, but with unemployment rates dipping, the labor pool for new drivers is becoming worryingly shallow. Trucking is competing with oil and construction industries that offer comparable wages and more time at home. To attract drivers, many fleets are offering sign-on bonuses, performance-based incentives, and increased per-mile pay. Knight-Swift CEO Dave Jackson told JOC that 25 to 30 percent of all contract rate increases go to drivers, a number that may be as high as 50 percent for some fleets. Even so, this rise in wages is long overdue in an industry where salaries have failed to keep pace with inflation since the 1980s. In 2016, the average long-haul driver made just $53,000 per year, and according to a survey of recruiters, that number needs to be at least $75,000 in order for the industry to stay competitive. While the rate increases might be painful for shippers, they still represent a necessary course-correction after decades of drivers being underpaid and underappreciated.
The equipment and driver shortages are both contributing to the ongoing capacity crisis, but the driver issue may be the one with the best chance to self-correct, as the advent of driverless or driver-assisted trucks approaches. More worrying is the possibility that the fallout from tariffs will torpedo the economic recovery and destroy the conditions that created the capacity crunch in the first place.