Trucking demand remained high throughout summer as consumers and businesses moved past the COVID-19 pandemic. Now, however, the surge of the Delta variant casts a shadow over demand for freight with returning mask requirements, low and slow vaccination rates, vaccine mandates in some cities and industries, and proliferation concerns as millions of children return to schools this fall—some for the first time since March 2020. Still, consumers continue to spend after more than a year of constraint, and businesses are ramping up for a busy holiday season. In addition to e-commerce and goods purchasing, which remained high throughout the pandemic, consumer spending on travel, entertainment, and other services have increased—adding demand for transported inputs to those industries. As we enter fall, the economic impact of the Delta variant and all of the uncertainties that surround it remain to be seen.
Through the first two quarters of 2021, the U.S. economy saw excellent GDP growth—6.3 percent in Q1 and 6.5 percent in Q2. Freight Transportation Research (FTR) Transportation Intelligence anticipates that growth will trail off for the remainder of the year, with 3.6 percent anticipated growth in Q3, followed by 3.9 percent in Q4. Additional FTR analysis projects that the growth of GDP goods in transportation, or the portion of national GDP that generates freight, could accelerate at an even faster rate this year.
In addition to the Delta variant, used vehicle, food, energy, and housing inflationary pressures could threaten expected economic growth through the year. The consumer price index increased 5.4 percent in June compared to a year earlier—the largest jump in 13 years. Supply chain bottlenecks, coupled with high demand as the COVID-19 pandemic eased in spring and summer, have contributed to the escalating inflation.
While truck tonnage fell slightly in Q2, it is still well above 2020 lows, and the supply side of the industry is now limiting the ability to haul available freight. In fact, tender rejections are on the rise as carriers become more selective about what freight they want or can haul based on driver availability. Moreover, the national van load-to-truck ratio (i.e., the number of loads posted for every truck posted on DAT load boards) was reported by DAT Freight and Analytics in mid-August as 5.79. The load-to-truck ratio is a sensitive, real-time indicator of the balance between spot market demand and capacity and has been above 4.27 since the beginning of the year. Simply put, there are not enough trucks or drivers to haul all the available freight in the market.
Considering high demand and tight capacity, carriers can increase rates, both in contractual relationships and the spot market. According to DAT, July van spot market rates are 33 percent higher than in 2020, and contract market van rates reached an all-time high; reefer and flatbed rates are up as well. Due to the continuing supply constraints, rates are expected to remain high for the rest of 2021.
The transportation industry continues to be constrained by several key factors, including employment shortages, supply chain constraints, high input costs, and regulatory pressures.
Employment Shortages
Like nearly every industry, transportation continues to struggle to find employees. The driver shortage has seen numerous headlines, but technicians, warehouse workers, dispatchers, operations leaders, and corporate support staff are also in short supply. Companies continue to increase compensation for nearly all positions, which contributes to the need to raise trucking rates. Pay increases and sign-on bonuses have caused turnover to rise among drivers, technicians, and warehouse workers as they jump between employers competing for their services.
Projections show the industry is currently short more than 60,000 drivers and will need to hire roughly 1.1 million new drivers over the next decade, or an average of nearly 110,000 per year, to keep pace with retirements and the nation’s growing freight transportation needs. While many are expecting that the end of federal unemployment benefits in September may lead to an increase in applicants, the outlook is still challenged. In a CDL driver survey completed by the Professional Driver Agency in May 2021, 63.6 percent of CDL drivers confirmed they are not currently looking for new jobs with only 2.9 percent citing a stimulus check or unemployment benefits as a contributing factor and the vast majority noting that they are happy with their current driving jobs. The study also confirms that the driver responses largely align with data from Indeed, which shows a 54 percent decrease in driver job seekers from July 2020 to March 2021.
According to the American Trucking Associations (ATA), the average age of new drivers being trained is 35, making trucking a secondary career rather than a first choice. The industry, therefore, is seeking ways to attract younger recruits, including the development of registered driver apprenticeship programs and lowering the required age to possess a Class A commercial driver’s license from 21 so trucking becomes a viable career choice immediately after high school.
One silver lining of the pandemic is that Americans became acutely aware of the transportation industry’s importance and the roles that its critical employees play in sustaining our standard of living. The industry must harness this attention to create stronger pipelines for the highly skilled trades essential to our business.
Supply Chain Constraints and High Input Costs
The transportation equipment supply chain remains clogged following the stresses and production closures from the pandemic. Notably, class 8 vehicle production has stalled in large part from the semiconductor chip shortage—which some sources estimate could end as early as this fall or as late as 2023. Equipment producers are also facing delays and high prices for other source materials and components like rubber, steel, aluminum, tires, suspension parts, and wiring harnesses—which is keeping the cost of commercial trucks and trailers high. Based on cost volatility for raw materials and components, many OEMs are struggling to set stable prices. Manufacturing labor shortages, along with a shortage of both port workers and shipping containers for imports, are further compounding delays.
Despite Q2 declines, new equipment orders will most likely not be filled in 2021 due to pre-existing back orders. Heavy-duty vehicle builds have teetered between 18,000 and 29,000 a month this year because of the unreliable supply chain—and parts supply availability will continue to limit capacity. Still, class 8 vehicle sales through the first six months of 2021 rose 35 percent to 111,552 compared with 82,648 a year earlier. As producers open 2022 build slots, FTR anticipates record order numbers due to production lag time, pent-up demand, and a general truck shortage. As of July 1, FTR predicted that 307,400 new class 8 vehicles would be built in 2021, followed by 340,000 in 2022, and 350,000 in 2023. The 2022 forecast could increase if more demand is not met in 2021.
Regulatory Pressures
Infrastructure
A lack of adequate investment in our nation’s infrastructure is one of the most critical issues impacting the transportation industry and the motoring public today, and Congress is trying to pass legislation this session. In August, the U.S. Senate passed a $1 trillion infrastructure bill to rebuild the nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives. The bill also includes funds for modernizing the power grid and addressing climate risks.
The bill now moves to the House, where it faces an uphill battle. Speaker Nancy Pelosi and others have said they will not vote on the infrastructure bill unless the Senate passes a massive $3.5 trillion social policy companion bill this fall that would address Democratic priorities like Medicare expansion and family service programs.
Independent Contractor Status
President Biden, supported by organized labor, officially revoked a Trump administration effort to clarify the definition of an independent contractor versus an employee under the Fair Labor Standards Act. Biden is also urging Congress to pass the PRO Act (Protecting the Right to Organize), which would amend the National Labor Relations Act to adopt a strict nationwide ABC test and make several changes to expand the reach of organized labor. An ABC test is performed to determine if a worker is an independent contractor. Opponents argue that the PRO Act would tip the scales in favor of large, unionized companies and would consolidate union power and influence over the labor market.
The PRO Act is similar to California’s controversial AB5 law, which significantly reduced trucking’s ability to use owner-operator drivers. AB5 is currently facing a legal challenge claiming that it interferes with interstate commerce, and the California Trucking Association has petitioned the U.S. Supreme Court to hear the case.
Combating Nuclear Verdicts and Rising Insurance Costs
Jury awards above $1 million and nuclear verdicts ($10 million plus) continue to plague the trucking industry and are driving up insurance rates for carriers. As a result, calls for tort reform are underway. The ATA is focusing its efforts on those reforms most important to the trucking industry, like elimination of joint and several liability, caps on punitive damages, the recognition of collateral sources, and the admissibility of non-use of seat belts—where defense lawyers are unable to present evidence that a plaintiff was not wearing a seat belt, contributing to his or her injuries. The ATA also works closely with state trucking associations to ensure that trucking industry interests are included in state tort reform efforts.
In June, lawmakers in Texas passed a bill, which has since been signed into law by Governor Greg Abbott, that adds a layer of protection for motor carriers in post-crash litigation. The law will go into effect September 1. Texas Trucking Association President and CEO Jon Esparza said the new law will protect the rights of all those traveling through Texas who may be involved in a crash with a commercial vehicle, “…but at the same time reduce opportunities for some of these trial lawyers to manipulate evidence at trial in which they’ve been seeking millions and millions in damages in cases where the commercial vehicle owner was not at fault and where the plaintiff in many cases was not even injured.”
Entry-Level Driver Training Rule
More than four years after the Federal Motor Carrier Safety Administration’s Entry-Level Driver Training (ELDT) rule was published, the agency recently launched the long-awaited Training Provider Registry (TPR). Under the ELDT rule, which is slated to take effect February 7, 2022, only training providers listed on the TPR will be eligible to train those who wish to obtain a CDL. After closures of training schools and delayed Department of Motor Vehicles services throughout the pandemic, the ELDT rule has the potential to further constrain the driver market. The industry agrees that standard training is important, but a reduced training workforce could be an additional barrier to entry for would-be drivers.
According to Commercial Carrier Journal, for a CDL trainer to be listed on the TPR, they must meet the requirements of the rule, which includes following the training curriculum listed in the rule; using facilities, vehicles and instructors that meet the criteria outlined in the rule; meeting record keeping requirements; and being licensed, certified, registered, or authorized to provide training in accordance with the applicable laws and regulations of any state where in-person training is conducted,
The Ruan Approach
Clearly, global and domestic supply chains remain challenged. Many shippers opt to partner with experienced 3PLs to help manage their supply chains so they can focus on their core business. Ruan, an asset-based 3PL with 89 years of experience, a superior technology platform, and refined supply chain management processes, offers a true partnership that enhances your strengths and helps solve your challenges. Reach out to our supply chain experts at Solutions@ruan.com or 866-782-6669, ext. 1, to discuss how we can help your business.
Or, read more about four key questions to consider when selecting a 3PL partner to help manage your supply chain.