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U.S. Economy May Stutter Step in 2014 Due to Trucking Capacity Constraints
The outlook for the trucking industry should be improving as weak first quarter profits become a blur in the industry’s rear view mirror with a snap back in demand due to warmer temperatures and historical rate increases throughout the industry. The picture is far from rosy, however, as the industry has yet to resolve its biggest challenge: constrained capacity. In fact, trucking faces two major hurdles impacting capacity: (1) fleet sizes have declined as trucking companies have refrained from refreshing their fleets with new equipment due to a tight credit market and sporadic revenue cycles since the beginning of the recessions, and (2) the nationwide driver shortage continues to grow. This shortfall of truckers is currently estimated to be 30,000+ drivers, which is up from 20,000 mid-2013, and is expected to grow to 300,000+ by 2020 according to the American Trucking Association.
There is no question that a smaller US fleet is impacting capacity, but that is irrelevant in the short-term because there are thousands of idle tractors across the country due to the driver shortfall. The shortfall is nothing new to this industry; however, it has been elevated due to a large number of retirements in recent years, increased regulation which potentially limits driver earnings and younger generations opting away from the nomadic trucker lifestyle in order to spend more time with their families.
The economic recovery has driven increased demand as has the increase is US exports. In the foreseeable future, there seems to be no clear answer to the problem with the average age of the 1.6 million truck drivers in the U.S. 55 years, according to the bureau of labor statistics. It is going to take more than signing and safety bonus to reverse the trend because extra money can’t buy happiness. Trucking companies are going to have to figure out how to make their people content by balancing driver’s personal life priorities as well as their financial rewards.
If you are a consumer of freight services, you will feel the short-term economic impact of the driver shortfall with 5-15% rate increases in the second quarter; however, you should expect bigger challenges to your earnings in the latter half of the year due to potential service interruptions. With no clear solution to the driver shortage, it is inevitable that freight will be sitting on loading docks heading into the back-to-school and Christmas seasons. Manufacturers and retailers need to lock in carrier capacity commitments now to avoid service interruptions later while also exploring intermodal solutions. Meanwhile, the trucking industry needs to address these challenges to its financial success or run the risk of an increasing number of fleets remaining idle. The key? Working on creative solutions to attracting and retaining its most valued asset.