Driver shortage higher than first thought

UPDATE: We have updated our outlook to account for the officially released Hours-of-Service (HOS) rules. The start date is for a later date than our original estimates included. We had used a late 2012 start, but the final rules are for a July 2013 implementation date. Also, the full impact of the rules are now estimated to have only a ~3% drag on trucker productivity, compared to the nearly 5% hit that we previously estimated.

HOS rules…finally
HOS rules finally arrived. And just in time for Christmas! What a wonderful present for all of us. We have done the dirty work of estimating the impact of the Hours-of-Service (HOS) rules as the finalized regulation are now written. Drivers are the number one issue facing truckers, even above the economic and regulatory situations. Despite having a weak economic environment, high unemployment, and delayed regulations, the driver shortage remains persistent and will eventually get worse. Fortunately, it looks like the driver situation may not get much worse during 2012 now that the HOS rules aren’t going into effect until July 2013, at the earliest.

Significant changes
In addition to the HOS changes, we have also made 2 significant changes that affect our outlook. You will immediately notice that the current shortage is nearly double what we had previously estimated. The first change is the historical freight update that we have mentioned in other updates. See below for more info on that. We have also updated our model to better reflect the impact of the regulatory environment on the driver market. Combined, the two start us at a bigger shortage prior to HOS implementation and create a sustained level of shortage that persists for a longer time.

Last time
In 2004 we had a combination of both strong industry growth and big regulatory drag occurring during the same year. The combination drove the driver shortage from a modest 100,000 at the end of 2003 to a very tight 300,000 in the middle of 2004. The shortage then eased for 6 straight quarters, turning into a small surplus by the end of 2005.

Outlook
We are starting 2012 at a level nearly double that in 2003. We expect to maintain this level of tightness throughout the year. As is commonly the case, the pressures from this will be felt most keenly during the freight peak seasons (early spring and late fall). Despite the fact that the rules are further delayed and will now likely be occurring much later in the recovery than we saw back in 2004 we anticipate that the peak level will be about the same (300,00) but it is likely to remain at a high level until the economic cycle turns for the worse.

Analysis
Although the slow economy has kept the worst pressure off of capacity-strapped recruiting departments, there is enough capacity stress to make capacity additions very difficult. One of these days regulatory drag will kick-in, perhaps strong enough to create spot shortages of capacity.

With all of that uncertainty inherent in trying to estimate the impact of the HOS rules we can boil it down into 3 statements:

• The fleet is currently tight and the hiring market remains difficult. (TRUE)
• If the HOS rules are implemented in 2013 they will lead to a further tightening of capacity and a large shortage of drivers. (PROBABLE)
• If the economy is sputtering by the time we finally get to HOS implementation, the effects on the shortage will be somewhat muted but the bigger implication will be on the carriers ability to achieve the proper level of cost recovery (i.e. rates). That becomes significantly more difficult. (POSSIBLE – and worrisome)

NOTE: Each year FTR does a major update of its historical tonnage data. That update has just occurred. You will notice substantial changes to the data starting in 2010. Click here (http://www.truckgauge.com/2011/12/21/ftrs-annual-freight-update/) to see a full review of the changes and its impact on the truck markets. The quick and dirty synopsis is that 2010 was much, much stronger than the initial estimates had indicated. Not surprisingly, growth in 2011 has decelerated more than previously thought.

Outlook w/0 HOS implementation
Even without implementation of the HOS rules, the driver hiring environment will remain tight and a driver shortage will persist. The shortage would remain near the 200k range throughout 2013. Aside from HOS, numerous other rules are currently being implemented or are in the process of such. Many of these rules have been, or will be, delayed. Only CSA is actively being worked. A court ruling has delayed the mandate for EOBR’s for safety-delinquent carriers. In sum – of the ten or more items on the docket, only one is officially in place. Back in 2009 and 2010 we expected that late 2011 would be the peak of new regulations – obviously not.

Despite the regulatory delays, market forces have already required fleets to make changes before the government requires them. The big fleets are already actively installing EOBR devices, without regulatory requirement, because it makes good business sense. So, we are getting market effects from CSA, top speed governing, EOBRs, and training standards even though only one item has actually been implemented.

Also, we now know that the effects for many of these changes are actually bigger than originally estimated. CSA is eliminating more drivers than we thought a year ago, because the threat of litigation has caught the attention of customers. EOBR’s are fully expected to be a positive influence on productivity; however, fleets have found that even their safest drivers routinely cut current HOS corners as a matter of convenience.

Until the market cycles turns significantly one way or the other, the driver shortage will remain near its current level. A change in growth or regulation is needed to move it up or down.

Additional notes on HOS
New research has shown us that the drop from 11 to 10 driving hours may be a moot point because of an additional change. A drop from 14 to 13 hours of duty time, as the FMCSA has proposed, means many drivers wouldn’t be able to get the full 11 hours currently permitted.

We also now understand the full impact of the changes to restart calculations. The new regs will essentially require one restart each seven days. Under the old rules, a driver could restart mid-week. No-can-do under the proposed regs.

NOTE:
This metric is intended to identify the number of drivers needed in relation to freight demand. When negative it is basically the backlog of drivers needed to be filled. It includes both the cyclical and regulatory changes occurring in the market. When dealing with the very diffuse trucking industry it is hard to come up with hard figures – as such, this data is most useful in highlighting the trend and the relative levels.