Driver shortage above 200,000

The outlook for 2012 is becoming clear as we get close to the start of spring shipping season. The officially released Hours-of-Service (HOS) rules mean that we don’t get any noticeable impact from that until we are well into 2013. The full impact of the rules are estimated to have a 3% drag on trucker productivity, a big hit but not nearly as heavy as we initially estimated.

Outlook
Since the start of 2010 (aside from a one quarter easing in 2010Q4) the driver shortage has been just under the 200k level. The delay in HOS rules means that we are likely to remain in this 200k range until 2013 gets here. We estimate that the industry is short 206k drivers in Q1. This is the first time that this metric has surpassed the 200k mark this recovery.

The driver shortage remains elevated, but still manageable, and the capacity environment is quite tight but not critical. In sum, the truck markets are tight, but not yet critical.

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
The driver labor shortage at the 200,000 mark is a “high, normal” range typical of upturns. The market is now in rough equilibrium between increased hiring and good freight growth, magnified by several “minor” regulatory changes (drug testing info and medical exam changes). Barring economic problems, the big crisis will occur in mid-2013 when the bulk of the recent FMCSA final ruling on HOS will be implemented.

With the longer than expected delay before HOS is implemented fleets can use 2012 to continue their work in maximizing their investments in routes, drivers and upgraded trucks. The productivity hit from the final ruling was less than originally anticipated and the implementation date will still remain in jeopardy as the courts will be next up for all of the stakeholders involved.

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.

HOS rules…finally
The HOS rules finally arrived just before Christmas. 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.

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 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 cycle 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
Our 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.

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 more 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:
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 definitive figures – as such, this data is most useful in highlighting the trend and the relative levels.