Driver shortage estimate lowered

A recently completed recalibration of our historical freight data has led us to adjust our driver shortage estimates. Despite showing that the recent recession had less of a peak-to-trough decline, our driver shortage estimate was nearly cut in half for the last half of 2011.

NOTE: We are continuously updating and improving our data and calculations so that we can present you the best insights and analysis available. To that end we have updated our historical data to better reflect the wide swings in economic activity that occurred during the Great Recession and the ensuing recovery. You will notice substantial changes to our data this month. To find out what those changes were and how they affect our outlook for the industry click here.

Outlook
Since the third quarter of 2010 the driver shortage has remained near the 100k level. This is down from the nearly 200k level that we originally forecast. No HOS implementation in 2012 means that we are likely to remain in this 100k range until the end of 2012. We estimate that the industry is short 120k drivers in Q1. The shortage is unlikely to get above the 150k mark until the end of 2012. HOS pressures come into play during 2013 and push the shortage to 240k by the end of the year.

The revised estimates push us away from the 300k level that would have indicated possible industry-wide capacity shortages. The new level is still sufficient to maintain solid pricing, but it does reduce the chances of a true crisis when Hours-of-Service rules cut in.

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

REVISED DATA: The driver surplus changed from a peak of 430k in 2009Q1 to 160k in 2009Q2. The surplus was reduced but spread over several more quarters. Instead of getting a significant shortage in early 2010 (~200k), we now estimate that we didn’t have a measureable shortage until Q3 of 2010 (~80k). The shortage has remained near the 100k level since then instead of the 200k in the prior data. From late 2012 through early 2014 our outlook has been reduced by about 25%. Instead of getting above 300k, we now anticipate staying below a 250k driver shortage.

Analysis
With a smaller peak-to-trough freight decline you might expect the shortage estimates to move higher, but the main impact on driver shortages is one of timing and individual quarterly changes. The new data moves the peak and trough quarters from the last recession three quarters later. The severity issue is important because dramatic quarterly changes are what cause driver shortages. This recalibration reduces the peak expansion quarter for this recovery from an annualized rate of 27% to 18% – plus the substitution of one dramatic quarter for three.  That means a reduction in truck shortages from the 200,000 level to 150,000. The new level is still sufficient to maintain solid pricing, but it does reduce the chances of a true crisis when Hours-of-Service rules cut in.

Also, the recalibration changes our understanding of the comparison for this recovery to the last. The new numbers for the 2004 recovery move the expansion from the first quarter to an even spread across quarters two, three and four. Importantly, the magnitude of the change is still enough to create the same level of shortage as we thought before, but pushed the crisis out to the second half of 2004 rather than the first half. This trues up with what we know about pricing. As we stated above, the changes reduce the peak shortage in the current recovery. That is important because the peak period of stress will be at least twice as long as in 2004. Without the reduction in level the chances for supply chain failures would be very real indeed.

Hours-of-Service
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.

The driver labor shortage at the 100,000 mark is a “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 HOS rules 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.

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.

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.