Driver shortage growing in 2012

Our estimates of a driver shortage were reduced in late 2011 but will grow as we approach the HOS deadline. Freight growth in late 2011 came in weaker than anticipated, but is currently resuming and we are well on our way back to a high level of driver shortages. We should peak out near 250k drivers once HOS is fully implemented. This is somewhat less than during the 2004 recovery, but we anticipate that it will last for a longer duration.

After recently peaking near 150k in early 2011, the driver shortage was modestly reduced throughout 2011 as freight growth waned and carriers regained some balance in the supply/demand equation. The shortage stood at just under 100k in Q1, a modestly tight level, but one that does not put significant pressure on pricing and wages.

Outlook
The current resumption in freight growth indicates that the driver shortage should get worse during the year. Despite rising, it 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.

We believe that the possibility of industry-wide capacity shortages has been reduced, but are still certain that the shortages will still be sufficient to maintain solid pricing. The chances of a true crisis when Hours-of-Service rules cut in is now much lower.

The driver shortage remains modestly 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.

Analysis
The main impact on driver shortages is one of timing and individual quarterly changes. Our recently revised historical 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 100,000. 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 changed 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.

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.