Driver shortage increasing again

The driver shortage is elevated but manageable, and the capacity environment is only modestly tight. Weaker freight growth during the middle of 2011 and early part of 2012 has slowed the need to add capacity or drivers. There is no evidence that fleets are trying to add capacity ahead of the 2013 HOS mandate. Initial estimates for Q1 of 2012 show that the driver shortage remained below 100k drivers, at a shortage of just 81k. This is just slightly higher than the 70k driver shortage that was recorded in 2011Q4.

After peaking near 150k in early 2011, the driver shortage was reduced throughout 2011 as freight growth waned and carriers regained some balance in the supply/demand equation. Fleets were adding enough drivers in 2011 to start offsetting the driver shortage. That will reverse in 2012 as freight growth will accelerate and then HOS will come into play during 2013.

A shortage under 100k indicates a modestly tight level, but one that does not put significant pressure on pricing and wages.

Outlook
Freight growth remained weak during the first quarter of 2012 so there was little pressure on the driver shortage. We still believe that the freight markets are poised for better growth and, therefore, the driver shortage should get moderately 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 near 250k by the end of the year.

Freight growth disappointed during Q1 but we expect it to turn around during Q2. This should lead to an increase in our driver shortage estimates, to approximately 150k by the end of the year. We should peak out near 250k drivers once HOS is fully implemented in 2013, a sizable shortage but below the levels achieved in 2004.

The chances of getting a ‘mother of all capacity crunches’ has significantly waned. When the HOS regulations were initially proposed to be implemented during the same time frame as the cyclical recovery was occurring led us (and others) to state that a severe capacity crunch was coming. The weak economic environment in 2011, combined with the drastically delayed implementation in 2013, has reduced the industry’s worries. We are still certain that the shortages will be sufficient to maintain solid pricing. The chances of a true crisis when Hours-of-Service rules cut in is much less likely.

“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 critical.”

Analysis
With slow freight growth and delayed implementation of new safety regulations, the early recovery driver shortage has reached only half of the levels we forecast several years ago. The peak this time has only been half of the peak in 2004, when strong growth and HOS changes caused a short-lived spike around 300,000 drives.  However, we are still anticipating further increases and will achieve a high level of driver shortage during 2013.

We expect the peak in shortages for this recovery to occur late in the cycle as delayed growth and regulations both finally appear in 2013. We should see some early signs of that tightening as 2012 matures.

Hours-of-Service – No Changes
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 significantly 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.