What Happened to the Driver Shortage?

One year ago, FTR was forecasting a driver shortage of 282,000, just under the record shortage of 292,000 in 2004. Like the 2004 event, this shortage was a combination of delayed expansion for economic growth (cyclical drag) and driver disqualifications and productivity losses from new regulation (regulatory drag). Had this shortage occurred, we would be currently experiencing spot supply chain failures and double-digit price increases—just like we did during the last recovery. Instead, the current shortage sits at 98,000 drivers, a modest number for mid-recovery. Note that it is well below the 152,000 driver surplus we experienced in 2009, but the market is only subject to modest pressure – just enough to sustain modest price increases.

Less Cyclical Drag
Here’s what happened. We start our explanation with the discovery of much less cyclical drag than expected – for two reasons.

1. The downturn wasn’t quite as dramatic as we thought – bad enough – but not as bad as we thought.
2. Partly as a result, growth has been much slower than we understood last year for each of the three years of recovery. Therefore, the truckers have had to adjust to an expansion of 61 million loads instead of the expected 83 million. That is a 27% reduction. The smaller the capacity adjustment, the easier it is for truckers to keep up.

Less Regulatory Drag
We also now know that there has been much less regulatory drag than expected. A year ago, the Federal Motor Carrier Safety Administration (FMCSA) intended to implement new, stricter hours of service (HOS) regulations in June of this year. They have pushed back that implementation and reduced the magnitude of the change by one half. The same thing goes with most of the other proposed regulatory changes. As a result, the to-date net reduction in driver capacity has been 70,000 drivers rather than 198,000. Again, the smaller and more gradual the regulatory change, the easier it is for truckers to adjust.

All Clear, Right?
Does this mean that the action is over for this recovery? The jury is still out. The current FTR forecast says no. There is still two years or so of growth left in this recovery (maybe more). Moreover, the disappointing performance of auto, housing, and consumption during the first half of the recovery suggests the build up of strong pent up demand. That’s the basis of our forecast for the next two years. If that occurs it would add at least 20,000 drivers to the current shortage. Since there would probably be a couple of peak quarters where the industry gets really behind, the number will probably be larger.

The other reason to expect increased shortages is that the FMCSA has stated clearly that it intends to keep publishing new regulations. That’s what we have in our forecast, producing a peak shortage (when added to cyclical drag) of 250,000 drivers in 2014. Moreover, the total weight of the proposed regulations would drag those shortages out for several years, unlike the one-year crisis of 2004.

Probabilities
Will it actually happen? Our forecasting staff currently puts the probability of moderate, or better, economic growth in 2012 and 2013 at 80%. We put the probability of FMCSA regulation action at 80%, but with delay possible. So use of the current forecast is likely, but represents a high-side shortage scenario.

You should not, however, consider this a “worst case” scenario. Here’s why. If the FMCSA delays their big programs by another year, that puts implementation just before the likely beginning of the next downturn. That means the industry will be dealing with productivity problems in a softening market, where pricing power is falling. It was the opposite in 2004 and the industry sailed through that crisis. This time could be much more difficult.

Keep it in sight
That reminds us of why it is so important to track these issues. Both cyclical and regulatory drag have powerful effects on supply chains and carrier margins. Lose track of the latest developments at your peril. FTR is the only industry resource that regularly tracks and quantifies these issues. We will be keeping our TruckGauge subscribers abreast of the latest in this arena. Stay tuned.