Driver shortage outlook lowered

Without accounting for the slowly growing pressure of regulatory change, the normal cyclical shortage in driver capacity has fallen from its 2010 high of 135,000 drivers to the 50,000 driver range. With the addition of regulatory drag, the shortage is closer to 90,000 drivers – and only slowly rising. Weaker freight growth during the middle of 2011 and early part of 2012 has slowed the need to add capacity or drivers. The first quarter of 2012 showed that the driver shortage remained below 100k drivers, at a shortage of just 89k. This is revised slightly higher than last month; however, the near-term forecast has been pulled lower.

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

See Noel Perry’s recent commentary for an update on changes from last year to now, click here.

Outlook
We lowered our estimates of the impact that regulatory actions are having on the current market. When combined with the weak freight environment of late 2011 we show that the driver shortage is stuck at 100k for 2012, not at a high enough level to created undue stress on the transportation system. HOS pressures come into play during 2013 and push the shortage near 250k by the end of the year. It is then expected to maintain that high level of shortage throughout 2014, averaging a shortage of 235,000 for the year.

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 it 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 into 2013, has reduced the industry’s worries. We still believe that the shortages will be sufficient to maintain solid pricing. However, 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
This level of shortage can be readily handled by normal market mechanisms. Any real stress is now pushed back to 2013 and the introduction of new Hours-of-Service regulations. The labor environment is slowly tightening under pressure from increased capacity utilization and regulatory pressure. Nonetheless, the tightness levels are well below what we expected a year ago.

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.

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 2013 as HOS will come into play.

The delayed, and reduced, HOS changes have combined with slower freight growth in 2011 to slow the uptick in driver shortages. The to-date net reduction in driver capacity has been just 70,000 drivers. The smaller and more gradual the regulatory change, the easier it is for truckers to adjust.

Will the shortage 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.

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.