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US Trucking Boom Faces

Twin Challenges

After enduring the uncertainty and disruption from the impacts of the coronavirus pandemic in 2020, the US trucking industry has entered a boom period that many in the industry predict will drive the industry to new records in 2021 and 2022. PHC US Senior Partner Jonathan Elton highlights two critical hurdles.

The IMF has already predicted that US GDP is likely to rise and remain above the level expected before the pandemic. They forecast 6.4% growth this year and 3.5% in 2022. This is partly driven by household spending, where particularly higher-income households are sitting on an estimated US$2.8 trillion more than expected “normal” circumstances before the pandemic. The reopening of the consumer service sector is already resulting in a burst of pent-up spending, and this is expected to continue with demand for physical goods being a significant element of the growth.

To enable trucking companies to maximize their contribution to the economy and their share of the growth, they now need to make progress on several major challenges. 

Recruiting enough drivers

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Pushing salaries up

By far the largest is the perennial struggle to recruit enough professional truck drivers, a challenge that is perhaps more difficult now than ever before. The industry is competing for labor with many other industries, including the construction and oil and gas sectors, who likewise are all recruiting in response to increased demand.

One response has been to increase driver pay. For example Roehl Transport recently made its second pay increase of this year, which should increase driver pay at the company between $4,000 to $6,000 a year, around 9% to 11%. In April, trucking firm CR England announced its largest driver-pay raise in its history and its third pay hike in three years. It said its pay had increased by more than 50% since 2018, with the industry pay now averaging py $60,000 per annum.

Ironically, rising pay itself may be exacerbating the shortages it is designed to solve. Many drivers are using the larger paychecks to cut down on their driving hours. Many want to be home more, and higher pay gives them that opportunity. 

Changing federal laws to recruit younger drivers

Another potential solution that lobbying is now seeking to make progress on is the roll back of restrictive federal laws. In each of the continental United States, a person can get a commercial driver’s license and drive a truck at the age of 18, but federal law prevents them from driving across state lines until they reach the age of 21, severely limiting medium and heavy truck driving opportunities.  

For those in favor of repeal, they question why 18-year-olds can drive tanks and fly planes in the military but not trucks on the interstate. The industry believes that by missing out on high school graduates they lose potential drivers to other industries and are then at a disadvantage three years later. The average age of a truck driver is 49.

Opponents however argue that younger drivers pose safety risks. There were more than 4,100 individuals killed in trucking accidents in 2019. They advocate that focus should be on improving truck safety, reducing accident rates, and ensuring drivers are as experienced as possible. Nearly 90% of truck accidents are the result of driver error, including failing to respond to weather conditions, reckless maneuvers, and poor response. Expect significant push back.

Securing warehouses at a higher price

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Another immediate challenge is that the accelerating demand for warehousing is driving up rents as retailers and logistics companies engage in bidding wars to secure the most attractive sites. It is estimated that rents rose by 10% in the first five months of 2021 and even higher for large logistics spaces close to ports and major cities. 

In Northern New Jersey, a red-hot logistics market, rents rose by a third and Southern California’s Inland Empire by 24%. The ongoing trend to position good distribution closer to major attractive population centers is relentless and companies remain willing to pay major premiums to achieve it. 

Ultimately it is the consumer who will pay for higher driver pay and warehousing costs. The economic boom is testing supply chains across the world as well as the United States. There is no doubt that the quality of service received over the next two years will be driven by innovation, and preparedness to pay for it in the very short-term.  

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