We’ve seen a catastrophic drop in demand for trucking freight. It’s natural given the very high prices for truck hauls recently. Now tender rejection, a measure of how often trucking firms reject contracted loads to go after higher-paying spot market loads, has dropped to around 9% from well over 20%.
Does this mean that the inventory buildup also is about over? We hear conflicting things from the maritime front. There are still ships waiting to unload, even though Shanghai has reduced its shipping considerably. Many firms have gone to private shipping rather than using the liner alliances. But the containers still seem to be coming.
It’s a good question what portion of the trucking drop is to be attributed simply to the high prices, and what part to the actual reduction of demand.
I think it may be the high prices. They may be inducing shippers and buyers to hold off to keep logistics costs down. Buying larger orders less often is a good way to reduce total inventory cost, even if you leave out quantity discounting. So firms can plan to buy later. It may pay off with reduced trucking need and lower truck haul prices.
So is there a driver shortage? We may be training a bunch of new drivers just as the demand for them is cratering. How is that good for those people?
Truck drivers can’t get overtime pay, according to a US law. The law is old, and was passed to meet a need when trucking was regulated. with the shortage of drivers today, shouldn’t we look at allowing overtime pay?
Doing so would probably increase some drivers’ take-home. It might also induce trucking firms to reduce the service level, on the grounds that they won’t pay the extra for overtime. That would mean we would need even more drivers to handle the loads we need to. Or cargo would not move.
Fairness to people seems to warrant allowing overtime wages for truckers. That could be a social objective we’d like to see met. It’s fair also to look at what the flow of goods might look like if overtime were paid. That is harder, because we don’t know how firms would execute on the rule as they try to handle the consigned loads. It might be better to not pay overtime and try to outsource loads to independent operators on a piecework basis.
The effect would probably include a lot more outsourcing to owner-operators. And with all the controversy today about what owner-operators are owed in terms of benefits and work rules, more controversy and confusion could erupt.
C. H. Robinson is a well-established third-party logistics company, with close ties to academic communities of logistics experts, as well as broad contacts in the field. Their 2020 Annual Report shows revenues over $16 billion, and a $2.4 billion profit. Their main businesses are North American surface transportation and global forwarding. They are the largest less-than-truckload 3PL in the US.
Clearly they have expertise in trucking, and a need to know what’s going on in the area. In this article they asked Jason Miller, a Logistics professor at Michigan State University, to talk about why trucking capacity is so tight.
He offers two reasons.
First, the pandemic surge was very disruptive to trucking, more than we think. It’s not just the COVID impact itself, and the loss of time, and it’s not just the ‘driver shortage’. it’s the fact that drivers started changing jobs to find positions safer and more conducive to a lifestyle they find more comfortable. Retention of drivers became a big problem. My research too indicates that turnover at trucking firms reached as high as 90% over the last two years. That adds recruiting, hiring, and training costs, and makes it hard to keep to schedules and load commitments. It’s part of ‘The Great Resignation’, and it hit trucking harder than most other sectors.
Second, one of the choices drivers made was to leave employment at trucking firms, and become owner-operators. The figures Dr Miller shows on this are remarkable.
Source: CH Robinson Blog
Many of these new owner-operator firms were local freight rather than long-haul, showing that drivers wanted to be home more often than a long-haul schedule allows. Acting as an owner-operator also allows drivers to choose which loads they will accept; they can reject loads that carry onerous schedules or working conditions or excessive paperwork. As employees they had no say about which job they would take.
We know that trucking as an owner-operator is an easy-entry business. All you need to do is have a tractor and the appropriate filings with the government. Load boards provide a constant source of business you can bid on. And over time you can build a repeat-business clientele of shippers you want to work with.
You can also easily switch markets. Now that West Coast freight rates have shot up, we find that owner-operators have left the East and Midwest and flocked there to feast on the elevated drayage and haulage rates in the West. That creates shortages in other areas.
Miller has some advice for C.H. Robinson clients, which you can read. I wanted to highlight the article for its insightful look at aspects of truck driver supply we don’t often think about.
Trucking never fails to be interesting to examine!
Two less-obvious reasons why trucking capacity has remained so tight | C.H. Robinson blog
Supply Chain and Logistics 