Even though the U.S. currently enjoys a low level of unemployment, trucking companies are doing what economists have said firms need to do to attract and retain workers: They’re hiking pay significantly, offering bonuses and even recruiting people they previously wouldn’t have considered…but it’s not working.
The industry reports a growing labor shortage — 63,000 open positions through June of this year, a number expected to more than double in two years — that could have wide-ranging impacts on the U.S. economy.
If you see prices skulking higher for everything from Cheerios to Huggies in the next few months, you can blame these two stark realities: There aren’t enough truck drivers delivering the goods to stores. Add the cost of Trump’s ridiculous trade war and the rising price of crude oil, and it could get very bumpy, very fast.
A severe shortage of truckers is forcing freight costs to rise rapidly that will have to be passed on to wholesalers and retailers and, in turn, jolting retail prices. It’s already leading to late deliveries that have left store shelves empty, albeit sporadically so far. Self-driving trucks might eventually provide some relief, but so far this technology has been plagued by logistical and severe safety issues. Elon Musk and others insist driver-less trucks will be the solution, but all experts say that safe technology for wide scale use is at least a decade away.
Other than locally grown produce, nearly every item sold in the United States has been on an 18-wheeler at some point, which explains why the challenges facing the industry, including trucking companies rapidly raising prices as they raise wages, have a special power to affect the entire economy.
Even for retail giants, delivery delays are common, and Amazon, (which is raising the price of their Prime free second-day delivery membership substantially for the second time since 2014—a 20% increase in 2014 and another 17% as of June 16th) General Mills, and Tyson Foods are raising prices as they pass higher transportation costs along to consumers. On a recent call with investors, a Walmart executive called rising transportation costs the company’s primary “head wind.”
Several grocery store chains, including Kroger, Publix and Supervalu, will not comment on whether they plan to raise retail prices in response to the higher shipping costs, but their shareholders might have the final say when shipping costs erode profits.
The rising transportation expenses are combining with higher labor, commodity and energy prices to narrow margins on corporate profits; a very specific indication of coming inflation.
Along with higher contract rates, spot rates, which cover immediate deliveries and change constantly, have soared 30% to 80% over the past year, Cubitt says. Manufacturers, he says, increasingly have had to turn to the more expensive spot market as the driver shortage worsens.
For now, the industry simply can’t find a way to move goods as fast, much less as cheaply, as they have in the past. This logjam will be especially perilous, economists say, if competition for truckers pushes up prices so quickly that the country faces uncontrolled inflation, which can easily lead to a recession.
At TDDS Technical Institute, veteran truck-driving teachers say they have never seen it this bad. They say the actual number of open jobs may be closer to 100,000.
“As long as you can get in and out of a truck and pass a physical, a trucking company will take a look at you now,” said Tish Sammons, the job placement coordinator at TDDS.. “I recently placed someone who served time for manslaughter.”
Driving trucks is hazardous to drivers’ health:
Trucking remains one of the most dangerous professions in the country. There were more than 1,000 fatalities among motor vehicle operators in 2016, according to the Labor Department, meaning being a commercial driver is nearly eight times as deadly as being a law enforcement officer.
Weight gain and heart disease are common, says Gordon Zellers, an Ohio physician who spends half his time examining truckers and administering drug tests, which increasing numbers of CDL applicants fail. He advises the TDDS students to see a nutritionist, but he knows most won’t.
Some of the maladies facing current and future truck drivers that occur in a much higher percentage of drivers than the general population are, in no particular order:
- Drug addiction for both staying awake and falling asleep
- Deep vein Thrombosis from sitting for long periods of time and poor eating habits
- Hear disease
- High blood pressure
- High cholesterol
- Poor circulation
People with CDLs suddenly seem as coveted as computer programmers. Trucking company recruiters descend daily on the United States’ truck driver training schools — roughly 500, according to the Commercial Vehicle Training Association — to fight for new graduates.
“These guys are like diamonds right now,” said Jason Olesh, a vice president at Aim Transportation Solutions who left his family vacation to rush to TDDS to talk to students. “We’re down 90 drivers across our fleet of 650.”
Compounding the squeeze: On April 1, industry safety officials began enforcing a requirement for all trucks to be equipped with electronic devices to ensure drivers comply with limits on how long they can drive without a break. That’s reducing the number of trucks available at any given time and causing some drivers to leave the business, crimping capacity over the longer term, says Ben Cubitt, senior vice president of Transplace, a freight management firm that helps companies cut costs and improve service.
Walmart and Amazon, he says, have created a hypercompetitive environment that’s making it tough to boost retail prices. Yet he expects more retailers to pass higher freight costs to shoppers later this year.
Shipping costs make up 3.6% of consumer food prices and 8% of overall retail prices. But retail prices are expected to increase further as the driver shortage intensifies.
General Mills, maker of Cheerios and Yoplait yogurt, is now forced to tap that pricier spot market for 20% of its shipments, versus its normal 5%. “The spot market prices can be 30% to 60% higher than our contracted rates,” CEO Jeff Harmening told analysts last month. He largely blamed the higher freight costs for a third-quarter operating profit “that fell well short of our expectations.”
So far, most producers have absorbed the added costs, but that’s changing as they realize the price increases aren’t temporary.
General Mills has told convenience stores and food services they had to start paying more in May to offset some of those higher expenses.
In early February, Tom Hayes, CEO of chicken and snack maker Tyson Foods, told analysts the trucker shortage will add more than $200 million in costs in its current fiscal year, and it intends to pass them on to food retailers.
Late shipments are also becoming more widespread as manufacturers scramble for trucks. Goods are languishing at shipping ports an average of four days, up from a typical two days, Hayes says. The share delivered on time has slipped from a range of 92%-96% to 85%-89%, also according to Transplace reporting.
To attract drivers, trucking companies are offering more and more generous sign-on bonuses, an American Trucking Association’s says. And wages have jumped 10% – 15% over just the last 18 months. Yet higher pay typically isn’t enough to overcome many people’s aversion to a rough-and-tumble driver lifestyle.
The ATA backs legislation in Congress to lower the minimum age for interstate driving from 21 to 18.
C.R. England, the largest refrigerated carrier, employs 6,700 drivers but would like to hire another 750 just to offset attrition rates that are escalating, says Wayne Cederholm, vice president of recruiting.
“Every single day is a battle” to find drivers, he says, and the resulting higher costs will inevitably be passed on to consumers…at a time when consumer debt is at an all-time high, eclipsing the pre-2007 level just prior to the Wall St. crash and the Great Recession.