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US Trucking Costs Hit Record Highs in 2018

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For all the talk of self-driving vehicles and freight automation, US trucking has a more pressing concern: the record rates being charged for road freight in North America.

According to the Wall Street Journal (subscription required), the country's spot rates for third-party haulage have jumped 26% this year compared to 2017. This follows 17 straight months of year-over-year growth, something that hasn't happened for more than three decades.

Naturally, this seemingly unstoppable growth is having an impact on transportation costs, which puts pressure on companies in many sectors to raise prices.



The Trucking Drag Factor

An increasing number of business leaders have highlighted record road freight costs as a significant drag on earnings. In turn, growth is also being stymied, as spot rates are raised and transportation costs inflate at a record pace.

Put simply, finding trucks to move your goods is getting harder. Demand is outstripping supply and companies must pay over the odds just to get their products where they need to go.

Compounding the problem is a shortage of drivers.

What began as a minor shortage in available talent towards the end of 2015 has, three years later, escalated into an ongoing labor crisis. From a manageable shortfall of around 25,000 positions, the trucking sector now finds itself needing almost 300,000 drivers as we head into the most important part of the year.

Peak season will undoubtedly stretch the limits of available transportation and place greater pressure on trucking companies to inflate prices.


Higher Prices, Stagnant Wages

Further compounding the problem, until recently at least, is the fact that the earnings potential of truck drivers was not increasing in line with transportation costs.

2017 figures from the Bureau of Labor Statistics set average earnings at a level just short of $45,000 per annum, which represents an effective decrease in real terms when compared to driver income during the 1980s.

Although more current reports cite moves by transportation companies to encourage new driving talent to enter the workforce, such as wage increases and hiring bonuses of up to $10,000, time is against them in more ways than one.

On average, a truck driver in the U.S. is around 55 years old. Only 20 percent of the driving pool is under the age of 34, which taken together points to an industry that is struggling to attract the next generation of its workforce.

That's a major problem for a sector that needs to hire more than 50,000 new drivers just to keep up with demand, according to its leading industry group the American Trucking Associations (ATA).

Little surprise, then, that prices have surged to such record levels over the past twelve months and show little sign of receding, or even slowing down.

From June 2017 to June 2018, road freight contacts increased by 18%, with the surge even higher for one-time "spot rates" that comprise one-third of the market. That's according to a recent article in the Economist, which also plays down the potential for self-driving trucks to save the day (and applies the quaint Anglicism of "lorries" to refer to the highway giants we know and love in the United States.)

Up to now, major retailers and e-commerce giants like Walmart and Amazon appear to have either absorbed the increases or forced their service providers to suppress costs if they want to keep these lucrative contracts.

Whether that situation is tenable over the long-term is open to debate.

It certainly appears unlikely that transportation companies will be able to hire enough drivers to solve the problem. This inevitably leads to price increases for consumers, which is usually where the rubber meets the road (pun partially intended) in terms of key stakeholders coming together to find a solution.

On the other hand, the wider economy taking a turn for the worse could see that demand dry up. Seen in this light, the current trucking "crisis" looks like a much more desirable challenge.