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NASEM study challenges claims of driver shortage

Pabio November 1, 2024

A recent study Examining the impacts of wages and working conditions on long-haul truck and bus drivers has also called into question claims of a persistent driver shortage. The study titled “Wage and Working Conditions in the Truck and Long-Haul Bus Industries: Assessing Effects on Driver Safety and Retention” by the National Academies of Sciences, Engineering, and Medicine (NASEM ) was conducted on behalf of the Federal Motor Carrier Safety Administration.

In examining the shortage claims, the study notes that the American Trucking Associations is one of the few available sources that has reported the turnover. The challenge is that the ATA survey, which has been around for more than 25 years, is a self-selected sample, and it’s unclear how representative it is. The report adds: “Because the ATA studies were conducted using proprietary techniques and assumptions that are not publicly defined, it is not possible to assess the validity of their claims regarding the shortage of drivers. »

Regardless, ATA’s annual revenue reports show that the long-haul trucking segment has a persistent and chronic revenue problem. The average annualized turnover rate from the third quarter of 1996 to the first quarter of 2023 was 92.7% for large truckload carriers earning $30 million or more per year. Small fleets under $30 million reported a turnover rate of 77.6%. This is the opposite of partial load carriers and private fleets. The ATA notes that LTL carriers reported an average turnover rate of 11.8% from the fourth quarter of 2000 to the first quarter of 2022. For private fleets, the National Private Truck Council reported annualized turnover rates of just 15%. from 2005 to 2022.

The main takeaway from the driver turnover chapter of the NASEM report is that if there were a real shortage of drivers, according to mainstream economists, two things would need to be demonstrated. The first is an increase in earnings for the occupation (long-haul truck drivers) compared to occupations requiring similar levels of human capital and education. The report used the construction sector as a close rival to highlight the difference.

“Significantly, the average wage for all residential construction employees remained higher than the prevailing wage in the long-haul transportation sector over the entire period of this study,” the report states. “These trends are not indicative of the wage premium that might be expected for long-distance TL employees if they were actually working in an occupation experiencing a chronic labor shortage.”

Simply put: If there were a real shortage, trucking wages would at least exceed construction wages (the wage premium) until the shortage was resolved.

The second thing needed would be to look at the overall supply and demand of drivers, in this case through contract and spot prices. It would be necessary to find gaps in the supply of complete long-distance transport services compared to demand. In other words, we need to see that this “shortage” keeps prices rising, because intuitively, fewer drivers means fewer trucks on the road to transport and therefore higher prices.

The problem, the report adds, is that “there are observable service price indicators indicating capacity shortages, including spot prices in short-term auction markets and longer-term service contract prices ‘term’, for example spot and contract rates.

The report continues: “In both markets, periods of rate increases are regularly followed by periods of rate declines, which corresponds to an increase in service capacity and/or a decrease in service demand. » This trend has even persisted during the pandemic.

Matt Cole with the Commercial Carriers Journal Reported that the ATA “disputed this conclusion, pointing out that the study’s authors ignored certain aspects of the trucking industry.” The ATA stood by its assertion of a shortage, telling the CCJ that the NASEM report “failed to account for several important points and distinctions that are essential to understanding the professional truck driver market.”

The challenge for the ATA was twofold. First, the organization argued that researchers “completely ignore the issue of driver quality and the fact that this is a highly regulated industry by multiple state and federal agencies.” These may include barriers to entry such as age, drug and alcohol testing, and CDL requirements that may not apply to blue-collar construction jobs.

The ATA said that while carriers have reported having enough applicants, the problem is that among that pool, there aren’t enough who meet the qualifications needed to be hired. In a statement to the CCJ, the ATA added: “In some cases, carriers report having to reject 90 percent of applicants out of hand, because the applicants do not meet at least one of the prerequisites for driving in interstate commerce. »

These two issues – regulations impacting the driver pool and the quality of potential drivers for hire – “mean that economists’ classic definition of a “shortage” – that workers do not exist to fill the jobs even when wages are increased – is not applicable to driver market dynamics.

For carriers, the question is complex and the solution is less clear. The report notes that truckload carriers face a choice between cost savings and revenue maximization. For a low-margin business like trucking, money and bottom lines matter. The report adds: “A typical long-haul TL carrier will tend to favor cost-minimizing choices, namely an intense and efficient dispatch practice and control of driver salary expenses, while accepting the costs associated with turnover. resulting high. »

FreightWaves SONAR Spotlight: High Expectations for Bid Rejection Rates As Peak Season Approaches

Summary: A sustained increase in outbound offer rejection rates nationwide, which began in October, is creating conditions more similar to 2019 than the previous year. OTRI’s gains were primarily driven by improvements in the smaller but more volatile flatbed and reefer segments. FOTRI rose 534 basis points m/m from 6.12% on September 29 to 11.46%, while ROTRI is up 520 basis points m/m from 9.02% at 14.22%. The dry van segment continues to lag the combined national average, but grew 40 basis points m/m, from 4.33% to 4.73%.

In an article on Platform X, FreightWaves founder and CEO Craig Fuller is bet on a bullish scenario based on observing how current outbound offer rejection rates are trending similarly to 2019 levels. Fuller writes: “If the 24/19 similarity holds, it will be a huge Christmas present for truckers. » These are in addition to the comments of a Recent cargo status webinar during which Fuller cited improvements in spot market offer rejection rates and outgoing contracts as key indicators to watch.

When it comes to bid rejection rates, sustained improvement in the form of higher rejections can have a cascading impact on spot market rates as carrier routing guides fail, forcing freight contractual to move towards the spot market. This freight waterfall theory will be put to the test as trucking industry executives from JB Hunt to Knight-Swift comment on the return to seasonality during their third-quarter earnings calls.

The lingering question heading into the fourth quarter and peak trucking season remains whether the freight market’s eventual recovery will be driven by demand or supply of truckloads. On the one hand, the upcoming presidential election, with threats of tariffs or a tentative contract with East Coast and Gulf union workers set to expire Jan. 15, could lead to changes on the demand side. On the other hand, the continued hemorrhaging of capacity due to road transport sector bankruptcies will test the supply side argument. An honorable mention for the demand-driven recovery or lack thereof is the U.S. manufacturing purchasing managers’ index, which is in its fourth straight month of contraction. For the truckload sector, conditions are becoming increasingly favorable for a recovery, but any specific catalyst remains elusive.