Driver Shortage: A Key Piece in the Tightening Capacity Puzzle

The freight industry is experiencing a tightening of capacity, a trend that may extend into 2021, with the shortage of available drivers being the primary factor. Driver retirements, career changes, and the impact of the pandemic on licensing agencies and training schools have all contributed to this shortage. According to an executive at U.S. Xpress, while freight volumes continue to rise, the industry's driver shortage could reach as high as 200,000 by the end of this year.

DAT's chief analyst Dean Croke said many drivers may be taking a wait-and-see attitude about returning to work due to the pandemic, further exacerbating the capacity crunch. Croke noted that drivers' hesitation is intertwined with common factors and new circumstances: surging freight volumes, physical capacity not yet fully recovered, and an imbalance in national freight volumes caused by the pandemic and uneven recovery.

Werner CEO Derek Leathers believes the driver shortage is a key part of this puzzle. This also explains why the market cannot quickly add capacity even when demand signals are strong. Leathers said: "We clearly face an imbalance between supply and demand. Typically, the market responds by adding capacity... but it will take a long time to replenish capacity."

Drivers stuck in a 'clogged' training pipeline

Don Lefeve, president and CEO of the Commercial Vehicle Training Association, had long foreseen signs of impending driver and capacity issues. Lefeve said the slowdown in training and licensing processes means that even as new students enroll, it takes time to get them behind the wheel. Lefeve warned in June: "When the economy starts to improve... you will see a massive capacity crisis. (The driver shortage) will go from nothing to severe very quickly."

This problem was already evident in the second quarter, even as some fleets cut drivers during the turbulent period. In YRC's second-quarter earnings call, CFO Jamie Pierson told analysts: "I can say with 100% certainty that the capacity crisis is real. We are struggling to hire enough drivers to keep up with volume growth."

"We believe it is very likely that 150,000 to 200,000 drivers will exit the market this year."

— Eric Peterson, CFO of U.S. Xpress

Before the COVID-19 outbreak, the American Trucking Associations (ATA) first documented the driver shortage in a 2005 report, estimating a shortfall of 20,000 at that time. The problem has since worsened. In a driver shortage report released in July 2019, ATA chief economist Bob Costello put the 2018 shortfall at 61,000.

The American Transportation Research Institute (ATRI) listed this as the industry's top concern in its October 2019 annual report. ATRI officials said that in the long term, there could be a "potential shortfall of more than 100,000 drivers" over the next five years. Then the pandemic hit.

Driver shortage remains the industry's top issue

• 2015: HOS (Hours of Service) ranked first, driver shortage third
• 2016: ELD mandate ranked first, driver shortage not in top three
• 2017-2019: Driver shortage ranked first for three consecutive years

Source: American Transportation Research Institute

Leathers' company owns multiple training schools. He said the pandemic has so far led to 100,000 fewer CDLs (Commercial Driver's Licenses) issued by state licensing agencies compared to the same period in 2019, as these agencies closed or slowed down their licensing processes. Leathers also noted that driver training throughput—the entire process from student enrollment to obtaining a CDL—has dropped by 40%.

Community college campuses and truck driving schools once canceled in-person classes, then implemented social distancing measures. Lefeve said that in 17 states, the backlog for obtaining a Commercial Learner's Permit (CLP) is 30 to 90 days, with social distancing and pandemic measures causing delays. Lefeve said: "Without a CLP, we can't start on-road training"—the first step toward getting a CDL. "You're only as good as your weakest link." Lefeve said CDL schools are recruiting new students reasonably well, but they are stuck in a "clogged" pipeline.

"It will take a long time to replenish capacity."

— Derek Leathers, CEO of Werner

The industry also faces the issue of driver retirements. According to ATA's 2019 shortage report, the trucking industry's workforce is generally older than most industries. "The median age of long-haul truck drivers is 46, compared to just 42 for all U.S. workers. Within certain segments of the trucking industry, the median age is even higher. For example, the median age of private fleet drivers is 57." (ATA does not track driver retirements monthly or annually, nor does it have estimates for those numbers.)

U.S. Xpress CFO Eric Peterson told analysts on the July 28 second-quarter earnings call that, combining various factors (including terminations for drug and alcohol violations), "we believe it is very likely that 150,000 to 200,000 drivers will exit the market this year." The U.S. Department of Labor's Bureau of Labor Statistics reported that in August of this year, the number of drivers in the trucking industry was about 82,000 fewer compared to August 2019.

Fleets struggle to recruit amid pandemic fatigue

More concerning than the latest BLS data is Costello's forecast for the next eight years: "If current trends continue, the shortfall could expand to over 160,000 by 2028." Costello wrote that after retirements, the second-largest reason for needing drivers is industry growth, which will account for 25% of new hiring demand. Growth and shortage coexist, like oil and water, yet both are reflected in current statistics.

FreightWaves CEO Craig Fuller said in a message to Transport Dive: "Rejection rates are at their highest level since we began tracking in February 2018. The 'driver squeeze' is real. Drivers are not coming back; they are finding alternative jobs in construction, warehousing, and local delivery."

WorkHound CEO Max Farrell noted that turnover eased and retention rose early in the pandemic, as drivers were reluctant to switch jobs during the crisis. But by summer, things changed. Farrell said: "In July and August, it was like a switch was flipped." Fleets went from record retention in the second quarter to struggling to find enough drivers to meet demand. Farrell said: "There is speculation of 'pandemic fatigue' among drivers." Farrell also mentioned competition from other industries like construction as a factor. According to BLS seasonally adjusted data, construction has added 43,000 jobs since June.

Farrell said fleets are responding to competition from other industries by looking at how to give drivers more time at home. He said examining how long-haul routes are operated is one area to review, and allowing shorter, more regional hauls is another direction.

How to address a shrinking workforce

The industry is making some progress in replenishing its workforce. The BLS reported that in August, the trucking industry added 10,000 jobs compared to July. But August numbers are still down 5.4% year-over-year. The federal government is studying solutions.

On September 4, FMCSA announced it would seek public comment on another pilot program that would allow drivers aged 18 to 20 to operate commercial motor vehicles in interstate commerce. This builds on the agency's 2019 request for comment. Currently, drivers aged 18 to 20 can operate in 49 states and the District of Columbia (except Hawaii), but not across state lines. Supporters argue the rule would help alleviate the driver shortage, but organizations such as the Teamsters, the Owner-Operator Independent Drivers Association, and highway and auto safety advocates oppose the proposal.

"I would be shocked if there were no pay raises announced in the fourth quarter."

— Max Farrell, CEO of WorkHound

Farrell said fleets are likely to take this most direct and obvious step within weeks to win back, retain, and recruit drivers. He said: "I would be shocked if there were no pay raises announced in the fourth quarter. (Fleets) are figuring out how to gain a competitive advantage in compensation." Farrell also noted that another measure fleets can take to retain and attract drivers is to proactively explain why their fleet is the best place to work and how they address driver concerns. He said: "We are still in the pandemic. Now is the time for over-communication. Talk about what you are doing to keep your business strong."