Driver Shortage: The Key Piece in the Capacity Crunch Puzzle

The freight industry is experiencing a tightening of capacity that could extend into 2021, with a shortage of available drivers being the primary factor. According to estimates from U.S. Xpress executives, the industry could still lose up to 200,000 drivers by the end of the year, even as freight volumes continue to rise.

DAT's chief analyst Dean Croke noted that many drivers may be taking a wait-and-see approach to returning to work due to the pandemic, further exacerbating the capacity crunch. Croke stated that driver hesitation is intertwined with both usual factors and new variables: 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 piece of the puzzle, which also explains why the market cannot quickly replenish capacity even when demand signals are strong.

"We clearly have a supply-demand imbalance," said Leathers. "Normally, the market would respond by adding capacity... but it will take a long time to rebuild that capacity."

Drivers stuck in a 'clogged' training pipeline

Don Lefeve, president and CEO of the Commercial Vehicle Training Association, had already foreseen the impending driver and capacity issues. Lefeve said the slowdown in the training and licensing process means that even with an influx of new students, it will take time to get them behind the wheel.

"When the economy starts to improve... you'll see a massive capacity crisis," Lefeve said in June. "The (driver shortage) will go from nothing to severe very quickly."

This issue was already evident in the second quarter, even though some fleets had cut drivers during the turbulent period. During 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's quite possible that 150,000 to 200,000 drivers will leave the market this year."

— Eric Peterson, CFO of U.S. Xpress

Before the COVID-19 pandemic, the American Trucking Associations (ATA) first documented the driver shortage in a 2005 report, estimating a shortfall of 20,000 at the 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 it 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" within the next five years. Then the pandemic hit.

Driver shortage remains the top industry issue

• 2015: HOS (hours of service) ranked first, driver shortage third
• 2016: ELD mandate ranked first
• 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 resulted in 100,000 fewer commercial driver's licenses (CDLs) issued by state licensing agencies compared to the same period in 2019, due to closures or slowdowns. Leathers also noted that the driver development process—the entire pipeline from student to CDL holder—has seen a 40% drop in efficiency.

Community college campuses and truck driving schools canceled in-person classes at one point, 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 safety protocols causing delays.

"Without a CLP, we can't start behind-the-wheel training," Lefeve said—the first step toward a CDL. "The overall efficiency depends on the weakest link."

Lefeve said CDL schools are having success recruiting new students, but they are stuck in a "clogged" pipeline.

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

— Derek Leathers, CEO of Werner

The industry also faces driver retirements. According to the ATA's 2019 shortage report, trucking is older than most industries. "The median age of long-haul truck drivers is 46, compared to just 42 for all U.S. workers. Some segments of trucking have even higher median ages, such as owner-operators at 57." (The ATA does not track driver retirements monthly or annually and has no numerical estimate.)

U.S. Xpress CFO Eric Peterson told analysts on a July 28 second-quarter earnings call that factoring in various elements, including those fired for drug and alcohol violations, "we believe it's quite possible that 150,000 to 200,000 drivers will leave the market this year."

The Labor Department's Bureau of Labor Statistics reported that the trucking industry had about 82,000 fewer drivers in August compared to August 2019.

Pandemic fatigue emerges, fleets struggle with recruiting

More concerning than the latest BLS data is Costello's projection for the next eight years: "If current trends continue, the shortfall could widen to over 160,000 by 2028."

Costello wrote that, aside from retirements, the second-largest source of driver demand is industry growth, which will account for 25% of new hiring needs. Growth and shortage coexist, paradoxically reflected in current data like oil and water mixed together.

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

Turnover eased and retention rose early in the pandemic because drivers were reluctant to switch jobs during the crisis, said Max Farrell, CEO of WorkHound, a platform providing real-time feedback for transportation and delivery companies. However, the situation changed in the summer.

"In July and August, it was like a switch was flipped," Farrell said.

Farrell said fleets went from record retention in the second quarter to struggling to find enough drivers to meet demand. "There's speculation about 'pandemic fatigue' among drivers," he said.

Farrell noted that competition from other industries like construction is also a factor. According to seasonally adjusted BLS data, construction has added 43,000 jobs since June.

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

How to address a shrinking workforce

The industry has made some progress in replenishing its workforce. The BLS reported that trucking added 10,000 jobs in August compared to July. But the August figure was 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 follows the agency's 2019 request for information.

Currently, drivers aged 18 to 20 can operate in 49 states and the District of Columbia (except Hawaii), but not across state lines. Supporters say 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'd be shocked if there weren't pay raises announced in the fourth quarter."

— Max Farrell, CEO of WorkHound

Farrell said fleets will likely take this most direct and obvious step within weeks to win back, retain, and recruit drivers. "I'd be shocked if there weren't pay raises announced in the fourth quarter," Farrell said. "(Fleets) are figuring out how to gain a competitive advantage in pay."

Farrell also said another step fleets can take to retain and attract drivers is to proactively explain why their fleet is the best place to work and how they are addressing driver concerns.

"We're still in the middle of a pandemic. Now is the time for over-communication," Farrell said. "Talk about the steps you're taking to keep the business strong."