Monthly Transportation Summary: September 2021

FreightWaves from SONAR

SONAR’s Monthly Report is a gold-standard of industry analytics. Below is a summary of September’s report along with our observations.

Key points:

  • Truck driver shortages are expected to be in issue indefinitely
  • The rise in tender rejection rates is another key factor in rising trucking costs
  • Additional supply chain capacity is not expected to alleviate current product shortages because the situation is viewed as a temporary (albeit 2-3 year) demand generation spike and not a failure of supply chains

Nationwide Driver Shortages

A shortage of nearly 60,000 drivers persists nationwide as carriers find it difficult to hire and retain employees who meet the age and skill qualifications. While some industry leaders have suggested lowering the age requirement of drivers, unions do not agree.

Though drivers can obtain a CDL at age 18 in many states, the Department of Transportation requires professional drivers be at least 21 to drive across state lines. As such, most companies only hire drivers who are 21.

Lowering the DOT age to 18 that aligns with many states could allow a new career path for some recent high school graduates. Those who choose not to attend college full-time for one reason or another often choose a different career path at age 18. Lowering the DOT driver age to 18 would allow companies to recruit at the high school level and provide immediate, well paying, long-term career options following graduation.

What doesn’t help is that trucking pay has fallen 30% since 1980 when adjusted for inflation, according to an analyst for the National Transportation Institute. However, It’s not uncommon today to see companies hiring drivers for $100,000 per year plus 10%-15% hiring bonuses. Even for those students who plan to attend college, driving a truck for a few years in their late teens or early 20s could go a long way to paying for a college degree. Additionally, recent improvements in technology have provided drivers more immediate, real-world freight rate access and have helped drivers recoup some of this initial imbalance.

Another challenge is the lack of diversity within the trucking industry. Very few women or minorities make up driver populations, though many organizations are making efforts to hire an increasingly diverse workforce.

The driver shortage is expected to continue – if not worsen – as the current workforce retires at a faster rate than hiring unless changes are made quickly.

Rejection Rates Continue to Climb Alongside Tender Volume

The September report notes that, “National freight demand grew throughout August with outbound tender volumes increasing 4.5% from beginning to end of the month.”

Capacity tightened steadily, and rejection rates climbed from 20.5% to 22.7%, breaking a four-month long trend of steady decline (excluding holiday impact). This is one of the most overlooked factors of increasing trucking costs because, when tenders are rejected by your primary carriers and you have to go to the spot market, your costs can easily increase by 10-20%.

All of the above is somewhat expected as maritime demand and inventory levels suggest shippers are still working from behind and trying to prepare for the upcoming winter. The Delta variant’s resurgence also triggered more concerns about having a large enough supply of goods in case of future supply chain disruptions.

FreightWaves Outbound Tender Index September 2021

Trucking Demand Continues to Rise and Spot Rates Remain Elevated

“Demand grew the most out of the Midwest region in August, with a large portion of that coming from the Columbus market (the nation’s 9th-largest outbound market).

“Spot rates remain elevated, with some easing out of most areas for produce shipments. The record heat and drought destroyed some crops in the Northwest, making any recovery more crucial.”

Supply Chain Issues or Increase in Demand?

While many are quick to blame products shortages on supply chain issues, an increase in consumer spending is largely to blame. The COVID-19 pandemic greatly impacted spending habits, shifting consumer habits away from spending on services (entertainment, restaurants, travel) and to spending more on durable goods such as food, clothing, and products related to home improvement.

This shift from services to foods spending created overwhelming demand that is expected to persist – but only in the short term. Producers expect that demand will eventually fall to pre-pandemic levels as people return to social activities and services. Because of this, carriers are hesitant to add 25% more capacity when the supply and demand imbalance will likely only last another 2-5 years.

Forward Outlook Through Q4

According to FreightWaves, “Overall demand remains strong and there have been no significant signs of capacity making a dent on the supply side. Service becomes an increasing factor moving into October, which will potentially push spot rates higher sooner than traditional peak season as shippers struggle to maintain inventory.”

Demand for goods continues to outpace demand for services. As long as this imbalance continues and demand for goods extends beyond the supply chain capacity band, shortages and rates above the norm is likely to continue.

To help ensure your shipments are made on-time in Q4, read our recent article here.

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