A surging shortage?

John builds widgets, and they are selling like iPods. He needs more trucks to avoid either a production slowdown or costly warehousing of his freshly manufactured widgets. Don’s trucking company is John’s principal carrier. To meet John’s needs, Don adds trucks and recruits 50 drivers from Jerry’s trucking company. Now Jerry is 50 drivers short, so he hires them away from Kirk’s trucking company. Kirk now is down 50 drivers, so he steals them from Clarence’s trucking company. And so on.

Under this simplistic scenario, the shortage clearly is 50 drivers. The churn represented by the domino effect of vacancies is a problem, but it’s not a shortage. Had Don found 50 new drivers without stealing them from Jerry, the dominos would not have fallen. But the real world is not so simple. At any given moment, some shippers’ transportation needs are rising while others’ requirements are declining. So the net driver shortage – or surplus, in theory – is a moving target. Plus, the willful theft of drivers among carriers is only part of the turnover problem.

According to the American Trucking Associations, the lowest annualized turnover rate for large truckload carriers in the past five years was 87 percent in the first quarter of 2001 – a period when freight was weak. This turnover clearly was not induced by aggressive recruiting. So the unprecedented 136 percent annualized turnover large carriers reported in the fourth quarter of last year began with a large base of washout and churn that apparently exists regardless of the demand for drivers.

So nobody has presented an authoritative number to describe the driver shortage. The latest best guess came last month in a study released by ATA, which had asked economic analysis firm Global Insight to examine the long-term availability of truck drivers relative to future requirements. The firm predicts that without higher wages and other adjustments, the driver shortfall will grow from 20,000 today to 111,000 by 2014.

Global Insight projects that the supply of long-haul heavy-duty truck drivers will grow at an average annual rate of 1.6 percent over the next 10 years. Meanwhile, economic growth will create the need for a 2.2 percent average annual increase in the driver supply. The supply of drivers is challenged for two reasons. First, the demographic group that supplies more than half of all truck drivers – white males between 35 and 54 – will decline by more than 3 million people through 2014. Second, the annual growth rate for the entire U.S. labor force will slow from 1.4 percent today to about 0.5 percent by 2012.

This estimate of the current shortage actually sounds low, but one could credibly argue that there isn’t a real shortage at all today. I recently heard the argument of one driver who called the shortage a myth. He said, “Next time you go to Wal-Mart, check the shelves. They’re all full.” A shortage presumably would inconvenience the consumer, and that’s not happening.

One dynamic that the Global Insight study appears to overlook is the extent to which inefficiencies and underutilization still drive up the demand for drivers unnecessarily. Let’s revisit Don, Jerry, Kirk and Clarence. Suppose that instead of buying 50 trucks and hiring drivers away from Jerry, Don buys Jerry’s operation. And Kirk buys out Clarence. Economies of scale should drive efficiencies in labor and capital. Don now can handle John’s increased demand easily through intelligent management and positioning of drivers and equipment – without adding drivers.

Whether we see higher pay, shifting driver demographics, carrier consolidation or – most likely – a combination of them all, trucks will still be bringing good stuff in 2014. And John’s widgets will still get to market on time.