Analyst predicts driver shortage, but no double-dip recession

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Updated Aug 26, 2010

Starks

“Why do you buy a truck?” FTR Associates President Eric Starks asked a gathering of several hundred fleet, truck maker and supplier executives and others on hand Wednesday, Aug. 25, for the Commercial Vehicle Outlook Conference in Dallas. “To move freight” was the answer – in relative unison – from the audience, prompted by a message lit up on dual video screens behind the presenter.

Though he had to ask the question a couple of times to get the crowd really responding, the implied message rang clearly. The concern over the last several years’ freight picture linked every single individual in the businesses represented in the room, and though “substantial downside risks in the marketplace” made positive forecasts difficult to make, Starks said his transportation forecasting and analysis firm’s Trucking Conditions Index suggests the trucking industry broadly “will feel better and better through June 2011.”

For both freight volumes, truck sales and driver supply, though, the question of degree looms large. Given the substantial hit the entire economy took in 2008, continuing through most of 2009, “we are going to have to see some heavy-duty growth just to get us back to where we started” to decline, Starks said.

But slow growth is growth, he was quick to note, and he was optimistic on several fronts, noting, for instance, that a double-dip recession appeared to be unlikely with a continuing strong manufacturing sector as well as other sound fundamentals. A “growth recession,” he said, in which recovery is so slow as to seem as if the recession is continuing, “is fairly more likely to occur” barring a financial event of global magnitude.

Rate hikes that fleets might demand from shippers could be expected to continue their rise. “In general, the trucker will have the upper hand in the rate environment,” a situation that differs markedly from the recovery from the last recession of similar, if lesser, magnitude, Starks said. Noting fleets’ expected continuing push for higher rates, “In the 1980s and 1990s, they didn’t even think about it,” Starks said. “They couldn’t.”

Good news for driver pay. Demand already is exceeding supply in the driver hiring pipeline, Starks said, adding that “CSA 2010 will be a huge problem. The industry will struggle to keep drivers in the system.”

Starks presented an analysis hinging on the industry’s ability to hire and process drivers into the system. “Per quarter [before the downturn], they could have hired 150,000 into the system and processed them easily. Now they can only process about 100,000. As the need to bring drivers into the system becomes more important, we’re already down by a third in the ability to get the drivers into the trucks. You can only put so many people through that funnel. This tells us we’re looking at a driver shortage of unprecedented levels” by mid-2011, Starks warned.

Starks predicted that Class 8 truck sales appear to be in line with the modestly hopeful freight picture. In terms of new units, manufacturers could expect truck orders of 148,000 factory shipments this year, 188,000 in 2011 and 257,000 in 2012.

“We’re only getting back to recessionary levels” in that timeframe for reasons having to do with significant overbuying in the lead-up to the recession, Starks said. “If you’ve overbought, you have to at some point underbuy. We’re not doing it yet, though in our forecast, it’s something of a long-term issue, not a short-term one.”

Another illustration of this effect was in the truck scrappage rates, which historically have stayed well under the level of retail sales. In the past, if a fleet scrapped a truck, it bought a new one. “This time if you scrapped it, odds are you didn’t replace it,” said Starks, who added that this downturn marked the first time sales fell below scrappage rates since a brief blip in 1990-91.

Starks ultimately tempered all these data and his shorter-term forecasts with a reminder of the lengthy amount of full recovery time the last big recession that began in 1980 brought with it. “The last time that we saw a recession like this and a recovery, it took us 15 years to get back to the previous peak [truck sales] levels.”