Freight costs likely to keep rising amid increased demand, driver shortage

Author: Adam Yanelli

2021/03/16

HOUSTON (ICIS)--The trends of rising freight costs and longer lead times for trucks are likely to continue as the trucking industry faces familiar obstacles – plenty of material to be moved and a shortage of drivers to move it.

Bob Costello, chief economist for the American Trucking Associations (ATA), said he expects demand to soar in 2021 due to lean inventories and pent-up demand and a broad economic recovery following the downturn caused by the coronavirus pandemic.

Costello, who made his comments on Tuesday in a webinar put on by the National Association of Chemical Distributors (NACD), said he expects US GDP to grow by almost 5% in the first and fourth quarters, and by around 7% in the second and third quarters driven by the increased rate of vaccinations and the $1.9tr stimulus package.

“This economy can typically grow at 1.9% on average, so we are in for some very strong growth this year, at least in terms of GDP,” Costello said.

Costello also said pent-up demand should boost the economy as household savings has risen by $1.7tr during the pandemic.

DRIVER SHORTAGE
But, Costello said, there is still a driver shortage.

“Everybody is struggling with drivers now, and I think it is going to take a while to work itself out,” he said.

Reasons for the shortage vary, but the traditional causes of demographics and lifestyle have not changed.

Demographically, Costello said only 6% of drivers are female, which greatly reduces the pool of available candidates. From a lifestyle perspective, the job often keeps long-haul truck drivers away from home and their families.

Some drivers are prevented from being employed because of the Drug and Alcohol Clearing House, an online database that gives employers and government agencies real-time access to information about CDL driver drug and alcohol program violations.

Costello said that out of the 48,000 drivers in prohibited status because of at least one violation, about 75% have not even started the process to regain driving privileges.

Costello said the ATA supports the DRIVE-Safe Act, (Developing Responsible Individuals for a Vibrant Economy) a piece of proposed legislation that would lower the interstate commercial driving age to 18, open jobs to a new segment of the workforce while strengthening safety training programs.

INCREASED RATES
Costello touched on rising rates for freight and said the reason is pretty clear.

“When you have a situation where demand outpaces supply, rates go up,” he said.

A market participant told ICIS that freight costs have been rising steadily.

“Freight cost has gone through the roof. What was $3.50/mile per shipment is now $7/mile and I even saw $15/mile and above,” the market participant said. “It is crazy, and that is if you can get trucks.”

Other contributors to higher freight rates are rising fuel prices and higher insurance rates.

“Diesel has increased quite a bit from a host of factors, including production being down,” Costello said.

Costello shared an anecdote from an ATA member who said their liability insurance premiums had risen by 50% year over year.

The driver shortage has also contributed to higher wages for drivers, which are often passed on to the customers.

“As long as demand for drivers outpaces supply, you are going to keep seeing wages go up,” he said.

Focus article by Adam Yanelli

Additional reporting by Zachary Moore

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