Surprising data on trucking industry in Klaskow, Tucker webinar

April 22, 2018 John Paul Hampstead

(PHOTO: SHUTTERSTOCK)

Owner-operator employment growth far outstripping larger fleets

Last Thursday William Cassidy, senior editor for trucking at the Journal of Commerce, moderated a webinar with Lee Klaskow, senior analyst for freight transportation at Bloomberg Intelligence, and Jeff Tucker, CEO of the Tucker Company Worldwide. The title of the webinar was “Trucking market: 1st quarter review and outlook” and it featured a mix of macroeconomic analysis and prediction and industry-specific data.

The macroeconomic thesis was fairly straightforward and will be familiar to readers who follow the financial press: despite a return of stock market volatility, fundamentals like unemployment and industrial production are still strong, and there isn’t really a place in the economy that looks problematic enough to derail the expansion. When asked what the risk factors to continued growth might be, Klaskow said that protectionist disruptions to international trade flows were the main threat on the horizon, with a failed renegotiation of NAFTA specifically something that could take the United States off its projected 2.8% GDP growth in 2018.

Klaskow said that unemployment should fall below 4% in the coming months, which will put renewed upward pressure on wages. Klaskow said that wage inflation will motivate companies to make investments increasing worker productivity, and the accelerated depreciation in the GOP tax law will make it easier for them to do so.

Equity analysts and industry participants are very bullish on trucking carriers’ 2018 performance. Bloomberg Intelligence is calling for a Q1 median EPS growth of 60.81% year over year for truckload, LTL, and 3PLs. In a Truckstop.com survey, 83% of respondents said they expected demand to increase over the next 6 months, which is the highest number for that metric ever seen during the five years of the survey’s existence.

Then Tucker drew on his experience as a third-generation freight broker and logistics provider and the wealth of data Tucker Company Worldwide has aggregated over the decades. 

“People are no longer comparing the current moment to 2014,” said Tucker. “The closest resemblance I have to what we’re going through now is the 2003-5 time period. New HOS came into play in January 2004, and just before that was George W. Bush’s tax credit. We went from the doldrums in trucking to hyperdrive, almost instantly. It was dying out in 2005 when Hurricanes Katrina and Rita hit, which ended up sustaining that tight capacity situation. Those are the parallels… the big differences that we need to think about as we’re thinking about where we today, well they’re multifaceted… First, we’re in the second longest economic recovery this nation’s ever seen. Back in 2003, we were just coming out of recession: a completely and utterly different economic situation. We’re a consumer-based economy more and more as time goes on, and we have retailers who have shrunken their delivery windows. We have e-commerce pressures. We were talking a few years ago how awesome two day delivery was; now we prefer same day. Will that sort of demand for instant gratification continue? I think yes. We also have ELDs, which are the 2018 equivalent of the HOS change in 2004… but it’s more permanent and less fungible. The Food Safety Modernization Act has had the effect of shortening the supply of temperature control; that went into effect a year ago.”

Two points made by Tucker were somewhat surprising. The first is that, according to FMCSA data, the trucking industry has added more than 600,000 jobs since 2012, representing an overall growth in employment of 32%. That number seems to contradict the familiar narrative of the ‘driver shortage,’ fears of drivers leaving the industry, and the idea that millennials are largely refusing to drive trucks.

Why does the ‘driver shortage’ narrative exist? Because large carriers are having trouble seating their trucks. Tucker presented data that shows that trucking as a whole has become more fragmented and less consolidated since 2012. The number of ‘very small’ trucking fleets (1-6 trucks) grew 89.9% from March 2012 to March 2018, from 94,648 to 179,769. The number of ‘small’ fleets (7-19 trucks) grew 46.6%; the number of ‘medium’ fleets (20-100 trucks) grew 34.6%; the number of ‘large’ fleets (101-500 trucks) grew 20.2%; and finally the number of ‘very large’ fleets (501 trucks and up) grew 20.5%, from 316 fleets to 381 fleets. This demonstrates that much of the growth in trucking employment is happening at the very small and small fleet level. The trucking industry can experience healthy employment growth at the same time that large carriers complain of a ‘driver shortage’.

Tucker has a theory as to why the industry continues to fragment: technology. Specifically, digital tools that give owner-operators visibility into freight markets are allowing them to make money while preserving their independence. “You think about a driver, and the driver mentality that we’ve all come to know, there’s this streak of independence,” said Tucker. “If I can choose my shots and get data that provides a return on my investment, why would I want to work for a larger company? What the owner-operators are seeing and the tools they have now are revolutionary. At TIA, one brokerage was very angry, saying that these technology companies shouldn’t be giving these owner-operators all of these tools.”