- A shortage of truck drivers combined with a surge in online and in-store shopping has made trucking unusually expensive.
- Retailers are spending around 30% more than they did last year to move goods via truck.
- The last time trucking rates soared this high, it forced companies like Amazon and XYZ to pass down the unusual transportation costs to consumers by raising prices.
- Visit Business Insider’s homepage for more stories.
There’s a reason the shelves at your local big-box retailer still looks barren, months after the coronavirus crisis forced manufacturers and retailers to pump out more toilet paper and cleaning supplies than ever.
Tens of thousands — potentially hundreds of thousands — of truck drivers have left the industry since early 2019, experts say, leaving retailers scrambling to fill shelves and online orders. And mostly, that means paying drivers top dollar to make sure their shelves are stocked and your packages arrive on time.
The on-demand, or spot, market in particular has gone “ballistic,” said Truckstop.com chief relationship officer Brent Hutto. That’s the sector of the industry in which shipping rates aren’t determined by pre-arranged, long-term contracts, and accounts for about 20-30% of the industry.
Spot loads cost retailers 29% more during the week of August 31 compared to the same period last year, according to Cowen data. Double-digit percentage increases have been the norm in August and September, and those sky-high rates are excellent news for truck drivers.
Morgan Stanley’s truckload freight index, which measures the supply and demand for semis, is at a decade high for this time of year, according to a September 2 update.
Truckstop.com’s own market index has found the same unusually high demand amid a shrinking supply. “The incredible thing is the pressure in the market,” Hutto said. “Since we’ve been measuring it, it’s never been this hot.”
Truck drivers fled the industry last year, and might not come back
A slump in the trucking industry last year and this spring forced tens of thousands of truck drivers to leave the industry. Hundreds of trucking companies went bankrupt in 2019 in what some truck drivers termed the trucking “bloodbath,” thanks partially to a major slump in manufacturing.
The market is recovering. Trucking and logistics companies have seen their stocks pop by 21.2% this year compared to the S&P 500 increase in 2020 of 8.6%, according to an August 27 Wolfe Research note.
But many of the truck drivers who left in 2019 and earlier this year aren’t coming back, said Craig Fuller, CEO of trucking data company FreightWaves. Lots of them retired: The average truck driver is in their early to mid-50s. Another explanation: Industries with jobs that allow blue-collar laborers to stay close to home are booming, like food delivery and construction.
“It doesn’t seem that people are taking trucking jobs for some reason,” Fuller told Business Insider. “We think that certain jobs — construction, Instacart, Uber Eats — all these other jobs are taking from the same labor pool of truck drivers.”
Retail demand upticks amid trucking capacity crunch
Big-box retailers have seen demand soar this year, particularly online, according to Wolfe Research transportation analyst Scott Group. In the second quarter of 2020, major retailers spanning from Walmart to Nordstrom to Lowe’s saw same-store sales tick up 11% and online sales pop 163%, compared to the same period last year.
But the surge in demand has met with a crunch in just how much inventory retailers have on hand.
The run on everything from cleaning supplies to dumbbells still has retailers scrambling to stock up on the seemingly endless — and often unexpected — types of products that consumers are demanding during quarantine. Major retailers reported 12% less inventory from April to June of 2020 than the same period last year, Group said in his August 27 note to investors.
“And when sales are really good and inventories are really low and shippers need to restock, freight can be off the charts like we’re seeing right now,” Group wrote. He expects that it will take until at least early 2021 for retailers to fully restock.
The truck driver shortage might make just about everything more expensive
Right now, the truck driver crunch is decreasing product availability. But Truckstop.com’s Hutto said the high cost of moving goods via truck may eventually make everyday products more expensive. That’s because the big spike in spot rates seen right now will pass on to the larger contract market, and transportation costs comprise around 7% of a product’s end price.
In 2018, when a truck driver shortage most recently caused a massive rate spike, big names like General Mills, Hormel Foods, and Tyson Foods all had to increase prices. Even Amazon said in 2018 that increasing transportation costs forced them to jack up the price of a Prime membership by $20.
It’s challenging to just bypass a trucking price jump by just shipping through pricey planes or sluggish trains. Ultimately, trucks account for 71% of all of the nation’s freight movements.
And while that might stink for consumers, America’s $800 billion trucking industry is enjoying its biggest surge in years, and the country’s nearly 2 million drivers will continue to profit. “It’s going gangbusters right now,” Fuller said. “The market is on fire.”
Are you a truck driver? How have rates changed for you this summer? Email email@example.com.
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