Transportation budgets represent one of the highest costs for most shippers to get their products to the end customer. Driver salary is the second largest operating cost (behind diesel fuel) and the shortage of qualified drivers is perhaps the biggest factor pushing up the rates shippers pay for capacity.
The drayage industry is already facing a labor crisis with current driver shortages only getting worse over the last few years. The shortage is a result of the demand for trucking services increasing faster than the number of drivers entering the field. A recent survey by Wolfe Research reported that shippers are expected to shift freight from rail to truck, after four years of shifting cargo in the opposite direction. A new report released by the American Trucking Association (ATA) projects freight volumes will increase by nearly 29% over the next 11 years. Trucking will still be the dominant mode of freight transportation and the number of Class 8 trucks in use will grow from 3.56 million in 2015 to 3.98 million by 2026.
Trucking companies often experience driver shortages as the economy heats up because drivers find construction and factory work that don’t require living on the road. The ATA reported that there is a deficit of 35,000 Class 8 drivers, and if the current rate continues, that number could hit 200,000 by 2022. Ninety percent of carriers said they couldn’t find enough drivers who met Department of Transportation (DOT) criteria, according to a study cited by the ATA. Demographic changes are compounding the problem. The average truck driver is 55, and more drivers are retiring. Meanwhile, the industry has struggled to recruit younger drivers for a variety of reasons including quality of life, pay, and health concerns.
Low pay rates are contributing to a national truck driver shortage. Standard commercial truck driver salaries are based on the distance driven, per mile. Although drivers spend a fair amount of time in docks and traffic, their operating costs are only derived from miles traveled. With today’s excessively busy and overcrowded highways, electronic log book implementation (which tracks the driver’s time), speed limiters etc., this translates into less money earned by the driver. However, with qualified drivers in short supply, that’s starting to change. In an intense battle to hire and keep drivers, trucking companies are offering not just higher pay but guaranteed pay, augmenting per-mile pay packages. Trucking companies are also increasingly using new, highly sophisticated, fuel-efficient trucks with the latest safety technology as incentives, as well as more home time and better equipment. The result, these companies hope, will be more satisfied drivers who will stay with their employers, cutting turnover costs, and providing more sustainable, secure capacity to U.S. shippers. There’s some evidence that these retention plans are starting to work. The ATA recently announced that driver turnover at large fleets dropped 12 percentage points to 84% in the first quarter, its lowest level since 2011.
The trucking industry is also becoming more heavily regulated than ever before. Changes to the hours-of-service (HOS) regulations in 2013 are also reducing driver productivity. As a result, carriers have to add more trucks and drivers to haul the same amount of freight, thus exacerbating the shortage. Truck drivers are the basic unit of transportation capacity and the glue that holds supply chains together. The driver shortages and new regulations have clearly lead drayage carriers to increase prices and will almost certainly affect their ability to deliver cargo efficiently and on time.
CHASSIS PROBLEMS AT THE PORTS
The drayage business is also complicated by shortage of chassis equipment. This comes at a time when key ports at Savannah, Georgia, the ports of New York and New Jersey and the port of Los Angeles are seeing record cargo volumes. The Port of New York and New Jersey’s container volume of 3.1 million TEUs during the first half of 2015 rose 13.4% from a year earlier, putting the East Coast’s largest port on pace to exceed its record 2014 volume of 5.8 million TEUs.
Chassis supply at U.S. ports has been undergoing a rocky transition for the last several years. Until last year, shipping lines owned most of the chassis that were used in harbor haulage. Container lines that once provided free chassis as part of a bundled service have transferred most of the chassis to leasing companies that rent the equipment to motor carriers. However, the transition has been bumpy, especially at the ports of New York-New Jersey and Los Angeles-Long Beach. One of the biggest challenges at the ports of Los Angeles-Long Beach and New York-New Jersey is that ocean carriers have not cleanly disengaged from the chassis business. Many chassis transfers have been tied to contractual arrangements ensuring that the carrier will continue to use the lessor’s chassis, and that the lessor will make the equipment available to the carrier. Additionally, chassis leasing companies and drayage firms do not have a uniform tariff for chassis rental, and the logistics coordination between these industries is not yet well developed. Also, the technology needed for greater chassis control is not yet sufficient in these industries.
The Ports of New York-New Jersey had planned a “gray chassis pool” to start July 1, a collection of chassis that could be rented by any trucker, but disputes over who would operate the pool and more specifically, who would oversee the maintenance, has bogged down the streamlining efforts. New York-New Jersey chassis problems have also been aggravated by shortages of mechanics, especially at marine terminals. Terminals’ mechanics often are pulled away from basic roadability repairs and reassigned to more-urgent tasks such as work on refrigerated containers.
With ocean carriers no longer investing in chassis, the clock is ticking on replacement of the aging chassis fleet. The average marine chassis in the U.S. is 15 years into its 20-year useful life and the nationwide fleet of marine chassis has a book value of $1.5 billion and a replacement cost of $5 billion. The dislocation and confusion on the chassis side will (at minimum) cause administrative costs to rise as importers, exporters, and logistics companies grapple with the variable and uncertain costs of chassis rentals.
Chassis storage is also a complex issue in Los Angeles-Long Beach, where there are an estimated 100,000 chassis in the harbor region. LBCT (Long Beach Container Terminal) was able to secure a parcel close to its facility for chassis storage, but the So Cal port complex, which handles 15 million 20-foot container units a year, does not have enough vacant land to serve the storage needs of all 13 container terminals. A typical terminal would devote eight to 10 acres to container storage. There are a handful of large motor carriers with big yards that can store enough chassis to meet their customers’ needs, but most of the drayage companies in Southern California do not have large depots. If chassis will continue to be stored at marine terminals, the owners of the equipment are going to have to pay for storage through a gate fee which will ultimately be passed on to the shipper.