Spend Matters welcomes this guest post from Paul Robinson, principal economist at IHS.
Trucking costs are due to rise, so where possible, locking in rates near current levels will yield savings. Rising oil prices are filtering through to fuel prices and finally to trucking rates, hitting the industry as it also grapples with the ongoing driver shortage. The most likely response to that shortage is that wages will also have to rise, giving further support to rising rates.
Trucking price increases are due to arrive in the second half of this year, after contracting in the first half of the year. The sources of the increase are higher wages and fuel prices, which the industry stands ready to pass along to customers. Wage increases come on the back of extremely high turnover — over 100% — and a period of wage stagnation in recent quarters. Highway diesel prices started the year at $2.00/gallon but look to end 25% higher, at more than $2.50/gallon, just as crude oil prices have bounced from their bottom of around $30/barrel to more than $50/barrel.
The American trucking industry’s struggles with driver turnover are on the rise. The American Trucking Associations reported a turnover rate of 102% at large truckload fleets in the final quarter of 2015. The fact that this figure is now above 100% indicates that trucking companies are rehiring more than the equivalent of their entire workforce every year. The industry is showing signs of responding: Wages for truck drivers are now increasing faster than overall transportation and warehousing wages and will continue to rise faster through the end of the year. However, the prior wage stagnation will keep employment growth below 2% in 2016 for the first time since 2010.
American trucking demand will show steady growth in the second half of the year, in line with the mildly positive outlook for the overall economy. The American Trucking Associations’ For-Hire Truck Tonnage Index has shown a string of declines after a surge of activity in February. The year-on-year figures are more positive, with March showing a 2.2% increase and April showing a similar 2% increase versus last year. Manufacturing demand, measured by the ISM index for manufacturing, “seemed” to firm in May, climbing from 50.8 to 51.3 (greater than 50 indicates expansion), but the sole gain in any of the equally weighted five components came in the supplier deliveries component. The supplier deliveries reading is not actually saying that supplies are tight, just that they are no longer as loose as a few months ago, when prices were reeling.