Trucking is a highly fragmented industry where it takes little more than a commercial driver’s license and a truck to get into business. This makes it an appealing choice for workers looking to earn wages or even start their own companies. But it means the industry is subject to extreme boom and bust cycles.
The COVID-19 pandemic has delivered its own challenges; including lockdowns restrictions, troubles in the supply chain and shocks to the broader economy. A large share of truck driving schools have shut down, some permanently and there are shortages of new trucks which need to be replaced every few years.
Drivers are badly needed and the trucking industry has a very high turnover rate. The life of a truck driver is not the easiest. It can mean long trips away from home and tough conditions on the road. Stiff competition among thousands of trucking companies for contracts and for drivers contributes to the fragmentation. This makes it difficult for companies to consolidate.
The freight business is 12% of the global economy. 40% of the global economy is dependent in some way on freight and logistics. Like shipping, trucking is part of the massive global supply chain and logistics industry that moves goods around the world. But these two links in the chain are extremely different in some key ways.
Trucking is far more fragmented than shipping is. The top 10 shipping carriers represent 85% of shipping capacity. The top 10 trucking companies on the other hand only account for about 12% of the total trucking capacity.
The reason the industry is so fragmented starts with the fact that the barriers to entry are quite low. Whereas it costs tens or even hundreds of millions of dollars and at least a couple years to build a single ocean going container ship, a new truck can be bought for $150,000 – $200,000.
As with just about any other industry, when demand is strong, businesses are incentivized to take advantage of higher prices. They purchase more trucks, hire more drivers and boost wages to attract workers. But these are thousands of small companies, often, ones that are not sharing information and that are each acting in their own interests. For example, there are 350,000 – 400,000 self-employed truck drivers alone in the United States.
Independent truck drivers in small fleets make up about 90% of the industry. So the effect of thousands of small trucking companies boosting capacity to meet demand can add up quickly to an excess of supply which in turn drives down prices and creates conditions for a bust.
In the five years leading up to 2021, there were at least five freight boom and bust cycles. 2018 was a record year for the trucking industry but 2019 was the worst year since the financial recession. For example, a remarkably high number (1,100) of trucking companies filed for bankruptcy in the United States compared to 310 the year before.
2020 alone produced three cycles. There was a dramatic surge in demand early in the year followed by a crash and then another surge. And the COVID-19 pandemic produced other challenges; one, was a shortage of new trucks. A truck has a short life, trucking companies expect to get about three years of good use until they turn it over to the used market where it will be bought by shipping ports or customers who use trucks for less strenuous tasks. As of September 2021, there is a nine month wait for a new truck and some manufacturers are not even taking new orders.
The second big issue is labor. Competition among trucking companies for drivers can be brutal. This is in part because there are so many of them and there is not much that differentiates one from another. The employee driver turnover rate in the industry can be quite high, about 80% at larger carriers as of September 2021. A lot of that turnover is made up of people moving from one company to the next. Several of the largest trucking companies have raised pay in the last several months. Median pay for the industry was $47,130 in 2020.
Though it is relatively easy to enter into, truck driving is not an easy career to maintain for a long time. Truckers spend a lot of time on the road and the lifestyle presents a lot of difficulties. Truck drivers have high levels of obesity and other health problems and personal health remains one of the biggest reasons for the high turnover rates in the business.
There are also big challenges finding parking, which means it is hard for truckers to find a safe and comfortable place to spend the night after a full day on the road. There is an estimated shortfall of about 600,000 parking slips in the United States alone. Drivers often find they have to park for the night in empty retail parking lots or even along the highway. It is a serious structural problem for the industry but one that is unlikely to be solved soon. There isn’t really a good market solution available for that kind of problem according to industry analysts and parking for freight carriers isn’t really a top political priority even as far as transportation issues are concerned.
Truck drivers don’t have much control over their own schedules and often have to wait, sometimes hours, for crews to load or unload their trucks. These crews often have their own schedules and have little incentive to move faster to help a driver get back on the road. The trouble is truck drivers are only allowed to drive so many hours a day the amount of time they spend loading or unloading can count against that. These kinds of challenges incentivize a lot of drivers to seek out the best pay per mile they can find.
The challenge lies in the fact that the trucking industry is so dependent on drivers. You can’t have a trucking company without drivers and if a merger or an acquisition by one company of another angers the drivers, they might leave and go somewhere else.
It is possible that the industry could see more consolidation and there are some technological innovations that could help that along. One is autonomous or semi-autonomous driving. Removing the driver from the truck removes one of the biggest variables involved in keeping a truck on the road. A truck without a driver would remove the challenge of recruiting and retaining drivers and allow companies to scale more easily.
Once there is autonomous driving, massive consolidation becomes a lot more feasible because it will allow companies to achieve economies of scale, just as ride sharing companies have done. In the meantime, trucking companies continue to rely on drivers and drivers continue to make the best of life on the road.
