Somebody s Going to Deliver the Freight. Kenny Vieth ACT RESEARCH Co., LLC

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1 Somebody s Going to Deliver the Freight Kenny Vieth ACT RESEARCH Co., LLC

2 Driver [Pay] Shortage The freight will get delivered Freight determines driver demand, not the reverse Problem of prosperity what is worse: No freight ( ) or no drivers (2014)? There is no substitute mode for most heavy truck freight Unlike freight and fuel, it is an internal issue Retention/recruitment are actionable Driver shortage does not preclude profitability Actually strongly correlated with profits and Class 8 orders There is no easy button 2

3 For Hire Trucking Executives Survey of Top Concerns Sources: Randall-Reilly MarketPulse 3

4 100 Years Ago: The Traffic World (now part of Journal of Commerce) Dec. 12, 1914 The Truck Driver Problem Practically every truck manufacturer and nearly all employers complain of the great difficulty of securing drivers who are competent and who will work handling freight aside from those who drive horses. They are agreed that the profit or loss from truck transportation is largely dependent upon the drivers, and yet a majority of truck owners will hire the men who will work cheapest, entrusting valuable property in their keeping ) 4

5 The Root of the Problem It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job NY Times, Aug

6 Down the Ladder The Root of the Driver Shortage Driver Wages Relative to Food Prep Workers Driv er Food Serv ice 4.0 $28,000(e) $41, $7,000(e) $21, May 2010 OES BLS OES, ACT Research Co., LLC: Copyright

7 Average Hourly Earnings Production Workers Average Hourly Earnings ($/hr) Average Annual Earnings Growth Construction Manufacturing General Freight Construction General Freight All manufacturing Source: U.S. Bureau of Labor Statistics Data through December 2014

8 Average Hourly Earnings Production Workers Average Hourly Earnings ($/hr) Average Annual Earnings Growth Construction Manufacturing Long Dist TL Long Distance Truckload Construction All manufacturing Source: U.S. Bureau of Labor Statistics Data through December 2014

9 Driver Shortage? 160 ATA: For-Hire TL Carrier Driver Turnover Q3 Percent Turnover Large TL Turnover Small TL Turnover LTL 160 Percent Turnover NPTC Benchmark Survey: Private Fleet Driver Turnover Note that the axis is the same on both graphs American Trucking Associations, ACT Research Co., LLC: Copyright National Private Truck Council, ACT Research Co., LLC: Copyright Not surprisingly, private fleet drivers make $20k-$25k more per year on average than for-hire drivers and they also get home more regularly! From NTI (Klemp): For-hire ~$46k, Private fleet ~$68k 9

10 Positive Relationship Percent Turnover ATA: For-Hire TL Carrier Driver Turnover Q3 Large TL Turnover Small TL Turnover LTL 170 Percent Turnover ATA: For-Hire TL Carrier Driver Turnover & Trucker Profits (ACT's Public TL DB) ATA Large TL Turnover Q4 Carrier Profits 4QMA Net Profits American Trucking Associations, ACT Research Co., LLC: Copyright % TL Carrier Database: Net Profit Margin Q1'05 - Q4'14 Actual SA 4QMA ACT Research Co., LLC: Copyright American Trucking Associations, ACT Research Co., LLC: Copyright 2015 For-hire turnover is ~40ppts below last cycle peaks, suggesting carriers are doing a better job of meeting drivers lifestyle objectives. 2 10

11 Silver Lining for Survivors Rising barriers to entry will constrain new capacity additions Regulatory burden(s) Equipment costs Driver recruiting & retention Shipper liability concerns Etc. Constraint on capacity will be telling as economy accelerates You just think it is hard to find drivers 11

12 No Relief in Sight DRIVER SUPPLY: U.S. MALES Potential Hirees & Impending Retirees Warm Bodies (000s) 21 Y ear-olds 65 Y ear-olds SUPPLY OF INCOMING CDL-AGE U.S. MALES NARROW S HARD TO FIND DRIVERS NOT SO HARD TO FIND DRIVERS U.S. MALES AT RETIREMENT AGE RISES SHARPLY Source: U.S. Census Bureau, ACT Research Co., LLC: Copyright

13 Solving the Shortage? Per slide 3: there has always been a driver shortage Transportation is a commodity: business goes to the lowest bidder Fleets pay just enough to get the right amount of drivers Surveys most often point to quality of life issues as the reason for driver turnover Given that driving will still be a hard job tomorrow, and besides better scheduling, the answer is higher pay For-hire fleets taking pages from private fleet play book Instead of across-the-board rate increases, more for-hire fleets are turning to performance based pay metrics to reward best drivers Hire to retire 13

14 ACT Research Company, LLC 4400 Ray Boll Blvd. Columbus, IN Phone: (812) Fax: (812)

A Different Set of Problems: Trucking & Heavy Equipment Demand Shift Into High Gear

A Different Set of Problems: Trucking & Heavy Equipment Demand Shift Into High Gear Kenny Vieth ACT RESEARCH Co., LLC Federal Reserve Bank of Chicago Automotive Outlook Symposium June 3, 211 It s NOT Different