2019 Trucking Industry Forecast

2018 has seen an American economy that is booming at rates we have not witnessed in decades. Real unemployment has hit all-time lows across the board and GDP growth looks as if it will hit 4 points in Q4. Due to this economic prosperity, personal consumption expenditures per capita have reached all-time highs. People have more money to buy products or services, and boy are they buying. Such expenditures have resulted in record highs in real manufacturing output with 2.7% year-on-year growth.

As the year comes to a close, it appears that this economic growth will continue into 2019. For the trucking industry, this means both challenging and prosperous times lay ahead. If you are part of the trucking industry, there are trends you should prepare for so that your 2019 is even more profitable than 2018. Follow along as we break down the latest in our 2019 trucking industry forecast so that you can take the proper steps to prepare for success and optimize your supply chain.

Increased Spending in 2019

For now, most experts forecast that the economy, namely manufacturing and e-commerce will continue their unprecedented growth, if not at quite the same startling rate.

As a result of this expected growth, transportation budgets in 2019 are expected to see a similar 10% increase year-to-year as contract rates will likely see analogous rate hikes that fall somewhere between 7%-15%. While this is seen as a Carrier market, the good news for shippers is that the FTR Shippers Conditions Index is expected to approach an almost neutral condition by spring.

Phase 3 of the ELD Mandate

The event that will likely have the largest and most widely felt impact on the trucking industry in 2019 has to do with the ELD mandate entering its third and final phase. Created as a facet of the 2012 Congressional “Moving Ahead for Progress in the 21st Century,” bill, the third phase requires complete compliance with the bill.

One of the main focuses of this MAPC bill was to fix and better enforce driver hours and regulations with an improved and more reliable monitoring system. In the past, drivers had been technically governed by trucking regulations. While they were expected to comply with rules and regulations that limited driving hours, mandated breaks and rest between driving sessions, it was all too easy for them to disregard such rules. For years, freight drivers manually filled out their driving logs. As you might imagine, this made it particularly challenging to enforce or monitor these hours, since both drivers and carriers would regularly push past their hourly cap.

The MAPC mandate required that electronic logging devices (ELDs) be placed in each and every freight truck as replacements for the out of date pen and paper, “honor system,” logs. These ELDs work to enforce new hourly labor regulations, which according to the Federal Motor Car Safety Administration (FMCSA), states:

  • Sleeper Berth Provision – Drivers using the sleeper berth provision must take at least 8 consecutive hours in the sleeper berth (a seat that can be reclined to form a bed), plus a separate 2 consecutive hours either in the sleeper berth, off duty, or any combination of the two.
  • 11-hour driving limit – Drivers may drive for a maximum of 11 hours after 10 consecutive hours of off duty.
  • 14-hour driving limit – Drivers may not drive beyond the 14th consecutive hour after coming on duty, following 10 consecutive hours off duty. Off-duty time does not extend the 14-hour period.
  • Rest Breaks – Drivers may drive only if 8 hours or less have passed since the end of driver’s last off-duty or sleeper berth period of at least 30 minutes. Does not apply to drivers using either of the short-haul exceptions in 395.1(e).
  • 60/70-Hour Limit – Drivers are not allowed to drive after 60/70 hours on duty in 7/8 consecutive days. A driver may restart a 7/8 consecutive day period after taking 34 or more consecutive hours off duty.

While this creates a safer working environment and improves accountability, this trucking industry forecast for 2019 foresees that this regulation, as with most regulations, will come with increased costs. A hard cap on driving hours means that carriers will have greater difficulty delivering freight at the same rate.

If a driver hits their hourly max, it does not matter if he is but a mile away from the terminus, he will have to stop. As a result, a carrier will be forced to either send an additional driver, transfer the goods, or wait for the ten-hour off-duty period to finish. This will require carriers and shippers to thoroughly plan their logistics out if they wish to ensure the shipment arrives prior to its deadline. Unforeseen issues such as traffic or delays could further slow down delivery times. Naturally, the necessary precautions will increase both input costs and shipping costs.

Capacity Crunch

One of the most significant hurdles that will be faced by the trucking industry in coming years is a worsening capacity crunch, i.e., an insufficient supply of drivers to meet the steadily rising demand for the shipping of goods. In 2017, the American Trucking Association issued their Truck Driver Shortage Analysis, which stated,

“Over the past 15 years, the trucking industry has struggled with a shortage of truck drivers. The shortfall was first documented in a 2005 report. At that time, the shortage was roughly 20,000… The driver shortfall is expected to rise by the end of 2017 to the highest level on record as freight volumes recover and the industry transitions to the use of electronic logging devices to record driver hours-of-service.”

Experts forecast that going into 2019, on the wave of a booming economy and increased per capita consumption, trucking shortages could reach into the 70,000 range. This capacity crunch in trucking is expected to persist with no end in sight, as the economy remains robust.

In order to try and entice more drivers into the labor market, carriers have increased wages over the past four years by nearly 15% to reach an average salary of $53,000 per year. For private truckers, this figure jumped 18% to more than $86,000 per year. While, according to the Bureau of Labor Statistics, this outpaces the 10% hourly wage growth seen in the same period, even this surge in pay does not seem likely to solve this capacity crunch.

This driver shortage continues for several reasons such as:

  • The economy is too strong – While this may not seem like an issue on the surface, it is simply a statement of the fact that demand outpaces supply. Growth in e-commerce retail and construction and manufacturing, combined with a nearly full unemployment rate, have increased the capacity strain on the driver labor market.
  • ELD Mandate – As we discussed above, regulations and hourly caps threaten to squeeze trucking capacity even more, especially since more than 1 in 10 drivers in 2018 still drove without an ELD.
  • Demographics – One of the most significant reasons for this dwindling supply of drivers is that a significant percentage of American truckers are males in their mid 50’s. These men are expected to retire by the mid-2020’s; in that same report, the ATA estimates that nearly 500,000 drivers will retire by 2026, leaving a driver shortage that surpasses 200,000. As fewer young men of the original demographic enter the trucking labor market, carriers must seek ways to draw in new drivers.
  • Massive storms – 2018 has already seen its fair share of natural weather disasters that had negative repercussions on routes and driver supply. Dangerous weather will always naturally create delays and other issues, and while such problems are expected, they did tighten the availability of drivers in 2018.
  • The difficulty of the job – Trucking is not an easy job, nor lifestyle. It requires long hours, alone and on the road, away from home, family, and friends. Finding drivers who are willing to take on these challenges is becoming increasingly more difficult.

USMCA

In late September, President Trump proudly proclaimed victory with the completion of the new trilateral free-trade deal titled USMCA (U.S., Mexico, Canada). While the President declared it to be an entirely new NAFTA (North American Free Trade Agreement), in reality, it took the skeleton of that previous longstanding agreement and updated it.

This strong-arming negotiation tactic by the President had many worried that NAFTA and the trade agreement between the North American neighbors would unravel. Those fears were not realized, however, as the President achieved his goals and was able to improve American trade interests.

The ATA was quite happy with this found resolution and positive about what it would mean for American truckers. ATA President, Chris Spear, stated, “The wide-ranging pact is a positive step for the nearly 50,000 Americans working in jobs directly connected to cross-border trucking– as well as the more than 7 million Americans working in trucking-related jobs.”

We forecast that this new deal will benefit the trucking industry in 2019 in the following ways:

  • Increased U.S. control over existing cross-border trucking program with caps of carriers operating out of Mexico.
  • Grants the Department of Transportation the ability to evaluate Mexican-based carriers who already are allowed by the U.S. to operate within its borders.
  • Allows the U.S. to place a moratorium, limiting the amount of Mexican-based carriers permitted to operate within the U.S.
  • Prohibits Mexican-based carriers from hauling cargo between points within the U.S., limiting their freight routes to cross-border transportation.

Such constraints mean more work and greater protection for American truckers, however, as we discussed with the capacity crunch, this increased demand could possibly increase the driver shortages within America. While this remains to be seen, the American Trucking Association happily endorses this new trade agreement, claiming it as a win for carriers and shippers alike.

2019 Fuel Prices

The trucking industry’s rates are heavily tied to the cost of fuel. When fuel prices go up, shipping rates increase accordingly. President Trump has pushed very hard to suppress fuel prices and keep oil beneath $100 barrel. For the first time in American history, the U.S. is a net exporter of oil.

According to the U.S. Energy Information Administration, “U.S. regular gasoline retail prices averaged $2.86 per gallon (gal) in October, an increase of 2 cents/gal from the average in September, marking the sixth consecutive month that U.S. prices averaged between $2.85/gal and $2.90/gal. EIA forecasts the average U.S. regular gasoline retail price will fall to $2.57/gal in December 2018. EIA forecasts that regular gasoline retail prices will average $2.75/gal in 2018 and 2019.”

This forecast of fairly comparable fuel prices to those of 2018 is a good thing for both carriers and shippers. While we do expect some shipping rate increases, stagnant oil prices will help keep these rates lower than they otherwise would be.

Technological Innovation

Automation and technological innovation seek to optimize supply chains and increase visibility. 2018 saw a continued trend in the freight industry embracing apps, transportation management systems, automated freight brokerages, and other new tech. Forecasters expect 2019 to see even more facets of the trucking industry adopt these optimizing technologies.

The more exciting prospects in both the near and not so distant future include:

  • On-demand trucking
  • Electric semi-trucks
  • Autonomous trucking

Carriers and shippers are both looking for ways to gain a competitive advantage. This embrace of new tech is an exciting step forward into the future of the trucking industry.

Conclusion

2018 was a record-setting growth year in both the world of e-commerce, manufacturing, and shipping. Approaching 2019, optimism for the trucking industry remains high with expected increases in rates, revenue, and demand. That said, this demand and the capacity crunch presents a unique obstacle the trucking industry must find solutions for sooner rather than later.

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