Throwback Thursday: Motor Carrier Act of 1980’s Trucking Legacy
You should know about a retro piece of legislation that changed the trucking industry as we know it. Back in 1980, when CNN was launched, the miracle on ice humbled the USSR, and the Post-it note debuted, the transportation world saw the passage of the Motor Carrier Act of 1980. Prior to that, trucking was a heavily regulated industry, courtesy of the Motor Carrier Act of 1935 and the Interstate Commerce Commision, which created regulations dictating how many motor carrier authorities issued, what they could haul and how much they could charge to move goods. Imagine having to request from the ICC the rights to haul a certain lane, then wait for approval and haggle with the incumbent carrier on how to take the loads prior to approval. The rights to lanes gradually increased in cost, to the point that by the 1970s, the authority to run some lanes could run into the hundreds of thousands of dollars. Rising costs saw shippers and government officials in favor of deregulation, with the Teamsters Union and some trucking associations opposed to these efforts. The desire for lower transportation costs prevailed and successive administrations lobbied Congress to reduce trucking regulations. That set the stage for massive growth in trucking companies by the late ’80s, including the founding of U.S. Xpress and Covenant Logistics in 1986, Knight Transportation in 1990, and the expansion of existing companies like JB Hunt (1961) and Schneider (1935).
This deregulation resulted in a new business model, based on paying drivers for miles driven, as well as giving trucking companies and shippers the rights to negotiate rates to haul. The rise of low-cost, nonunionized carriers caused a doubling in operating authorities from 20,000 in 1980 to over 40,000 by 1990, and led to reduced business inventories, increases in trade and shorter manufacturing lead times. The big takeaway: savings in transportation costs, but some argue at the expense of driver wages, which have not kept pace with inflation in part from longer hours translated into lower wages. (Youtube Link)
Capacity Crunch: OTR driver shortage, no ETA at this time
Trucking carriers continue to struggle to hire and retain drivers in spite of higher rates and record demand for freight. For context, the current driver shortage is in the long-haul, full-truckload segment and associated with a 94%-100% turnover rate for large carriers and 73%-77% turnover rate for smaller carriers. In contrast, LTL turnover rates are around 9%-18%. Drivers in this segment often avoid the longer miles, heavier loads, larger trailers and extended time away from home. ATA Economist Bob Costello put the current driver shortage at 80,000, and expects to climb to 160,000 in the next decade.
In an interview with FreightWaves about starting a trucking company, Azmi Freight founder and owner Mohammad Banibaker said, “It’s a grueling lifestyle being away. The vast majority of the time, driver pay does not justify being weeks away from your family. Missing your kid’s birthday or those small moments growing up is not worth $70,000 a year.” ATBS data supports this view. It puts average driver salaries at $70,000 annually, a gain of $6,530 from last year, yet a lack of drivers is causing an impact on economic recovery.
The $791 billion-plus question is how to make trucking, which handles 11.84 billion tons of freight and accounts for 80% of all freight revenue in 2020, an attractive job.
From my experience, there isn’t a clear-cut solution. The trucking industry relies on the driver, the carrier and the shipper to all operate at 100% in the best of times for shipments to efficiently move across the freight network. The unfortunate truth in this relationship is that most of the inefficiencies and issues in this complex, chaotic environment fall on the driver when problems arise.
With most drivers being paid by the mile, the penalties for lost time can be steep. For example, when picking up or delivering a live load, there could be a line due to lack of staff, product shortage or overage, or a surge of trucks arriving at the same time, causing a four-hour delay. Drivers’ time spent idle removes potential driving miles for the day, directly impacting their paycheck. A four-hour delay could be 200 loaded miles, and if the driver is paid 55 cents per mile, that’s a loss of $110 in earnings for the day. Larger carriers create a trailer pool with the customer, and drop trailers to get loaded and unloaded, to save valuable time and speed up the pickup process to 30-60 minutes versus 120 minutes for a live load. Chaos can strike when the trailer pool at one facility has no empty trailers to take, forcing the driver on a three-hour empty trailer hunt, checking multiple other customer locations for an empty trailer for the next load. Thus a one-hour drop trailer delivery and a three-hour trailer search burned precious driving time and produced zero revenue miles, generating less earnings.
Many carriers are now offering guaranteed minimum pay to help offset these delays. I predict the pay-per-mile model will continue to exist, but keep an eye out for carriers offering salaries or other incentives to focus pay on hours worked instead of miles driven. Challenges remain, as some economists argue that average driver pay has decreased 50% since the 1970s and predict additional pay increases are necessary to reflect the sacrifices long-haul drivers make and compensate them accordingly.
Market Update: Consumer Confidence Index falls as pandemic and supply chain disruptions take a toll
Less confident consumers spend less, and that means I may finally get my long-awaited back-ordered PlayStation 5. However, expect the backlog of orders and shipments to lead to continued capacity shortages in the coming months, as orders continue to be fulfilled and inventories replenished after the fourth-quarter rush.
The Routing Guide: Links from around the web
CNBC video on Why the Trucking Industry is so Fragmented and Chaotic (Youtube)
I need a sponsor! A primer on advertising models and the errors of efficiency (Alex Murrell)
2010 Dan Rather Report on an over-the-road truck driver; some numbers are dated but the same supply chain issues remain. (Youtube)
Do you like weather maps? Do you like over 30 different ones with a retro background? Check out Mike’s Weather Page.
We broke the supply chain: article on how we bought ourselves into a supply chain mess (Time)