Starks said it's less important to actually read this graph from FTR's Noel Perry than to absorb the potential driver shortage impact of impending regulations.
The need to find new truck drivers, find ways to keep them moving and even revamping driver pay structures were a major focus of Thursday's "State of Freight" webinar update from FTR Associates President Eric Starks.
In introducing the webinar, FTR intermodal and rail expert Larry Gross noted that although he's been in this industry for 30 years, "Rarely have I experienced a period quite as interesting" as the current one.
In general, Starks said, things continue to look relatively healthy for the freight markets. The U.S. gross domestic product grew 4% in the second quarter after an abysmal 2.1% drop in GDP in the first quarter. Starks pointed out that in this recovery, even though GDP overall has grown at a sluggish average rate of 2.3%, there's been a 5.8% growth in the goods-producing sector. If you look back at the 1993-2007 period, GDP averaged 3.5% but goods-producing growth was only 5%. However, Starks noted, the goods-producing sector saw a deep cut during the Great Recession.
Starks noted that looking at spot versus contract rates can be a leading indicator of the freight environment. Usually when the economy starts to expand rapidly, he said, you see a rapid runup in the spot market. Then the spot market stabilizes and you start seeing the increase in contract rates.
"I think we're at that point," he said, pointing to the hot spot market in the first half of the year. It has slowed, but contract rates, he said, are starting to move higher.
As the economy and freight growth create a higher demand for freight, demographic changes and increasing regulations are making it harder for fleets to find drivers and cutting the productivity of the ones they have.
"The industry is going to have to figure out … how do they pay drivers going forward?" Starks said. "Do they finally start paying drivers in a different way? I think they do."
"We probably need to see driver pay in that $75,000 to $80,000 range. Will the carriers get there? We've seen pay going up. I think they will have to restructure pay, will have to come up with some base pay, because drivers aren't seeing the miles they've seen."
Fleets finally have begin to expand, Starks said. Looking at North American Class 8 truck sales, he said, "we see sales around 290,000 to 300,000 this year. Replacement demand is typically around 220,000 to 230,000 pieces of equipment. So clearly the overall fleet size is starting to grow this year. That was somewhat expected, but we also knew fleets would be cautious about this because you have to have drivers" to put behind the wheel of those additional trucks. "Our thought is you probably need to be growing the fleet a little bit more, but you just don't have the drivers."
In addition, Starks said, "we've been hearing a lot about collaboration between shippers, railroads, truck carriers, and intermodal. What we've seen over the last decade or two is motor carriers and railroads have done a better job of collaborating. Where the focus is really going to shift because of productivity issues is collaboration between shippers and truck carriers, to figure out how to free up drivers and equipment and create more capacity."