Strength in E-Commerce Could Stress Holiday Season Capacity

Carriers and shippers know too well the implications of the tight U.S. labor market on trucking capacity. For-hire trucking companies have barely been able to add workers at the same rate as the overall economy, but a related sector is growing much more rapidly. In addition to “truck transportation,” the Bureau of Labor Statistics tracks figures for a category called “couriers and messengers.” It’s a related segment that includes not only parcel delivery operations like UPS and FedEx, but also other local delivery operations – even things like bicycle messengers in major cities.

In recent years, parcel has grown and local delivery operations have developed as consumers purchase more goods online rather than in stores. The trend tends to feed on itself. E-commerce puts pressure on weaker “brick-and-mortar” retailers, which are cutting back on locations – or, like Toys R Us, shutting down altogether. With fewer brick-and-mortar options, more people buy online.

We see strong evidence of this trend in the July 2018 BLS jobs data. Couriers and messengers was the second-fastest growing U.S. industry year over year. Warehousing and storage and non-store retail — two related industries — also were among the 20 fastest-growing industries.

Between 2011 and 2015, couriers and messengers employment generally remained between 500,000 and 600,000 workers. Since the end of 2014, the number of payroll employees in the segment has jumped 23.6% to just under 750,000. During the same period, truck transportation employment increased just 2.7% to about 1.48 million.

One effect of this growth is to put pressure on the supply of potential drivers. Individuals involved in “last mile” delivery obviously tend to be home more often than those working in truckload. And drivers working at the heavier end of local distribution — so-called “white glove” deliveries of items like furniture, appliances, and electronics — often get gratuities.

E-commerce also adds to the demand on capacity. Goods must get from suppliers to distribution/fulfillment centers by truck. Rising overall retail sales — both e-commerce and traditional — and the pressure to deliver products more quickly has led to more truckload and LTL delivery points, not fewer, resulting in greater pressure on capacity.

As we look at the fall freight season, the U.S. has – so far – avoided the huge disruptions that flowed from hurricanes Harvey and Irma in 2017. On the other hand, this will be the first holiday freight season since implementation of the electronic logging device (ELD) mandate. Also, other sectors that spur freight demand — manufacturing and construction, for example — are stronger than they were a year ago, and inventories-to-sales ratios are lower, which puts still more pressure on transportation. 

We have seen some modest recent stabilization in the spot market, although the market remains far tighter than the long-run average. Perhaps aggressive driver recruiting and added equipment are finally having some effect, but it’s far too soon to declare an end to the capacity crunch. The time between now and December will be the real test.

Avery Vise is vice president of trucking research at the transportation research and analysis firm FTR, responsible for the content of all trucking oriented reports, publications, and analyses. This article was authored and edited according to the standards of HDT’s editors to provide useful information to our readers.