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Home » Blogs » Think Tank » What’s Driving Increased Expenses in the Trucking Industry

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What’s Driving Increased Expenses in the Trucking Industry

Here’s What’s Driving Increased Expenses in the Trucking Industry
March 2, 2020
Shaun Savage, SCB Contributor

Motor-carrier costs rose 7.7% in 2019, according to the latest annual report by the American Transportation Research Institute (ATRI).

Costs in the trucking industry far surpassed the increases felt by many other industries. By comparison, inflation in the U.S. was 2.49% for the same period. Shipping rates aren’t growing at the same steady rate as costs, so motor carriers are shouldering the burden of many of these increases.

No one cost center is responsible for this jump in expenses. The industry is feeling pressure from many quarters, from rising insurance premiums to shortages in diesel technicians.

In order to successfully navigate these challenging times, motor carriers, brokers and drivers need to have a strong understanding of the genesis of these increases. By understanding industry trends, they’ll be better equipped to prepare for the months and years ahead.

Unsurprisingly, the rising cost of fuel is having a significant effect in driving up vehicle-based costs. Fuel costs jumped 17.7% year over year, with the cost of fuel making up a whopping 24% of carriers’ average total costs per mile in 2018.

Diesel prices haven’t yet met the peak levels of 2012 and 2013, during which the cost per gallon averaged above $3.922. However, the industry has seen a steady rise from the recent low of $2.304 in 2016. The annual average for diesel in 2018 was $3.178.

In addition to rising fuel costs, carriers are reporting higher vehicle-maintenance expense. Repair and maintenance costs have increased by 24% since 2012, and 66% since 2008.

Respondents to the ATRI study reported that higher expenses were associated with diagnosing and repairing the sophisticated electronic components found in the newer vehicles. A shortage of qualified diesel technicians was also cited as a reason for increasing costs.

Insurance costs are also on the rise. Premiums jumped 12% year over year, and continue to trend upward. This despite a decrease in overall driving violations and serious incidents across the industry.

Insurance cost spikes can partly be attributed to an increase in vehicle prices. More expensive trucks have a higher value to insure, and thus command higher premiums.

The larger share of the increase is due to an increased risk of litigation. In the event of a serious incident or fatality, juries are awarding increasingly large, multi-million-dollar claims to victims and their families.

Previously, many trucking companies that used independent owner-operators were insulated from direct responsibility in the event of a serious incident. However, an increasing number of juries are finding brokers responsible through vicarious liability. Motor carriers and insurance providers are left on the hook for these payouts.

Road tolls continue to increase at rates above national inflation. The costs of tolls rose 11% for surveyed for-hire truckers in 2018. In many major urban areas, there are limited alternatives to tolled bridges and routes. Truckers have no option but to absorb the higher fees as they fulfill their routes.

The cost of driver wages, benefits, and bonuses is the single largest line-item expense on average for motor carriers. Driver-based expenses account for 43% of total per-mile costs.

Despite other cost increases and industry pressure, trucking companies continue to offer steady wage increases. Driver wages increased by 7%, while the cost of benefits went up 4.7%. Starting bonuses increased on average by 11.5%. 

The primary driver behind these increases is a shortage of qualified truck drivers. The ATRI report notes that over 55% of professional truck drivers are over 45 years old. Meanwhile, only 5% are between the ages of 20 to 24. As the older generation of drivers retires, shortages will become more severe.

The American Trucking Associations (ATA) determined that the industry was short 60,000 drivers in 2018. That number will continue to grow. To replace the retiring drivers, ATA believes that the industry will need to hire 1.1 million new drivers over the next 10 years.

The largest share of this shortfall comes in the over-the-road, for-hire truckload market. In this field, drivers spend days or weeks on the road and away from their families. In a tight labor market, it isn’t surprising that drivers decline these long hauls and pursue work with private fleets, transporting less-than-truckload or other more local options.

Armed with this information, carriers and brokers should plan and prepare for the coming year.

Driver recruitment and retention should remain a priority. In order to meet this demand and attract younger workers, carriers will need to offer competitive wages and benefits, as well as flexibility and work-life balance.

No relief is expected from upward trends in fuel, maintenance, and insurance premiums. Budget accordingly, and use these benchmarks to communicate with and educate customers on the financial pressures facing the industry.

Shaun Savage is founder and CEO of GoShare, a provider of apps for connecting businesses and consumers with truck and van owners in real time.

Logistics LTL/Truckload Services

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