Global e-commerce sales in 2022 are expected to hit $5.4 trillion, up from $4.28 trillion in 2017. As we approach approaching the year’s busiest season, we’re still grappling with pandemic-induced supply chain challenges, inflated fuel prices and a supposed driver shortage. Retailers are stuck with questions: What happens if there aren’t enough drivers to transport products on time? How do we get more drivers with profits down? And how do we provide a cushion for elevated diesel costs?
While the fourth quarter is typically a strong market for truckers, the way the industry has been operating isn’t conducive to retaining drivers. The common belief is that we’re experiencing a driver shortage, when in reality we’re seeing an exodus of licensed truckers driven out of the industry by shrinking margins due to intermediaries, record equipment costs and elevated fuel costs. These challenges often prove to be insurmountable for fleets of fewer than 20 trucks, which make up 97% of motor carriers in the U.S.
While some policymakers have stepped in with legislative and regulatory proposals to increase the pool of qualified drivers, others are actively touting policies that harm truckers. Last month, California’s AB5 took effect, which effectively made it impossible for owner-operators to be classified as independent contractors. According to the California Trucking Association, the law will take 70,000 independent truckers off the roads, a substantial portion of whom operate in the drayage segment essential for imports of retail products during the holiday season. This law will reverse much of the recent improvements to backlog at the ports, and further exacerbate supply chain disruptions.
The uptick in demand due to e-commerce sales will pull drivers back into the truck, but with freight rates still at lower levels compared with 2021, any potential bump will offer only modest relief to the strained macro environment for the trucking industry. The rapid collapse of the spot freight market from its peak in Q2 2021 — even as inflation and fuel costs remain elevated — has caused many smaller trucking companies to lose their authority. According to DAT Freight & Analytics, the spot market has loosened significantly as of late, with spot loads posted in June, 2022 on its load board declining by 20.2% from May. To put it in perspective, a decline of more than one-fifth the number of posted loads in only one month is huge, and it pushed many smaller owner-operators and drivers out of the workforce.
It may seem like businesses have bounced back from pandemic-related slumps, but the ripple effects that COVID-19 had on supply chains are still being felt. Many inefficiencies were exposed, including the highly siloed way most businesses operate within the interconnected supply chain. Artificial intelligence has the potential to reduce much of the resulting friction. It has the power to process incredibly large sets of data and solve complex problems that the human mind is unable to handle. By instantly assessing millions of permutations, AI can quickly solve many of the challenges that plague the trucking industry, including ensuring that truckers are matched with loads that direct them to the best markets, eliminate deadhead miles, and solve for maximum efficiency and profit.
So why aren’t AI systems being adopted across the industry? As with all emerging technologies, the biggest challenge is convincing people to trust technology. Truckers are used to traditional load matching systems and instinctually chasing the highest-priced load. AI represents a paradigm shift away from that immediate load, to rapidly evaluating voluminous datasets and probabilistic scenarios for producing route options that maximize profits over the long term.
While this shift will take time, it’s clear that the old ways aren’t sustainable. If the logistics industry continues to put drivers through prolonged periods of time with no pay miles and wasted time idling at pickup and drop off, we actually will see a shortage of drivers. By adopting AI and other automated technology, the trucking industry can improve driver earnings and experience, ensuring the industry attracts and retains talent for years to come.
The bottom line: Until we address problems at the root of the trucking industry to create a sustainable, well-paying profession, there will always be inconsistent levels of drivers available. There are thousands of qualified drivers who are being pushed out of an opportunity to earn a steady income due to inefficiencies in the current business model. The challenge is finding a system that allows them to keep busy and engaged in their work without worrying about choosing the best route to the most profitable loads — and this can be accomplished through AI-powered technology. In looking at the challenges of Q4 and beyond, the need for change is clear.
Priyesh Ranjan is chief executive officer of Vorto.
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