- “While customers bear the brunt of the diesel increases on new contracts, trucking companies are footing the bill for those which are already locked in.
- California just lost about 70,000 truck drivers because of a new petition known as the AB5. It affects independent contractors throughout California, radically changing 30 years of worker classification and reclassifying millions as employees.
- “As a small family business, we went from paying $3,000 a container pre-COVID to begging for a container at $30,000 to keep up with demand.”
The pandemic put a number of things on hold and backorder. Even though the price of diesel recently skyrocketed, demand is still increasing and the supply chain is struggling to keep up. All of these factors are making inflation worse, and in turn, negatively impacting the trucking industry.
ACT Research’s (ACT) latest State of the Industry: NA Classes 5-8 Report found that surging inflation, the Fed hiking interest rates into a potential recession, and supply-chain disruptions remain overarching themes. According to Kenny Vieth, ACT Research’s President and Senior Analyst, “The prospect of a U.S. recession has grown materially since Russia’s invasion of Ukraine, and as of the July issue of ACT’s NA OUTLOOK report, a 2023 recession is now the base-case expectation, with freight volumes beginning to contract in Q3’22. Meanwhile, supply-chain disruptions remain a wild card, as the war in Ukraine continues and China announced fresh lockdowns following another surge in COVID infections.”
Negative Impacts to the Industry
According to Rumsfeld Moreu, Growth Manager at FastPaydayLoans, inflation is impacting the trucking industry in many ways:
- The cost of diesel fuel has been rising, impacting the bottom line for trucking companies.
- The driver shortage has been exacerbated by inflation, as drivers are increasingly looking for higher-paying jobs. This has led to increased competition for drivers and increased costs for trucking companies in recruiting and retaining drivers.
- Inflation has also led to increased costs for shipping goods, as trucking companies pass on their increased costs to their customers.
For Barber Utilities, a regional excavation company and one of the premier contractors in the industry for sewer and storm pipe installation, trucking is a substantial part of their business. CEO David Stavens says that not only is inflation on fuel alone adding an additional $216,000 to their expenses on an annualized basis, but the more significant concern is related to ongoing contracts, which have been in place for months or years before the spike in diesel costs.
“While customers bear the brunt of the diesel increases on new contracts, trucking companies are footing the bill for those which are already locked in. In turn, some companies in the industry are questioning their viability, especially as some state governments, including Connecticut, are considering moving forward with additional fees and taxes on the trucking industry and diesel. As it is, the state increased diesel taxes by 20 percent just this month, making it difficult for trucking companies to see the light at the end of the tunnel. On January 1, the state will add insult to injury, implementing a heavy use tax which will place a per mile fee on trucks with over 26,000 GVW,” Stavens said.
The Driver Shortage
On top of inflationary issues, the nation is experiencing a steep driving shortage. California just lost about 70,000 truck drivers because of a new petition known as the AB5. In September 2019, Gov. Gavin Newsom signed the legislation, Assembly Bill 5 (AB5), into law. Effective January 1, 2020, AB5 affects independent contractors throughout California, radically changing 30 years of worker classification and reclassifying millions as employees.
AB5, which codified the ABC Test, makes it more difficult for a worker to be considered an independent contractor. Many in the trucking industry said the law will end the owner-operator model in the state, and the California Trucking Industry even filed a petition against the law. On June 30, the Supreme Court denied their petition for a hearing, meaning that a previous ruling from the U.S. Court of Appeals for the Ninth Circuit stands and that a preliminary injunction preventing AB5 from being enforced on motor carriers will end.
Moreu says that wholesale suppliers are dealing with the driver shortage in many ways:
- They increasingly turn to technology to help integrate the trucking and supply chain industries. This includes using apps and GPS tracking to help manage shipments and drivers.
- Many suppliers are working to improve driver retention by offering bonuses and other incentives.
- Some suppliers are turning to alternative shipping methods, such as rail and waterways, to help offset the increasing trucking costs.
The Retail Freight Container Inflation
For Marc Werner, Founder and CEO of GhostBed.com, the biggest challenge as a small business is the retail freight container inflation. The pandemic left over 5,000 container ships stuck at sea, so while they had 20 years of supply chain management experience, they did get served with many logistical curveballs, one of them being retail freight container inflation.
“As a small family business, we went from paying $3,000 a container pre-COVID to begging for a container at $30,000 to keep up with demand — all while trying to supply big box stores like Costco that are now buying its own fleet of container vessels to keep retail price inflation down. At the same time, the truck driver fees kept adding up after the containers landed in California,” Werner said.