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Trucking Industry Insight | Spring 2022


5/5/2022 This document focuses on a number of topics that pertain to the trucking industry as a whole, including Biden’s Trucking Action Plan, the rising cost of fuel, a new bill proposed to reduce truck driver tax liabilities, the impact of inflation and worker shortages, and the manner in which e-commerce has altered the industry. It also includes a brief summary of trends in used equipment values.

Hot Topics
Major Takeaways from Biden’s Trucking Action Plan. On Monday, April 4, President Biden shared new details on his Trucking Action Plan, and posted a report on the White House’s website detailing the administration’s accomplishments for trucking and their goals for the future. The report acknowledged many issues raised by truck drivers, including unpaid detention time, poor working conditions, lack of parking, and other issues that harm many drivers. However, the extent of any federal funding that will be allocated to address those issues was not addressed.

The White House also touted its Driving Good Jobs plan, which will be implemented by both the Department of Labor (DOL) and Department of Transportation (DOT). Through this plan, the Biden Administration has held listening sessions and spoken with drivers, unions, and other industry leaders and advocates. It has also pledged to help improve the industry in the following areas:

1. Increase Truck Parking – The recent Bipartisan Infrastructure Law has several programs which can provide funding for state and local jurisdictions to increase the amount of safe parking for truck drivers. The Administration also promises to further study this issue and see where states need the most assistance.

2. Help End Predatory Lease Deals – The prospect of owning your own truck is attractive, and unfortunately many truck drivers get trapped in predatory lease agreements. This can result in drivers getting inundated with debt. The DOL, DOT, and Consumer Financial Protection Bureau have set up a new Task Force to explore ways to make these deals fairer and more transparent for drivers.

3. Detention Time and Compensation Studies – The DOT has announced a new set of studies on the effect of unpaid loading and unloading time on drivers’ safety and compensation. However, they have yet to share any specifics as to how this will be corrected.

4. Worker Rights – The Administration has pledged to improve whistleblower protections and protections against coercion, to increase education about labor rights and worker safety issues, and to address other challenges such as worker misclassification.

5. Increase Women in Trucking – The Driving Good Jobs plan has established a new Women of Trucking Advisory Board which will report on specific issues that women drivers must deal with. The board pledges to increase mentorship and training opportunities while improving on-the-job safety. The Administration further announced a Day of Action which will call attention to preventing sexual assault and harassment in the trucking industry.

The White House also claimed the following accomplishments for the trucking industry:
• 2021 saw the most employment growth for trucking since 1994.
• 2021 saw frontline truckers’ real wages grow despite elevated inflation.
• The DOT provided states with new tools to process CDL licenses, and states issued more than 876,000 new CDLs since January 2021.
• The Administration worked with Veterans Service Organizations to help veterans get work in the trucking industry.

Rising Fuel Costs Impacting Trucking Industry. Skyrocketing fuel costs are hitting the trucking industry hard, creating a domino-effect that is being passed down to consumers. In March, the average price of a gallon of diesel in California surpassed $6.00 and some carriers in the state are posting prices as high as $7.00. During the first week of March alone, the price of diesel jumped nearly 70 cents, and nearly 80 cents over the past month.

According to Jim Philson, Western Trans Logistics owner, who provides freight management from his Arroyo Grande-based business, high prices at the pump will directly impact consumers. “We’re going to see that have a direct impact on the consumer for prices and goods,” said Philson. “The price of end goods being delivered is going to have to go up and that means higher prices at the shelf, so your grocery bill is going to go up, and it’s just a factor of what’s going to happen.” As the price of fuel rises, retailers that rely on trucks for delivery have no choice but to pass along the additional costs in the products and services they provide. Somebody has to absorb that cost, and unfortunately, it ends up being the end user.

The cost to fill up a truck can be $700 to $1,400, depending on the truck, the application, and the size of the fuel tanks. These high fuel costs are especially troublesome for smaller companies, whereas the mega-fleets have a little more room to absorb costs. Unfortunately, for both truck drivers and trucking businesses, as well as consumers, it doesn’t appear prices will likely be going down anytime soon, particularly considering the impact of the Russian invasion of Ukraine and the coming summer months when gas prices reach their highest levels.

New Bill Aims to Reduce Truck Driver Tax Liabilities. In an effort to address the truck driver shortage, on April 1, U.S. Reps. Abigail Spanberger (D-Virginia) and Mike Gallagher (R-Wisconsin) introduced bipartisan legislation that would establish a refundable income tax credit for qualified commercial truck drivers. The Strengthening Supply Chains Through Truck Driver Incentives Act would provide a short-term and fast incentive to attract and retain new drivers. Specifically, the bill would create a two-year (2022 and 2023) refundable tax credit of up to $7,500 for truck drivers holding a valid Class A commercial driver’s license who drive at least 1,900 hours in the year. The adjusted gross income of such drivers may not exceed $90,000 ($135,000 in the case of a joint tax return and $112,500 for heads of household). Additionally, it would establish a new two-year, refundable tax credit of up to $10,000 for new truck drivers or individuals enrolled in a registered trucking apprenticeship. New truck drivers would be eligible for the credit if they did not drive a commercial truck in the previous year or drive for at least 1,420 hours in the current year. They may receive a proportion of the credit if they drive less than 1,420 hours in the year, but drove at least an average of 40 hours a week upon starting to drive.

American Trucking Associations President and CEO Chris Spear said the bill would attract more drivers into the field by providing substantial tax credits to reduce their federal tax liabilities. “This bipartisan bill would make a meaningful difference in the lives of new truckers, further elevating the profession as one of the few available in today’s job market that provides a stable career path to the middle class without the costly burden of a four-year college degree,” Spear said. “A challenge as complex as the truck driver shortage cannot be resolved through a single solution. Solving it requires a multifaceted approach that combines industry initiative with good public policy such as this legislation.” In 2021, American trucking companies experienced a record deficit of approximately 80,000 drivers due to hiring and retention challenges.

Issues with Inflation and Shortages Stall Trucking Industry. The trucking industry is being adversely impacted by one anomaly after another. COVID shutdowns and worker shortages, which hit the industry in 2020, are being compounded by inflation, the Ukraine war and economic sanctions in the past year among a host of other issues. Meanwhile, the American Trucking Association (ATA) estimates the industry was short about 80,000 drivers nationwide in 2021 and that number could double by 2030.

The above factors impact everything from the movement of farm goods and food supplies to the delivery of many dry goods. Estimates suggest more than 70% of freight is hauled by truck in the U.S. However, the transportation of goods has been rocked by diesel fuel costs that increased by $2 per gallon as of the first week of April compared to last year to a national average of $5.14 per gallon. Medium to smaller carriers have been especially hard hit because they don’t have the luxury to buy fuel in bulk or get bulk discounts.

Steep fuel costs and driver shortages aren’t the only issues making it difficult to keep trucks on the road. Many trucking companies are waiting for parts, including water pumps from Japan and air filters from Puerto Rico. At the same time, the used truck market is skyrocketing and those who elect to update their fleets with new trucks and trailers are being told not to think about that until 2023 because manufacturers are still trying to work out steel prices.

As for the ongoing shortage of drivers, ATA reports some left the industry during COVID shutdowns, the rising age of truckers has contributed to a higher rate of retirement and only 7% of drivers are women, well below their desired representation in the industry. Tighter regulations also make it more difficult to recruit new drivers, including the federally mandated age of 21 to drive commercially across state lines. Some would-be and current drivers also struggle to pass drug tests, a situation exacerbated by the fact some states legalized marijuana while the substance is still banned at the federal level.

How E-commerce Altered the Trucking Industry. Walmart’s recent plan to recruit truckers to its private fleet by offering drivers double the median pay for shorter hauls is just the latest example of how the rise of e-commerce has changed the trucking industry. First-year Walmart drivers can now earn up to $110,000, more than double the industry’s $47,130 median pay for long-haul drivers, demonstrating how far the company is willing to go to recruit truckers in a tight labor market. Walmart runs and controls its own fleet as the largest private trucking company in the country, with more than 12,000 drivers. That makes for an enticing job for those who want to spend less time on the road. However, the hiring standards at Walmart and other e-commerce companies are very competitive, you have to be the cream of the crop to be considered for hire.

Similar competition (driven by the growth of e-commerce and demand for rapid home deliveries) in recent years has pushed the trucking industry to remake itself, putting more long- and short-haul trucks on the road and reducing delivery times. It has also given truckers more options, including the opportunity to join fleets offering higher wages and shorter routes and the ability to spend more time with their families, said Bob Costello, the chief economist at the ATA. However, as truckers leave traditional fleets, that may worsen the national trucking shortage and take away some of the best and most experienced drivers in the industry. Driving shorter routes for e-commerce companies is an attractive opportunity for more qualified drivers and truck loaders, who get shorter work trips and are able to work closer to home. “We’re in an environment where pay has been going up and continues going up” in a tight driver market in which demand is outstripping supplies, said Costello.

Trends in Used Equipment Values
Class 8 Trucks. Class 8 same dealer sales grew 23% in March compared to February, and the average retail price of a pre-owned heavy-duty commercial vehicle rose by 11%. According to ACT Research, although preliminary used Class 8 same dealer sales grew 23% month-over-month in March, they were 23% lower compared to March 2021. Other data released in ACT’s State of the Industry: U.S. Classes 3-8 Used Trucks report included month-over-month comparisons for March 2022, which showed that the average retail price of a used truck rose 11% and both average miles and age were lower, down 3% and 7%, respectively, from February. Compared to March 2021 the average retail price was 90% higher, with miles and age each greater by 3%.

“Positively, used truck sales continued to benefit from recent moderate supply-chain improvements,” according to Steve Tam, VP at ACT Research, who said preliminary used truck sales strung together a second consecutive monthly gain of plus-23%. “And a strong one it was, well above the historical seasonal increase of 13%.” He added: “It almost goes without saying that the used truck industry is still plagued by demand greatly in excess of supply. As a result, longer-term comparisons are more representative of current market conditions.”

Sleeper Trucks. In March, year-over-year (YOY) auction values for used sleeper trucks were up 65.9% overall and up 67.1% in the West region. During the same period, asking values also continued an upward trend, showing a 63.8% increase overall, with an increase of 65.4% in the West region. Although used sleeper truck inventory was down 33.9% YOY in March, that was a 14.4% improvement compared to February, when inventory was down 48.3% YOY. Based on a recent market report issued by an information processing company that services the heavy equipment industry, in March the estimated total value of sleeper trucks in the West region was $207.5 million. With an average asking value of $78,000, used sleeper truck values in the West region were just above the $77,000 average asking value in the North Central region.