Even Amazon cannot escape the woes plaguing the trucking industry.
The retail juggernaut, loved for Amazon Prime, its free two-day shipping product, announced last week that it would increase the price of an annual membership by $20 to $119 for US customers.
Brian Olsavsky, the company’s CFO, cited higher shipping costs as one of the reasons for the hike.
As several other companies reported first-quarter earnings results, they also highlighted the impact that the shortage of truck drivers is having on their costs, and their ability to move products quickly.
Some of the root causes of this shortage are not unique to the trucking industry. Nearly a decade into the US economy’s recovery, the unemployment rate has fallen to a 17-year low of 4.1% — so low that companies are unable to find all the skilled workers they’d like to hire.
More specific to the industry, demand for trucking services has increased, creating competition for drivers. Also, trucking is not the easiest job available. The hours are long and often overnight. The job requires a special commercial driver’s license, and in some cases, passing a drug test.
Amid the shortage, truck drivers, on average, have seen their wages rise. In the first quarter, compensation costs for private transportation and material-moving workers, which include truck and railroad operators, rose 3.7%, a Labor Department report released on Friday showed. It was the biggest gain since 2004, and higher than the 2.7% increase for all workers, The Wall Street Journal noted.
To retain increasingly scarce drivers, some fleets are offering signing bonuses and benefit packages, according to the American Trucking Association, a trade group. And some of those costs are being passed on to customers.
What execs are saying:
Brian Olsavsky, CFO of Amazon: “The value of Prime to customers has never been greater. And the cost is also high, as we pointed out especially with shipping options and digital benefits, we continue to see rises in costs.”
Jeff Miller, CEO of Halliburton, America’s second-largest oil driller: “After rail, the next logistics bottleneck is trucking.The issue today is not in tractors and trailers, it’s finding qualified drivers and dealing with congested infrastructure.”
Kevin Knight, chairman of Knight-Swift Transportation, a trucking company: “The broader economy continues to show signs of growth. Consumer spending, durable goods and the prospects of increased manufacturing and construction, all point to positive growth in the future, especially considering the recent tax relief from the Tax Cuts and Jobs Act. These economic growth factors, however, may increase the competition for vocational labor, potentially resulting in a more challenging driver market. The driver shortage continues to be a headwind for the industry and will likely impact the ability to increase capacity in the space.”
Michael McGarry, CEO of PPG Industries, a paint and coatings maker: “But as you know, especially here in the US — and it’s not just the US had [sic] problem, but there is less trucking availability and availability of trucks on a short notice is also a challenge. So if you need something short then you need to pay more or you don’t get it. So that’s a challenge for us.”
Glenn Landau, CFO of International Paper Co., a paper producer: “Supply chain costs continue to trend higher due to very tight rail and truck availability as well as higher diesel fuel costs. And looking forward, it is hard to see much relief here, so we believe this headwind will linger.”
Steve Voorhees, CEO of Westrock, a paper maker: “Transportation represented the largest inflation driver in the quarter and it’s one we believe will continue. Higher truck and rail rates are impacting the entire US economy and we’re taking actions to reduce these costs, ensure that we can service our customers efficiently.”
Trucking company J.B. Hunt‘s earnings release: “Salaries, wages and employee benefit costs increased 18.4% in 2018 compared with 2017. This increase was primarily related to increases in driver pay and office personnel compensation due to a tighter supply of qualified drivers and an increase in the number of employees.”
Adam Satterfield, CFO of Old Dominion Freight Line, a logistics company: “Salaries, wages, and benefits are the biggest element [of cost increases]. And then the fuel and operate supplies.”
Todd Teske, CEO of Briggs & Stratton, a producer of gasoline engines: “…like many manufacturers, we have experienced fairly significant increases in freight rates beginning in calendar 2018. The availability of trucks has struggled to keep up with demand subsequent to the launch of electronic driver logs this year. Well in the long-term, we have the ability to recoup freight costs through pricing we estimate that the higher freight rates will have an unfavorable impact on our current year outlook of approximately $4 million pre-tax.”
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