The trucking industry is handling its driver shortage in a unique way — and it could crush others that depend on it
- A shortage of truck drivers in the US has increased their wages, on average.
- Unlike many other industries, trucking companies have been able to pass on these higher costs to their clients through higher prices.
- But in most other industries, including those getting crushed by higher freight costs, it's not as easy to raise prices.
There aren't enough truck drivers in the US to meet the demand for freighting services.
One outcome of this is that truck drivers, on average, are getting paid more. The median salary for a truckload driver working a national, irregular route has risen by 15% since 2013, a survey from the American Trucking Association, a trade group, showed.
Freight providers have passed along these higher costs, and that's pinching companies that rely on them. For example, the cereal and snacks maker General Mills recently cut its full-year profit forecast, citing "sharp increases" in freight and commodity costs.
Of course, driver pay is just one of several things that factor into freight costs. Others include mileage, delivery timing, bad weather, and diesel prices. However, the level of demand for truck transportation relative to the shortage of drivers is a primary motivation for pay increases.
There's something unique about how the trucking industry has been able to pay drivers more and raise prices at the same time. Over the past year, the prices charged to wholesalers — or the producer price index — has risen 4%, while average hourly earnings are up 5%.
"It is a neat and intuitive relationship," Neil Dutta, the head of US economics at Renaissance Macro, said in a note on Thursday.
"We repeated the exercise for as many industries as possible, plotting average hourly earnings against producer prices for that industry ... We'd expect a positively sloped line, indicating that industries generating strong wage growth for their workers are also charging higher prices. Instead, the regression line is essentially flat."
That doesn't mean companies in other industries can't raise prices when they pay workers more, he added. Instead, it's not as simple or straightforward.
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Economists at the Federal Reserve also looked into the link between worker pay and price changes, and found an inconsistent relationship.
They observed that it's not so easy for businesses to constantly tweak prices. And before prices are increased, companies must consider current as well as expected costs.
The trucking industry demonstrated the textbook scenario of how it can work: when the costs of production go up, a company can pass on some of those to consumers by charging more.
That's why trucking is an exception. Other industries that are getting crushed by higher freight costs may not be able to raise prices so quickly.
And judging from the earnings calls of several of America's biggest companies, executives are under pressure to pay workers more. The economy has forged ahead nearly a decade since the recession, but workers' pay, on average, has risen slowly.
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