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Driver constraints continue to plague the trucking industry: U.S. Xpress CEO

Eric Fuller, U.S. Xpress CEO, joins Yahoo Finance to discuss the Q3 trucking industry forecast. driver scarcity impacts on truckload capacity, and pay raises.

Video Transcript

- Welcome back to Yahoo Finance. You know, we've talked about inflation in a number of different categories, but one of the biggest price pressures comes from the cost of transportation. And like many other industries, the spot rates to move goods by truck have risen over the past few months. Eric Fuller is the CEO of US Express, one of the nation's largest truckload carriers.

And Eric, it's great to have you here. I want to kind of kick off this conversation by talking about this new quarterly report that your team has. It noted that what goes up must come down on the cost of shipping right now. But I guess my question naturally is, when do you see those inflationary pressures on your business abating?

ERIC FULLER: Yeah, typical in our business. Typically, these last six quarters, so we're very cyclical. And there is kind of up cycles and down cycles, and they typically last six quarters. We are currently in, say, quarter four or quarter five, depending on how you were to measure it.

I don't see this being a typical six quarter type cycle, and I think there's a couple of reasons. One is structural, what you have going on in the market from a demand perspective. The demand is incredibly strong. I don't see that changing anytime soon at this point, probably, well into '22, and also, driven by demand is some of the things around supply chain, and also, inventory levels.

On the supply side, you've got driver constraints, which are continuing to plague the industry. And we've seen the driver situation probably about as bad as I've ever seen it in my career. So very hard, difficult to find truck drivers. Not only from a competitive standpoint, but from a standpoint that, I think, structurally, things have changed in the driver population as it relates to the job, and wanting to be home with their family, and things through COVID that, I think, have changed things that maybe have changed things permanently. The other issue, as we move into '22, is we've got this infrastructure bill, which we believe will create further demand, and also, further constrain supply. So I think that we're probably looking at a much more prolonged cycle than what we typically see with these six quarter cycles.

- You know, Eric, I want to focus in on that driver scarcity that your report essentially highlights, and now, this is nothing new. We've heard of so many CEOs and corporate executives talk about labor shortages, right now, just the absolute difficulties in trying to find workers. We have some unemployment benefits that are going to be drying up in about a month now. Do you think that that's going to force, perhaps, more drivers back to the trucks? Or do you think that this, perhaps, is a salary issue, and that a company, like yours and others, are going to have to start paying premiums to get drivers back into the trucks and back to work?

ERIC FULLER: So it's a combination of a few things. One, we do see an impact with the unemployment benefits. So when certain states had-- in June, when certain states went away from unemployment benefits, we did see further drivers come back into the market. So I do think that is having a factor.

I think that pay is a big component of this. Now, we and most of the industry have given significant pay raises over the last 12 months. We've given them about a 30% to 35% pay raise just in a 12 month cycle, and that was through a couple of different pay raises. But we believe that, in order to really get into where we can compete against manufacturing, construction, and even driving jobs, or drivers are home on a more consistent basis, we think we probably need to have probably another 20% to 30% premiums to the pay raises that exist today.

Now, that's not something that, unfortunately, we can do just in a vacuum. We're in such a cyclical industry, and it's heavily commoditization in a lot of ways that there is a component that has to happen with the customers, the end users as well. So we're going to have to work together if we're really going to solve this structural driver problem.

- Eric, I want to ask about another supply chain issue that maybe you're experiencing, which is on the trucks. So what's been interesting is that the orders for trucks based on your report appeared to be pretty robust, but the actual production is another story. Probably for the same reason that many other manufacturers are facing, because it's just hard to source parts right now. There's backlogs all over the place. So do you feel like that's an issue, right now, that it's also just the amount of trucks that you can put out on the road, or is it really the labor shortage that's the bigger issue here?

ERIC FULLER: And I think it's both. I mean, for a company, like ourselves, regardless of cycle, we are constantly trading in tractors and trailers. So we order about 1,500 tractors a year and probably about 3,000 to 4,000 trailers a year. We're running about nine months behind on tractors and being able to get tractors delivered.

And at this point, we're probably running closer to 18 months behind on trailers, and the trailers could be another 18 months or so before we can really get the amount of trailers that we need for our fleet. On the tractor side, it's getting worked out. I think that we'll probably start to see tractor deliveries happen over the next month or so. But again, we're still a solid nine months behind where we'd like to be.

- Eric, right now, are some of these rising costs being passed along to some of the shippers?

ERIC FULLER: Oh, for sure. So on the spot rate side, we're seeing spot rates run a premium of nearly 50%, and that's the volatile part of our market that's constantly moving up and down based on supply and demand. And 50% premium is about as high as I've ever seen it, and it's been staying there probably for about seven, eight months now. And I don't see that changing anytime soon, so that's getting passed along.

Plus on the contract side, which are more long term rates, we're seeing rates up anywhere from 10% to 15% on an annual basis. And in some cases, a more difficult freight, as I would phrase it, even up to 20%. So rates and prices are definitely being passed along to the shipper.

- And Eric, just for the viewers that maybe don't understand how this industry works, these spot rates, I imagine, are contractually agreed to. So is there any sort of, like, lead or lag time element to these contracts that would tell us that we can actually get a good picture of what people will be paying, let's say, X amount of months from now based on what types of things people are signing right now?

ERIC FULLER: So contract rates are usually a one year contract, and those are getting locked in at about a 10% to 15% and, in some cases, like I said, 20% premium. So we're going to probably see that, at least, through the rest of this year and into next year. Mid season for us starts kind of in that February time frame and runs through mid summer. So next year, those rates will get reset.

If the market continues to be strong and robust, then they'll probably get reset at a premium. Spot rates are real time, meaning that they get priced out on a daily basis based off of the supply and demand metrics in the market. But right now, there's so much more demand and supply that I don't see that changing anytime soon. So those premiums are going to continue to run.

- All right, well, Eric we'll have to have you back on to give us an update in another quarter or so. But Eric Fuller, US Express CEO, thanks, again, for stopping by.

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