Global e-commerce sales in 2022 are expected to reach $5.4 trillion, up from $4.28 trillion in 2017. As we approach the busiest season of the year, we’re still grappling with chain challenges supply shortages induced by the pandemic, inflated fuel prices and an alleged driver. shortage Retailers are stuck with questions: What if there aren’t enough drivers to transport products on time? How to get more drivers with low profits? And how can we provide a cushion for high diesel costs?
While the fourth quarter is usually a strong market for truckers, the way the industry has been operating is not conducive to driver retention. The common belief is that we are experiencing a driver shortage, when in reality we are seeing an exodus of licensed truckers driven out of the industry due to shrinking margins due to middlemen, record equipment costs and high fuel costs. These challenges are often insurmountable for fleets of less than 20 trucks, which make up 97% of motor carriers in the United States.
While some policymakers have stepped in with legislative and regulatory proposals to increase the pool of qualified drivers, others are actively promoting policies that harm truckers. California’s AB5 went into effect last month, making it impossible for owner-operators to be classified as independent contractors. According to the California Trucking Association, the law will take 70,000 independent truckers off the roads, a substantial portion of whom operate in the trucking segment, which is essential for imports of retail products during the holiday season. This law will reverse much of the recent improvements in port delays and further exacerbate supply chain disruptions.
Increased demand due to e-commerce sales will draw drivers back into trucking, but with freight rates still at lower levels compared to 2021, any potential increase will provide only modest relief to the strained macro environment for the trucking industry . The rapid collapse of the spot freight market from its peak in the second quarter of 2021, even as inflation and fuel costs remain high, has caused many smaller trucking companies to lose their authority. According to DAT Freight & Analytics, the spot market has loosened significantly of late, with June 2022 spot cargoes published in its cargo chart decreasing by 20.2% from May. To put it in perspective, a decline of more than a fifth in the number of published uploads just one month is huge, and it has pushed many small owner-operators and drivers out of the workforce.
Businesses may appear to have recovered from pandemic-related downturns, but the effects of COVID-19 on supply chains are still being felt. Many inefficiencies have been exposed, including the way most companies operate within the interconnected supply chain. Artificial intelligence has the potential to reduce much of the resulting friction. It has the power to process incredibly large data sets and solve complex problems that the human mind is unable to handle. By instantly evaluating millions of permutations, AI can quickly solve many of the challenges facing the trucking industry, including making sure truckers are equipped with loads that direct them to the best markets, eliminating dead miles, and solving maximum efficiency and profit.
So why aren’t AI systems being adopted across the industry? As with all emerging technologies, the biggest challenge is convincing people to trust the technology. Truckers are accustomed to traditional load-matching systems and instinctively chase the higher-priced cargo. AI represents a paradigm shift away from that immediate burden, to rapidly evaluating voluminous data sets and probabilistic scenarios to produce path choices that maximize long-term benefits.
Although this change will take time, it is clear that the old ways are not sustainable. If the logistics industry continues to subject drivers to long periods of time without paid miles and time wasted idling in pickup and delivery, we will actually see a driver shortage. By embracing artificial intelligence and other automated technologies, the trucking industry can improve earnings and the driver experience, ensuring the industry attracts and retains talent for years to come.
The bottom line: Until we address the problems at the root of the trucking industry to create a sustainable and well-paying profession, there will always be inconsistent levels of available drivers. There are thousands of qualified drivers who are being pushed out of the opportunity to earn a steady income due to the inefficiencies of the current business model. The challenge is to find a system that allows them to stay busy and engaged in their work without worrying about choosing the best route for the most profitable loads, and this can be achieved through AI-powered technology. Looking at the challenges of the fourth quarter and beyond, the need for change is clear.
Priyesh Ranjan is the CEO of Vorto.