Lumber is so hot right now, and you can partially thank truck drivers
Or, the (current) lack thereof
People with inconsistent newsletters are the worst, especially because they start every dispatch with a 10,000-word apology about their dog getting kidney stones, their partner proposing to them on a weekend trip to Fiji, or their apartment’s spontaneous locust infestation. Like, I don’t care! Just provide me with your insights into municipal bonds, or whatever!
In any case, I am re-re-launching Modes, my logistics newsletter that was born in 2019 and has spent much of its life being neglected by its creator (me). I’ve moved off covering transportation at Business Insider late last year and have joined our investigative desk. But, keeping abreast with logistics news is something of a hobby of mine. I enjoy writing about it, too.
New to Modes? Welcome! I’m Rachel Premack, a Brooklyn-based journalist with a passion about freight transportation. I'm hoping Modes becomes your go-to for understandable, conversational news on America's $2 trillion logistics industry. It’s one of the most fascinating and crucial sectors of the economy, but one that you might not be thinking about often.
Lumber has been on everyone’s lips these past few weeks, thanks to unprecedented highs.
The price of a 1,000-foot board of lumber on the futures market in 2015-2020 sat around the mid-$300 range at this point in the year, per the WSJ. Now, that price has jumped to $1,575. The Weimar Republic-esque cost of lumber is adding, as a colleague at Business Insider reported, $35,872 to the price of a new house.
The sudden demand for new homes is a major factor in the lumber price increase. That’s not all, though. Such remarkable price increases do not happen just from a major spike in demand, but also something drastic happening on the supply side. (Sorry to be a high school economics teacher for a moment there.)
There are indeed several factors tightening the supply of lumber. There’s a frightening beetle infestation. Quite a few sawmills shuttered in 2019, a horrible year for wood as well as trucking. (2019 was what we at BI called the year of the “trucking bloodbath.”) Last year, even more sawmills were axed (sorry!) due to staffing issues around the pandemic. Following these two unusually bad years, Big Wood just didn’t have a whole lot of lumber available for the post-pandemic economic comeback.
Another reason is something called a “trucking capacity crunch.”
Flatbed trucking is hotter than doge and lumber combined (OK, none of these things are comparable)
A trucking capacity crunch… These might be your second time reading such words. (The first time was a paragraph ago.) But, oh, reader, I know them well.
What it means there aren’t enough truck drivers to move this wood around. DAT, which is the largest truckload freight marketplace in North America, can speak to that. In the first four months of 2021, there were an average of 72 available jobs on the spot market for each truck driver who posted on the DAT flatbed boards. Compare that to 2019’s Jan. to April average of 21 job post per driver post and 2020’s average of 16 jobs.
In April alone, there were a staggering 95.7 job post per trucker post.
(I’ll explain later what the spot market is, but for now just understand these are one-time trucking gigs, not long-term arrangements. Also, a flatbed is the kind of truck that would move lumber, as opposed to a refrigerated truck or the classic dry van.)
The amount of spot jobs available for truck drivers jumped nearly six-fold from last April to this April. But there are around 17% fewer drivers on DAT looking for spot jobs. As a result, pay for a truck driver has increased by as much as 59%.
Of course, any normal year will naturally be a massive jump above the rates seen in early 2020. But the conclusion remains: We need more truck drivers — now.
Truck driver shortage again? Really?
America’s $800 billion industry seemingly is always jumping between too many trucks and not enough trucks. Let’s say the economy slows down, and we aren’t producing as many cars or selling as much furniture. Fleets shutter or lay off drivers — because there’s nothing for them to move around.
But then eventually the economy picks back up and truck drivers are desperately needed again. Companies then start offering hiring bonuses or major raises to get drivers back in action. (CRST, one of America’s major trucking companies, just gave its long-haul truckers a 30% pay raise. This same company is also actively fighting to deny their drivers meal or rest breaks in federal court, but I digress.)
Right now, we’re in an “up” cycle of trucking where we have too much stuff to move around and not enough drivers. The American Trucking Associations, which represents the largest trucking companies in the US, says companies have struggled with a driver shortage since 2005. The ATA’s chief economist told me last year that the way to fix the driver shortage is to get more young people and women in trucking and ensure that salaries keep increasing.
Not everyone agrees with there’s a “truck driver shortage” — namely, the unlikely alliance of economists and truck drivers. Both groups argue, essentially, that truck drivers aren’t being paid enough or treated well enough by their employers. A truck driver’s median salary is $47,130 a year, and the job requires being away from home for weeks at a time, subsisting on a diet that’s mostly fast food, hours of unpaid labor, and a whole lot of other crappy conditions.
Following all of this, America’s largest trucking companies typically have turnover rates of a staggering 96%. (Turnover is much better at smaller companies and less-than-truckload sector carriers, which are more likely to be unionized.)
On the other hand, trucking executives have told me it isn’t as simple as bumping truck driver pay. Then they would have to up the rates they charge retailers and manufacturers, who can easily drop them and move on to one of the thousands of trucking companies in existence. What would have to happen is for companies to agree to raise their prices permanently so the trucking industry can transition from being such a low-margin, high-turnover business. I don’t foresee a lot of consumers agreeing to that.
My conclusion… gird your wallet
Remember when I mentioned the spot market? And how spot rates are up 59% this April compared to last April, per DAT?
Spot rates are only about 20% of the overall trucking market. Contract rates are the other 80%. Spot rates tend to be more volatile than contract, but they also predict the movement of contract rates. (FreightWaves has a great explainer on spot vs. contract if you need more on this.)
That means as spot rates soar, contract rates will too. And that means everything will almost certainly get more expensive this year. Lumber, along with commodities like corn and cooper, is just the start.
The lumber craze shows yet again how crucial understanding logistics is to understanding how the entire economy functions. As logistics costs increase, so too will your everyday goods.
Time after time, you can understand where the economy is going by looking at logistics, whether you’re trying to figure out your next move on the stock market or trying to figure out why your Häagen-Dazs is more expensive. (Yes, Häagen-Dazs got more expensive in 2018 because General Mills couldn’t find enough truckers.)
It was so fun writing this! A real joy to be writing about logistics to you all once again.
What do you think about the current lumber situation? Are you buying a new home? Are you a truck driver who is getting richer than ever from lumber? (Or from doge?) Do you have some other story about the industry???
Please comment below or send me an email at firstname.lastname@example.org. I’m also on Twitter at @rrpre.