Driver Shortage: A Perspective on an everlasting Issue in European Road Transportation
Highlighting the most important cost driver: driver costs
Two decades ago,when I began studying business administration in transportation and logistics, one of the first issues discussed was the lack of drivers and how this shortage could potentially disrupt supply chains. Now 20 years later, I haven’t seen major problems or market dysfunctions directly associated with the driver shortage despite its constant presence. This has piqued my curiosity and prompted me to further investigate and evaluate the issue
Although the feeling might appear - I definitely do not doubt the existence of a driver shortage or the painful search for new drivers for carriers.Instead, I want to evaluate its importance and potential impact on the European transportation market.
The reason why driver shortage is a persistent issue, yet we haven't seen market disruptions, leads us to explore possible mitigating factors. In my research, I have identified the following events or factors:
EU enlargement in 2004 and 2007 with the inclusion of Eastern European countries
Freedom of movements for workers, which lowers barriers for EU residents to work in other EU countries
Improved working conditions
Recruiting outside of EU, (such as searching for and hiring drivers in CIS or APAC countries, including immigrants)
Cabotage which allows EU country companies to perform services in other EU countries
Posting rules
Naturally, not all factors had the same impact or occurred simultaneously. However, they mitigated and prevented the driver shortage from causing significant disruption, maintaining usual market dynamics. In the following graph, I clustered these factors into three dimensions: their historical mitigation contribution, their future mitigation potential, and the bubble size, which indicates the carriers’ ability to control the factor.
All is based on my assessment of the situation. I am open to further discussion and evaluation if there is an element I have overlooked or misjudged from your perspective.
Factors or events mitigating the issue of driver shortage in Europe
Source: Own evaluation
Historically, from a regulatory perspective, the expansion of the EU and specifically the freedom of movement for workers have been key factors in mitigating labor shortages. This has been supplemented by cabotage rules, which added extra capacity in the most affected countries. Moving forward, while the freedom of movement will remain crucial, EU expansion probably won’t. From a future perspective, potential solutions include increasing salaries, improving working conditions, and recruiting drivers outside the EU represent the highest mitigation possibilities. These measures are, to some extent, within the control of the carriers.
The mobility package was one regulatory initiative aimed at enhancing working conditions and salaries. However, it also had its drawbacks as it reduced available capacity in Western European countries.
In conclusion, while regulatory factors have played a substantial role in the past, market factors are likely to become more dominant moving forward. BUT, they will most likely lead to a significant disadvantage - a sharp increase in production costs for carriers. More information on this aspect will follow in the subsequent sections.
What could happen if we lose these achievements?
Reflecting on the events that transpired in Great Britain two and a half years ago can provide a likely scenario. Empty supermarket shelves, broken supply chains, all due to only a few rules allowing people to work or provide services elsewhere. The result was a massive surge in transport rates (+19%) within a year, solely because of Brexit.
Returning to the core issue of driver shortage, challenging working conditions and unattractive salaries. The salaries may not be adequate with working conditions, and they might not increase as needed .To provide a clearer picture and substantiate these points with data, I’ve compared the trends of transport rates, overall inflation, and labour costs from 2011 until 2023 in the following chart.
Comparison of transport rates with labour costs and inflation rates in Europe
Source: Eurostat and Transporeon data
This analysis reveals very interesting results: while costs and inflation are increasing, transport rates remain unchanged. This prompts us to ask, how is this possible and what factors are mitigating these effects?
Digitization among other improvements have increased efficiency for carriers. Market conditions, lower diesel prices, and reduced diesel consumption have also played a part. But can these factors alone explain these results? Interestingly, why are salary increases for drivers, a crucial profession currently facing a shortage, below average? Wouldn’t we expect these labour costs to exceed the overall labour cost increases?
I don’t believe the statistics are incorrect. Instead, we may be overlooking a significant factor here: Namely, that carriers have likely done an excellent job from a shipper’s perspective in keeping labour cost increases down. This could be achieved by hiring drivers from regions with lower wages. However this also adds an explanation why the driver shortage topic has gained prominence in recent years.
Transport rates drastically increased in 2022, but this increase was only partially due to driver wages. In 2023, a decoupling tendency began anew, again, implying that there was no structural alignment in 2022. Although driver wages and other cost components stabilized transport rates last year, preventing them from mirroring the full drop in diesel prices, a gap still exists and is likely to widen further.
More details on diesel and its impact can be found in our post:
https://freightperspectives.substack.com/p/diesel-the-necessary-evil-facing
Coming back to the initial question of why I don’t perceive driver shortages as a disruption to supply chains:
Well, even with a severe driver shortage, several mitigation factors remain. The EU has a large pool of workers, and we also have higher unemployment rates in some areas. These, combined with a relatively quick learning curve of the profession (3-6 months compared to other areas), creates a foundation. However, these conditions also existed in the past, so the key is to make the driver profession more appealing.
Improving working conditions, offering a more attractive work-life balance, treating drivers as skilled workers, and reducing waiting times at loading/unloading sites can all make a difference.
The perception of drivers has improved during the Covid pandemic, but this positive momentum needs to continue into the future. Higher wages will attract more people (domestic and foreign) to this profession. Keeping salaries and driver costs artificially low, as was done in the past will not solve the problem. As more and more drivers reach their retirement age in coming years, the shortage will increase. Can this problem be resolved solely by hiring drivers from outside Europe without changing conditions? I doubt it.
Therefore, if nothing changes, market forces will inevitably take control at some point in time. There will eventually be a shift due to either decreasing capacities or a surge in demand. This could cause transport rates to skyrocket due to a driver shortage and fear of disruptions. Though this seems extreme, it's likely that adaptations will occur gradually over the coming years.
But, if we just for a moment close our eyes, let's consider what might happen if, hypothetically, drivers in Europe started earning an average salary of 50,000 EUR per year, which is roughly a 30% overall increase in Europe? Wouldn’t such a salary and improved working conditions not attract enough workers for this profession? Simplistically, a 30% wage increase for drivers would correspond to a 10% increase in transport rates. This relatively “small” increase could potentially resolve the driver shortage.
Transportation rate increases are inevitable, the extent of which is uncertain. However, there is a risk that if a certain point in time is missed, the damage from rate spikes and increases only based on out-of-control market factors can potentially outpace the disadvantages of a gradual adaptation.
All parties involved will feel the impacts of the driver shortage.In my view, the days when transport could offset other category cost increases are ending. Depending on one's perspective, transportation could become a significant cost driver, due to its past success, cash cow status, or previous mistreatment.
Christian Dolderer
Lead Research Analyst