Editor’s note: Written by Aaron Terrazas, director of economic research at Convoy, a digital freight network. This is one in a series of periodic guest columns by industry thought leaders.
Even as the tumult of the 2019 trade war-induced freight recession and then the COVID-19 pandemic consumed the collective attention of the freight industry, a quiet generational shift began within the chaos.
The number of owner-operator truckers who are part of the Millennial generation—the cohort of Americans born between 1980 and 1996—surpassed the number of Baby Boomer (born 1946 to 1964) owner-operators in 2019 and has climbed steadily higher. Gen Xers are still the largest single generation of owner-operators since they overtook Baby Boomers during the first half of the last decade. But over the past two years, nearly all net growth in the number of owner-operators has been driven by Millennials, who are now one in three owner-operators nationwide—up from one-in-ten in 2015 and one-in-twenty a decade ago.
It’s not just the owner-operator segment, either. Millennials are now a plurality of private fleet drivers, surpassing Gen Xers in 2017. They still lag behind Baby Boomers among company drivers. And in fact, they saw the biggest dip in trucking company employment during 2020. There is also a still-tiny, but growing number of Gen Z drivers—the next generation born between 1997 and 2010, the oldest of whom are now in their early 20s.
For those of us deep in the industry data, this is a fun curiosity. But from the perspective of an economist, this generational shift potentially has more sweeping long-term implications for the freight market.
A well-established body of economic research shows how macroeconomic conditions during adolescence and early-adulthood play a big role in shaping our attitudes toward risk. For example, economist Ulrike Malmendier of the University of California has shown how financial market returns influenced the long-term risk appetite of Americans who came of age during the Great Depression, particularly in contrast to their children who came of age during the postwar boom. More recent research led by Di Bu, an economist at Macquarie University in Australia, shows how more direct exposure to the negative effects of the Covid-19 pandemic contributed to more pessimistic beliefs about the economy among young adults in China.
So a critical question for the freight industry at this moment is: What experiences shaped Millennials’ attitudes toward risk, and how do those attitudes compare to the Baby Boomer and Gen X truckers who are approaching retirement? Two decades ago in the mid-1990s, macroeconomists grappled with a similar, if slightly different, question: Whether or not Baby Boomers’ penchant for profligacy could help explain the late-1990s consumer boom or the dotcom stock market bubble and bust.
A number of survey-based metrics over the past decade suggest that the generation that came of age under the penumbra of 9/11, the Great Recession and the Covid-19 pandemic holds very different views toward risk compared to Gen Xers who came of age during the era of deregulation, Reaganomics and the go-go 1980s and compared to the doe-eyed Baby Boomers raised during the postwar American heyday. For example, despite perceptions of a spendthrift approach to life, younger adults have demonstrated a rising propensity for precautionary savings over the past three decades, a shift that accelerated following the 2007-2009 Global Financial Crisis. One particularly sensational 2017 survey cited by the Federal Reserve Bank of Atlanta found that Millennials are more afraid of credit card debt than of death or war. (We can only speculate what Gen Z’s experience with the GameStop frenzy of recent weeks will do to their attitudes about risk.)
One possibility is that greater risk aversion will mean that fewer Millennials are willing to become an owner-operator in the first place. There is, after all, substantial personal risk associated with striking out on your own. But, to date, the data do not substantiate these concerns. In fact, the number of Millennial owner-operators was stable through 2020’s turmoil while the number of Millennials working as company (employee) drivers fell. If anything, this would suggest that the entrepreneurial spirit is alive and strong among younger Americans.
Of course, there are many factors beyond our formative macroeconomic experiences that influence our appetites for risk. But if these attitudinal differences persist as Millennials enter middle age, it could suggest that freight market supply will end up being somewhat less elastic — and hopefully, by extension, somewhat less volatile — than in the recent past. The oldest Millennials turned 40 last year during the early months of the pandemic.
An important component of what drives freight booms and busts is optimism about the future. An example is aggressive fleet expansion when rates are high. Fears of overly aggressive capital investment, as reflected in a breakneck pace of Class 8 truck orders in recent months, is part of what has driven some forecasts of a looming collapse in the freight market. However, given their formative early-adulthood experiences and very different risk preferences from older generations, there is reason for optimism that perhaps Millennials will bring a little bit of grounding to freight’s notorious booms and busts.
Editor’s note: Aaron Terrazas is Director of Economic Research at Convoy, the most efficient digital freight network. He was previously an economist at Zillow and at the U.S. Treasury Department. He is among the oldest cohorts of Millennials.
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