Short-changed

Trucking industry’s attraction to future drivers lacks incentives.

By Jon Ross

   Thirty years ago, when the transportation industry was booming right along with the economy, truck drivers earned a decent wage relative to other industries. Since the late 1980s, however, the gap between driver pay and the earnings of workers in other industries has widened.
   Pay disparity is one of the major factors in the driver shortage that has begun to impact the truckload industry today, according to Max Fuller, chairman and chief executive officer of US Xpress.
   For Fuller, the driver shortfall, which has been estimated by multiple parties to be anywhere between 100,000 to 150,000 truck drivers, is attributed to two other factors as well: lifestyle and demographics.
   The average driver, Fuller said, makes in the neighborhood of $40,000 a year, which puts him or her in the lower end of the earnings compared to similar industries. The lifestyle is also difficult, with long hours and weeks away from home. Finally, Fuller noted the younger workers want to fit a career around their personal life, something that is very hard to do as a long-haul trucker.
   Carriers like US Xpress are striving to take care of this issue, Fuller said, but remedies to raising driver pay or even changing the way a driver functions don’t happen over night.
   “Major changes in this industry come relatively slow, and it may take a five- or 10-year cycle for us to effect enough change to really change how we run drivers, how we get them home more often and really change their job,” Fuller explained.
   Re-thinking a driver’s role in the business requires a shift in the foundation of how the trucking industry functions; it needs to be supported by carriers, shippers and all other stakeholders in the supply chain for it to take hold.
   The easiest part to change, Fuller said, is pay, but he doesn’t think simply paying drivers more will correct the issue. Raising driver pay commensurate to other industries would give workers an incentive to look at driving as a career, and as it stands right now, Fuller said he loses a lot of potential employees to the construction and agriculture industries because of higher pay.
   The trick to wage increases is that the trucking industry will have to create enough of a bump to attract employees away from other pursuits, and that won’t be cheap. Any boost in pay will have to be passed on to shippers, because most carriers only operate at margins of about 5 percent, Fuller said.
   While the looming driver shortage has been talked about for years, some of its effects are already being felt. Carriers have reported driver applications in February and March dropped around 20 percent.
   Freight softness in 2013 has actually been a blessing in disguise for the trucking industry so far. Fuller said if cargo had been at levels seen in 2011 and 2012, the effects of the driver shortage would already be felt in a big way. With the economy functioning as it is now, he sees the shortage making an impact a little later in the year, and that could spell trouble for trucking capacity and rates.
   “If freight volumes were to pick up anywhere in the 5- to 10-percent range, then you’ve got freight that doesn’t move on a timely basis,” Fuller said.
   Presently, shippers don’t see capacity, or rates, as a pressing issue in trucking, but the combination of the coming federal hours-of-service change and overall driver shortage will tighten capacity and eventually lead to rate increases.
   Dave Haessly, director of distribution at Hibbett Sporting Goods, thinks trucking companies won’t be as fast to remobilize capacity once an economic turnaround occurs — either because they can’t find enough drivers or it wouldn’t be in the best financial interest of the management. Carrier officials, with the recent economic downturn fresh in their minds, will wait to add drivers and trucks until business returns and they have assurance it won’t quickly dissipate, he said.
   Drivers are also being held to a higher standard with the introduction of the Federal Motor Carrier Safety Administration’s Compliance Safety Accountability (CSA) enforcement program, making it harder for carriers to maintain their employee rosters.
   “I do anticipate having problems getting product, particularly off the West Coast coming east. I’m concerned that there will be a driver shortage,” Haessly said. “I do think you’re going to have problems where you’ll have something you want picked up on Wednesday, but it will be Friday or Monday of the following week before it gets picked up because of availability.”
   Haessly’s biggest concern now is keeping an eye on the retail rebound and making sure there are enough drivers to handle the eventual ramp up in freight. Hibbett trucks a lot of merchandise from the West Coast — it buys from more than 50 vendors in California and counts Nike, which imports from Asia, as a major client. Haessly said a capacity shortage in the trucking market might push some cargo over to the railroads.
   “We do bring some in through rail, but not a lot,” he said. “And I could see us moving more toward utilizing rail to get it and then using a rail-head carrier to deliver it to us.”
   This transition to rail would necessitate more advanced planning, however. Hibbett sometimes purchases product six months ahead of scheduled sales, and when it’s time to get the merchandise into the stores, the extra time needed for rail would impact that service level. But the extra wait time might end up being necessary, Haessly said.
   “You’re going to find that it might be prudent to increase your supply within a time frame in order to cover the additional transit time going by rail, but to also take advantage of cheaper rates,” he said.
   Haessly has already seen trucking rate increases due, in part, to the driver shortage. The demand will remain down the road, and as it increases, carriers will be able to name their price.
   “You’re going to see the rates going up,” he said. “Normally, where we would have one rate increase, we’ve had several. You’ll get a rate increase almost 90 days apart.”
   Contracting with carriers is a way to protect shippers in the current environment and will ensure a level of service once capacity tightens, but Haessly said Hibbett is not interested in contracting with carriers used to supplement its internal fleet. This isn’t really by choice, because of the nature of the sports company’s volumes, which are tied to three specific seasons, doesn’t make contracting advantageous.
   “Our flow isn’t what we would call steady, and it’s tough to make those arrangements with a carrier to protect you,” he said.
   Jeff Williams, senior transportation manager of appliance manufacturer Haier America, has seen the driver shortage and new driver regulations already change the way his company does business. When he worked for other companies in the past, he shot for a ratio of giving 70 percent of his business to asset-based drivers and the remaining activity to brokerage drivers. In the last year and a half at Haier, that balance has completely changed to an 80-20 split in favor of brokerage drivers.
   Asset-based drivers, he said, are running out of equipment faster because of the shortage. Brokerage carriers, on the other hand, have more resources, and thus, Haier can select from a larger driver pool.
   “Some of the bigger asset-based guys, they might have had 2,000 trucks on the road last year, where now they’re down to 1,200 based on new regulations and the CSA kicking a lot of drivers out based on their driver performance,” Williams said.
   “When CSA rolled out in 2010, it was known that it would be a work in progress,” he continued. “To this date, my opinion is that it still remains a work in progress and that more drivers could still be affected.”
   Williams has even gone as far as to start using Canadian brokerage companies like FLS Transportation and Traffic Tech because of the shortage. This is the new normal in the present trucking market, and while he said it might change in the next five years, it won’t happen too quickly.
   The use of brokerage drivers has lead to a change in Haier’s transportation strategy as well. Because Haier is now dealing with multiple companies in the brokerage chain, security has to be ramped up and rate negotiations have to be a bit more aggressive to ensure a fair price for all parties involved. Last year, Haier reduced the number of carriers it works with from 24 to 14, which allows it to give each carrier more volume so it can secure a more competitive rate.
   For the industry in general, though, Williams hasn’t experienced much of a rate increase beyond the normal price fluctuations. “In time, as regulations get tighter and drivers get even shorter, the rate definitely could increase,” he said.
   CSA and other qualifications imposed by the U.S. Department of Transportation are a major contributor to the driver shortage, according to the American Trucking Associations. A study last year found that 90 percent of carrier respondents were having difficulty finding new drivers that were qualified enough for the job.
   Fuller of US Xpress thinks shippers can lessen the burden of the driver shortage and perhaps stave off rate increases in the near term by simply re-evaluating the goods they ship. Shippers will begin to have service issues when they can’t find truckers who want to transport their goods within the desired amount of time; this means the shipper will either have to pay more to have the goods moved or simply agree to a longer shipping time, he said.
   “It usually starts with the less desirable freight — maybe that gets priced up 10 to 15 percent more than where it was at — and the other stuff starts filling in behind it, probably at much less increases,” he said.
   To make freight more desirable, shippers can work together with carriers to address transportation issues. Requiring a three-day move for a load that will only take one day will tie up trucks and cost the shippers more, Fuller said. This freight is going to compound the driver-shortage problem.
   Fuller said carriers can help the situation by pointing out what freight is desirable and how to make moves work in a shorter period. Trucking firms are getting better about working with their shippers, he added. They are looking to purify the freight they carry, reducing undesirable volumes, before they ultimately raise rates.
   Taking everything into account, Fuller predicts the capacity issue will get worse before it gets better. The shortage is a long-term problem, but if carriers and shippers work together, they might come to an acceptable short-term solution, he said.
   “Everybody will (have to) be more flexible,” Fuller said. “I think there are a lot of solutions to mitigate some of this potential hit, but it’s going to take the shippers and the carriers working together to be able to mitigate a lot of that impact.”