Heartland Express (NASDAQ: HTLD) is learning that higher pay alone is not going to be enough to retain drivers.
In a presentation to the UBS Global Industrials and Transportation conference earlier this week, two executives from the company told the virtual gathering that while Heartland had increased pay, it was finding that other steps to address driver concerns — and not just another round of increases in the company’s per-mile rate — were having a positive impact on retention.
In comments that at times echoed those told to FreightWaves in a recent interview with USA Truck, CFO Chris Strain said Heartland is learning that “some drivers are willing to take less in pay for the trade-off of being home every night.” That has helped squeeze driver supply but also in the mix are other reasons frequently cited for the current code red level of difficulty in hiring drivers: lingering health concerns from the pandemic and the loss of drivers effectively kicked off the roads by their record in the federal Drug and Alcohol Clearinghouse.
“We see this extending for quite some time,” Strain said. “We have not yet seen the inflection point that says there is something here and drivers are starting to come back into the industry.”
As Josh Helmich, the company’s controller, said in the presentation, the company has needed to get “creative.” A “traditional” increase in pay last fall “didn’t really move the needle,” he said. But Heartland did dedicate itself to getting drivers home more frequently, and that has been a contributing factor in better retention levels.
But more radically, Heartland has started to move toward more guaranteed levels of compensation. “As long as the driver is doing what we ask them to do, we are going to guarantee a minimum pay level,” Helmich said. They won’t get that minimum compensation for doing nothing, he said. “They still need to be available to run freight,” Helmich said. If they are looking at a significantly diminished paycheck “through no fault of their own,” Helmich said those paychecks will be adjusted to reach a minimum.
At its most extreme, drivers who got stuck in Texas during the February freeze might have sat for a week racking up no miles, Strain said. Instead, drivers were paid.
The base level that Heartland now pays is a starting point, Strain said. Its basic structure, he added, is that Heartland pays the base “and you have the upward potential. It all comes down to how much you want to run and how long you want to stay out. If you want to get home, we’ll meet you on that.”
Helmich offered some guidelines on what those base payments are. For the drivers who get home the most, the pay would be roughly $50,000 per year. More active drivers get about $70,000, he said, “and the drivers we see week in and week out get significantly more than that.”
Strain suggested that selling the approach to drivers may have been a challenge. “It isn’t a bait and switch,” he said. But the program has given drivers “peace of mind that their paycheck is never going to go below X.”
Keeping those hours up and ensuring that drivers get paid for the inevitable nonproductive hours has become particularly important, Helmich said. The squeeze on employees that drivers are facing is being matched at the facilities operated by shippers or other warehouses. So no matter how efficient Heartland’s operations might be, the drivers often run into a buzzsaw of inefficiency at shippers’ facilities. “They are struggling to find dock workers and forklift drivers, and that has been the bulk of the challenge,” Helmich said.
But with all the freight that’s available on the market, a shipper that gets a poor reputation for service to drivers is going to find itself avoided. That can incentivize shippers to operate more efficiently, because for drivers, “you’re able to pick very favorable freight,” Helmich said. The end result is that deadhead miles are down, unproductive miles “get better” and the overall situation for drivers is getting better, he added.
Other key points by Strain and Helmich in the interview with UBS transportation analyst Tom Wadewitz during their 45-minute presentation:
— About 99% of the company’s miles are driven by company drivers. Heartland’s expenses for purchased transportation in the first quarter were not even $1 million on revenues of about $152 million. By contrast, Marten Transportation (NASDAQ: MRTN) had first-quarter revenues of $223 million and purchased transportation expenses of $40.7 million.
— At the bottom of the trucking market in April/May 2020, Heartland was turning down about 1,000 loads every week. That number hit 10,000 by the end of the fourth quarter and is holding there. “That allows us to do a little bit of shifting in our market basket,” Strain said. If the freight is “not driver-friendly,” it can be passed over for something that won’t hold drivers up.
— Rate increases were being negotiated in the first quarter of the year at midsingle digits. They are now solidly in double digits, boosted by the Texas freeze but progressing toward higher numbers before that, Strain said. “It won’t be until the third quarter where we get the full effect of a full quarter of our rate increases,” he added.
— Between cash on hand and lines of credit, Heartland has about $350 million in liquidity. Helmich said there is “plenty of wiggle room” if Heartland wants to make an acquisition. But an acquisition would need to have $100 million in revenue, Strain said, and would need to be positive to the company’s operating ratio, which in the first quarter was 86.5% on an adjusted basis, one of the better ORs in the truckload industry.
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John Blackburn
I worked for heartland for a few months I am one of those who doesn’t mind working and staying out. My problem with heartland was they want you to sleep in a cold truck during winter. They were constantly badgering me about fuel consumption and idling time to the point that I rolled in to Jacksonville Florida and told them what they could do with their fuel performance program. I then went to Carroll Fulmer and retired from there. You are just not appreciated nor are you important at heartland. You are just another person to be their slave
mrbigr504
Freight is stacked up everywhere and the “stake holders” are making a killing and everyone needs good driver’s badly but they still wanna nickel and dime you! If your not an owner operator right about now because the truck to load ratio is in the truckers favor and the rates are smoking hot because they need this stuff moved and Covid ain’t making it any easier! So these companies have to sh-t or get off the pot and pay good professional drivers what they’re supposed to get! Still waaay too much pimp’n going on but they’ll get the message pretty soon that nobody wants to sleep in a truck when they can sleep at home every night running local and with full benefits and weekends off and still clearing $1200 to $1800 after deductions! Keep your CDL clean & with all the endorsements you can fit on there because you can shop to the highest bidder right about now!
mrbigr504
Exactly!
Richard Mann
Look at what Heartland stated,there Driver’s that get home the most make around $50,000 a year. That is why they can’t retain Driver’s. A local home everyday and off weekends make more than that. When I did local P & D several years ago before going Regional I made $1050.00 each week putting in 11 hours a day so 55 total. Heartland and many other Trucking companies will never retain Driver’s with lower pay than local Driver’s or even Forklift Operator’s make!
DENNIS L BRECKENRIDGE
As a over the road driver. It is sitting at shippers and receivers for hours. Having to give up 2 hours before detention time starts. Then still not a guarantee to get paid for it. The Government don’t know that part and they should. As you know once we start our day only have 14 hours. And a lot of that is wasted. We should be allowed to stop the time. Or get paid for every minute waiting to load or unload.