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Economics 101: Driver pay will keep moving higher

Fleets say pay bumps could continue after market cools

(Photo: Jim Allen/FreightWaves)

Truckload carriers started raising driver pay nearly a year and a half ago as demand skyrocketed. Following the initial COVID outbreak, consumers changed their spending habits to ready themselves for a prolonged period of at-home living, which meant more trucks would be needed to bring more household and durable goods to market. The need for additional capacity has been tough to meet for an industry that perpetually struggles to recruit and retain drivers.

The pandemic exacerbated a shortfall on the supply side as driver schools were forced to close or operate at reduced capacity, and many drivers left the industry for competitive pay in other sectors. The Drug & Alcohol Clearinghouse also went into effect just ahead of the outbreak and started sidelining drivers shortly thereafter.

The industry was light some 80,000 drivers in 2021, according to the American Trucking Associations, a number the group estimates could double by 2030 if the current trajectory holds.

ACT Research’s Driver Availability Index was down 2.4 percentage points in December to 35.5. A reading below 50 means the driver market is deteriorating. The index bottomed in the mid-teens in March and has been rebounding since. A spike in the omicron variant was cited as a reason for the modest reversal from November.

Higher wages, added perks and simpler pay programs

While there appears to be no immediate fix to attract candidates to an industry that requires working long hours, nights and weekends and being away from home for extended periods, carriers will continue to solve for capacity through wage increases.

“We’re fortunately getting to a point where we’re able to charge enough to maybe get those wage levels up to a point that is representative of what they should get based on what they have to do each and every day,” Jim Richards, president and CEO at temperature-controlled carrier KLLM Transport Services, told FreightWaves in an interview.

“They do deserve to make more money than what they have been able to make and we’re happy that we’re able to do that,” Richards added. The company has used higher freight rates to increase driver wages, address other areas of cost inflation (insurance, fuel, supplies, etc.) and make incremental investments into its fleet.

KLLM raised pay by 33% for over-the-road company drivers at the beginning of the month. Regional company drivers and independent contractors leasing with KLLM saw an increase of 10% to 16%.

Richards believes a lack of labor across all sectors of the economy is the key catalyst driving inflation and the reason why higher prices aren’t transitory. “A lot of the reason prices at the grocery store have increased is transportation. A lot of the reason transportation has increased is because of wages. Those aren’t going backward,” Richards said.

“I wouldn’t say it’s being too aggressive with customers, I think it’s just more of a realignment to be able to pay the type of wages that we need to pay to attract drivers into the industry,” he continued.

Truckload has historically been a boom or bust industry. Highly fragmented with considerably fewer barriers to entry than other modes of transportation, the TL space usually cannibalizes upcycles as carriers quickly add an irrational amount of incremental capacity during good markets. The ending is often the same with favorable pricing dynamics coming to an abrupt stop as new capacity floods the market, upsetting the supply-demand balance and driving rates lower.

This cycle has been different so far as capacity remains very difficult to onboard. A sustained period of outsized freight demand has been met by a variety of supply chain bottlenecks, equipment shortages and a lack of drivers, all of which are constraining supply. Also, fleets are struggling to take delivery of new equipment due to production delays.

“It’s still very challenging out there. While the pay increases helped some, they were more in line with retention than actually getting more drivers onboard,” Tim Norlin, VP of driver employment at Roehl Transport, told FreightWaves.

He said the biggest factor for driver recruiting is lifestyle. Candidate interest in home-daily or home-weekly jobs versus traditional long-haul routes has jumped during COVID. “If there’s one thing the pandemic has taught us is that drivers like home time with their families.”

Roehl has raised driver pay by roughly 10% to 12% since the pandemic started and recently announced that it paid more than $3.5 million in safety bonuses in 2021. The program pays drivers for accident-free miles as they accrue versus lumping the award into a quarterly bonus. Roehl expects to exceed the 2021 safety bonus payout this year.

KLLM changed the way it compensates drivers for miles. It moved away from shortest route, or household movers’ guide miles, to practical miles. It also implemented a paid-time-off program to smooth out inconsistency in paychecks.

“We’re taking this opportunity that we have to try to right some of the things that make it unattractive for someone to want to be a driver and try to help some of these things that have probably prevented people from getting in the industry,” Richards said.

GP Transco simplified its comp plan when it raised pay last year. It increased base pay and removed some of the bonus programs that were confusing to drivers.

“The more confusing a pay structure is the more likely it is, in my experience, for a driver to see it as some kind of way to scam him or her out of money,” Sergey Bort, VP of marketing and strategy said in an interview. “When the job market is so competitive, like it is now, removing every little bit of doubt from the driver’s perception of your company really can go a long way.”

He said the changes improved lead generation by 30% to 40%.

First-year drivers at GP Transco can now earn between $80,000 and $90,000. Part of the wage bump also includes being more liberal with accessorial pay and overcompensating drivers for doing short runs, which normally have fewer paid miles.

Driver pay to keep moving higher

Norlin sees driver pay continuing to step higher, notably for over-the-road drivers, “to make it appealing for someone to take that kind of a job where they’re going to be away from home for multiple days at a time.”

“It’s economics 101, law of supply and demand. We have these jobs that folks don’t want to do because obviously we’re not paying enough to attract people.” He thinks the right number is $70,000 annually for Roehl drivers but noted it’s not quite there yet. It’s a balancing act and he wants to make sure Roehl isn’t in a situation in which wages are significantly above market when the cycle corrects.

“This feels different from the recession of 2007 and then the recovery from that. This feels different than 2004. It is different because it’s not just driver wage pressure, there’s the inflationary pressure on truck parts and equipment and everything else. There’s no end in sight,” Norlin said.

Bort said GP Transco has had to go back to customers to renegotiate rates in recent months to adjust for inflation. While the conversations are never easy, customers have largely been accepting of the changes.

“We’ve had a lot of understanding. It was really never a surprise because [they] understand the cost of equipment is going up, the cost of maintenance is going up, fuel is pretty volatile and then the driver pay increases,” said Bort.

“As the industry continues to push wages up, I do think that there is a responsibility on behalf of the industry to improve the image of the job and to start hiring more qualified people and really make truck driving a job that is attractive to good, high-quality people,” Richards said. “We’re going to raise wages but we’re going to expect a higher quality person.”

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes KLLM Transport Services (No. 47), Roehl Transport (No. 54) and GP Transco (No. 149).

Click for more FreightWaves articles by Todd Maiden.

Watch: Will the rates remain unstable?

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.