What happens when the country's stance on marijuana use begins to liberalize but a company facing a driver squeeze doesn't go along?
That will be the test at J.B. Hunt, and it was one of the more intriguing topics brought up by Cowen transportation analyst Jason Seidl at the company's transportation conference in Boston Thursday.
Seidl discussed the fact that J.B. Hunt has long tested for marijuana by using hair samples, a method that the Trucking Alliance, a group of large companies that includes J.B. Hunt, continues to lobby for use of hair testing as the preferred method to test for the presence of marijuana.
But regardless of the method of testing, the question Seidl posed ultimately boils down to whether such a strict no-tolerance policy for hiring drivers who have marijuana in their systems continues to make sense if the basic activity--smoking pot—continues to lose its illegal status.
Brad Hicks, the executive vice president of dedicated for J.B. Hunt, made clear the company wasn't backing down. "I think it will continue to reduce the applicant pool," he said. Hicks said he has not seen evidence that what might be assumed to be greater use of marijuana because of its changing status is increasing the number of failed tests at J.B. Hunt, "but I think that could be that applicants know we've done this for so long that they don't apply."
Instead, Hicks said, "they seek out a carrier where users understand they don't test that way."
"I think it will be a continuing impact point," Hicks added. There will be an effect on driver supply, at least to companies with such a zero-tolerance policy. "As more states legalize, it will take applicants out of the pool," he said.
Driver availability was a major portion of the discussion at the Cowen conference. Eric McGee, Hunt's executive vice president of highway services--which includes its truckload operations--said retention of existing drivers has been made easier by the fact that they're making more money.
Hunt has not had an across-the-board increase in driver pay, McGee said. They have increased pay "at various times...in some places, three times, other places, just once." The increases have been done on a regional or fleet basis. "What we have seen is that drivers are staying and the turnover is doing really well," McGee said. "They're happy making more money, their paychecks are more stable, so they are taking full advantage of running inside this market."
But that doesn't mean there isn't a problem. Attracting new drivers has been a challenge, he said, and it's been at the company's dedicated division as well as its truckload activities.
The customer fear of tighter driver capacity has helped fuel a move from customers using truckload services into the dedicated segment, Hicks said. It's also led Hunt to make some changes in what it defines as the range of its dedicated services. For example, a customer might have generally limited dedicated activities to 200 miles from a distribution center. But Hicks said if Hunt can find that a 250-mile radius is efficient, it will offer that in the current environment.
But that doesn't mean the company will necessarily take all the dedicated demand thrown at them. Hicks said there are "folks who want to have dedicated in times like this," facing a driver squeeze, "but their freight characteristics are more representative of a truck solution." Hicks described customers like that as likely to be "here today, gone tomorrow," and not the type of company that dedicated is set up to serve. When they find a customer like that, Hicks said, he pushes it over to McGee's operation.
Hicks said dedicated pricing generally has a lag to the spot market. The average Hunt dedicated contract has an inflation index built into it, which means, as Hicks said, "I'd still get 1-2% during a down period, so if I see 2-4% in a period with inflation, I don't need the 10-12% (from the spot market) to stay competitive and reliable."
But that doesn't mean they'll just sign a deal with the inflation factor and leave it at that. "We'll have discussions" about the driver needs that even the dedicated market faces, and so far, he said they have "had some success" in getting those customers to understand that reality. But still, he said, "we want the indices to drive the contracts."
Dedicated customers know the size of the fleet they're dealing with, because it sits right outside their door, Hicks said, and they'll be aware of the driver issues.
Seidl noted that some customers are becoming more inquisitive of their carriers regarding what they're paying their drivers. Their concern is that a company not paying those market rates is going struggle to keep a work force.
One of those possible solutions is a straight salary. But Hicks said Hunt is not inclined to adopt that approach. "We think activity-based pay is the best model," he said. There were "mechanisms" the company has adopted within its salary structure to enable some better level of consistency, Hicks said, because the fear is that "with any degree of volatility, that can be something that causes them to decide there is something better or more reliable."