Calling talk of a driver shortage “spurious,” a more than 170-page study on long-distance truckers from the National Academy of Sciences says the constant turnover in the ranks of drivers should be expected given the fundamental business practices of carriers.
Released earlier this month, the study – “Pay and Working Conditions in the Long-Distance Truck and Bus Industries: Assessing for Effects on Driver Safety and Retention” – looks at numerous safety, driver retention and driver pay issues but is straightforward on the driver shortage question.
“Claims of long-term driver shortages are spurious and not likely to be helpful in explaining the sector’s driver turnover patterns and the possible influences of compensation,” the report said in introducing the chapter on retention.
The committee features some well-known names from academia who have studied the issue of trucking and drivers, such as Steve Viscelli from the University of Pennsylvania and Jason Miller from Michigan State University. Caroline Mays of the Texas Department of Transportation and also vice chair of the Special Committee on Freight at the American Association of State Highway and Transportation Officials Standards is on the committee as well.
The National Academy of Sciences is a private institution but was established by an act of Congress during the Lincoln presidency. A provision in the Biden administration’s Bipartisan Infrastructure Law called for the Federal Motor Carrier Safety Administration to employ the NAS to do a study on the intertwined issues of driver pay, safety and retention.
The committee’s work on driver retention draws heavily on earlier studies, such as a 2019 study from the Bureau of Labor Statistics written by Stephen V. Burks of the University of Minnesota Morris and Kristen Monaco from the U.S. Bureau of Labor Statistics.
Some of the findings in the driver retention section of the NAS study could be read as more basic than an Economics 101 curriculum.
“Research indicates that driver retention and turnover rates experienced by truckload carriers can be explained in part by the cyclical factors experienced across all carriers in the sector and trucking generally,” the report stated.
What goes on as the market shifts
For example, when the trucking market is strong, carriers ramp up recruiting through tactics such as offering sign-on bonuses that “bring in new-to-the-industry drivers who are prone to exit rapidly from long-distance truckload jobs.”
“Conversely, when the demand for freight trucking is decreasing, turnover will be lower in this sector, as there will be both fewer new-to-the-industry drivers, and fewer enticements and opportunities for experienced drivers to change firms,” the report added.
The report was careful to note that the turnover issues are overwhelmingly in the truckload sector. Citing data from the American Trucking Associations, the NAS report said average annualized turnover from the third quarter of 1996 through the first quarter of 2023 was 92.7% for large truckload carriers, defined as $30 million-plus in revenue, and 77.6% for carriers below that.
Turnover is defined as “simply the percentage of drivers employed during the year that left employment, including new recruits who may have spent only a few days or weeks on the job.”
Contrasts with LTL, privates
But the less-than-truckload turnover rate was 11.8% during that period. At private carriers, the rate was 15% between 2005 and 2022, according to the National Private Truck Council.
Ultimately, the report concluded that truckload carriers could choose policies that reduce turnover, but economics leads them not to adopt those practices.
“High rates of driver turnover do create costs, as the carrier must incur expenses to recruit and train new drivers while experiencing lower productivity and higher crash risk from the new drivers while they gain experience behind the wheel,” the report said. “To reduce these turnover costs and retain drivers, the carrier may choose to pay a driver more than the worker’s next
best earning opportunity.” The report used construction labor costs as a benchmark for a driver’s alternate opportunities.
Higher pay to reduce some of the less desirable aspects of long-distance trucking, such as lengthy absences from home, are known in economics as a “compensating differential,” according to the report.
“When compensating differentials are high enough, the carrier can reduce quits, even if TL working conditions are tough,” the report said. “The higher pay, however, will raise the carrier’s cost structure, possibly by more than any resulting savings in turnover costs.”
Inefficiency to lower turnover?
Another option, which the report conceded was “counterintuitive at first,” was to reduce the efficiency of dispatching.
That option – not so much a recommendation – would be aimed at minimizing driver time away from home.
“A dispatching system that is intensely focused on the efficient positioning of drivers, such as by sending drivers to the load that is nearest their last drop-off location irrespective of proximity to the driver’s home base, can cause drivers to be sent far and wide across the carrier’s operational area,” the report said. “This practice can increase the likelihood that a driver will quit.”
But adjusting that dispatching to create more time at home generates more empty miles, which is not good for a carrier’s bottom line. “Here again, the TL carrier must make a choice between overall cost savings and revenue maximization,” the report said.
It all comes down to money, the report stated. “A typical long-distance TL carrier will tend to favor the cost-minimizing choices of an intense, efficient dispatching practice and controlling driver pay expenses while accepting the costs associated with the resulting high turnover,” the authors wrote.
The decision not to employ that sort of strategy, or similar steps that might reduce turnover in favor of reduced economic efficiency, spurs the volatility in the employee ranks that leads to the conclusion that there is a shortage, the report said. “Carriers have come to believe there are chronic shortages of drivers because of the constant need to replace them during both expansions and contractions of the long-distance TL sector,” the report said. “However, that need, as evidenced by the research and data presented here, may be explained by the overall effect of the industry’s competitive structure, which compels carriers to employ cost-focused managerial strategies.”
To give a specific example of that strategy in action, the committee went back to 1997 and a practice it said was undertaken by J.B. Hunt (NASDAQ: JBHT).
The company, described by the committee as the second-largest truckload carrier that year, adopted a radical change in practice. It raised pay rates by 35% and only hired experienced drivers.
“The carrier expected that its higher payroll costs would be recouped by lower costs
from fewer crashes and lower driver recruitment and training costs,” the report said. And while there was evidence that occurred, the policy was ditched within five years and the former pay schedule was restored. The report does not explicitly say why, but the action would obviously suggest the policy was a failure.
Such evidence doesn’t mean companies won’t look to reduce turnover, the report said.
But “carriers focused solely on cost competition must be willing to accept turnover costs when they result in savings in other costs that keep them competitive.”
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