Show them the money

The driver shortage is so bad that truckload carriers are openly discussing driver wages north of $60,000 a year.

At last month’s Freight Transportation Capacity Crisis Productivity Summit in Atlanta, Covenant Transportation CEO David Parker rose from the audience to declare that truckload carriers likely will need to pay that much or more in order to attract enough new drivers to handle demand. Parker quickly added that he didn’t “have the guts to do it” today and that the industry might get there through healthy increases over several years.

Scott Arves, president of transportation for summit sponsor Schneider National, conceded that trucking must “take an abnormal share of the labor pool” if it is to meet current demand. But carriers understandably are reluctant to take the plunge, Arves said. “If we move driver wages today, we feel the full effects tomorrow.”

Do you have the guts to increase driver pay dramatically? If $60,000 is the magic number, then most truckload carriers have a long way to go. In 2002, for example, the average compensation per driver for truckload carriers was about $36,700, according to annual reports filed with the Department of Transportation. Even adjusting for pay raises and the increase in freight volume since 2002, income for truckload drivers falls far short of $60,000.

The average income for less-than-truckload drivers in 2002 was nearly $47,400 – about 29 percent more than for truckload drivers. LTL carriers can afford to pay more because they bring in more revenue for each driver than truckload carriers do. In 2002, the average total freight revenue per employed driver was $199,000 – at least 20 percent higher than at truckload carriers. But 2002 is ancient history. Revenue per driver at truckload carriers today undoubtedly is stronger than it was. But how much higher? And how much longer will it rise?

The comparison between truckload and LTL is natural because the two segments have demonstrated dramatically different performance in driver retention. According to American Trucking Associations surveys, driver turnover at LTL carriers typically is less than 20 percent. Turnover at large truckload carriers – those with $30 million or more in annual revenue – has exceeded an annualized rate of 110 percent in three of the last four quarters. Even smaller truckload carriers have been suffering turnover of 90 percent or higher.

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Pay certainly is part of the explanation, but there are other reasons. Unionization surely plays a role. LTL wages largely are set, directly or indirectly, by the National Master Freight Agreement. The level playing field in pay among major carriers removes a big incentive that drivers otherwise might have for switching employers.

On the other hand, a truckload carrier could land thousands of applications by changing the playing field through a dramatic pay raise. That’s the advantage of being first. You get the pick of the litter. Carriers following your lead would be forced into a defensive position.

To take such a step without careful planning and preparation would be foolish, however. The first step is assessing your financial position and tolerance for risking that position to capitalize on a better labor situation.

And what are the benefits? Is your driver shortage just a headache? Or is it a serious impediment to growth? If you aren’t turning down good business due to a lack of drivers, then a sharp pay raise likely would be a bad investment.

But you also need to consider driver quality. If the shortage forces you to live with drivers who aren’t helping your safety or customer service, a pay raise could be an opportunity to upgrade. But don’t even consider a major pay raise unless you have good systems in place to pick and choose among driver applicants.

Are you ready to take a chance?