New research dives into long-haul trucking's driver turnover problem

Matt Cole: 
Why driver turnover is so high in the long haul truckload sector and what could be done to solve it. 

Jason Cannon:
You're watching CCJ's 10-44, a weekly web episode that brings you the latest trucking industry news and updates from the editors of CCJ. Don't forget to subscribe and hit the bell for notifications so you'll never miss an installment of 10 44. Hey everybody, welcome back. I'm Jason Cannon and my co-host is Matt Cole. Depending on who you ask in the trucking industry, there may or may not be a driver shortage, but we'll leave that argument to the trucking associations. What we do know is based on previous studies, driver turnover at long haul truckload carriers tends to be extremely high.

Matt Cole: 
A recent report by the Owner-Operator independent Driver's Association Foundation looked at the roots of high driver turnover in the truckload segment and ways it could be addressed.

Charles Sperry:
People have touched on this issue multiple times in the past. It seems to come up somewhat regularly and we had wide have spoken about these issues before, but wanted to have something that kind of was a good overview of the subject more broadly. We talked about specific issues, but we wanted to have something that really touched on everything all in one place, something that you could present to somebody who is new to the issue and say, alright, here we go from point A to point B and let's just touch on everything and get you educated on the subject all at once. So LTL and private fleets, quite honestly, they operate just a bit differently. So if you examine private fleets, especially and LTL as well, but one of the big differences that you'll notice within the private fleets, the compensation rates for drivers is about 30 to 40% higher.

The starting pay for driver long haul truck driver is between 50 and 60,000, roughly speaking depending on where you're at. The starting pay for a lot of these private fleets is in the low eighties, and so you'll see that there is a significant pay differential there and it's because of a lot of factors. But part of it is that they don't have a lot of the external market forces or external forces pressing down on the market like you do with long haul trucking, which is quite unfortunate really. But you also see of course as a consequence because the compensation rate is higher because benefits are better, obviously the people stick around more. And so instead of having a 90 to a hundred or even worse turnover rate, the turnover rates are 10 maybe, maybe 20% at worst.

Jason Cannon:
The OOIDA Foundation report as mentioned, goes back to what they believe led to today's high turnover environment, and it all began with deregulation in 1980.

Charles Sperry:
So deregulation in and of itself wasn't precisely the problem. The problem is that there was a structure that had built up before deregulation hit. That wasn't really an issue because of the heavy regulation and the tight restrictions that were on the market. The problem is that once deregulation hit, that actually brought market forces to bear on the trucking industry, which then revealed a lot of these structural issues because before there wasn't that market pressure to essentially get things as cheap as possible. That's what markets do. Markets find where there's mush essentially and then cuts down and cuts down ES on that until you get things as cheap as they possibly can be, which is, it's very good at what it does. But the problem is that in this particular case, the place where there was the most mush as it were, was in driver wages, and that was because of structural issues.

Non-market forces essentially, such as, for example, the fact that drivers are back in 1938, they passed a rule saying that drivers don't get overtime pay, and so drivers aren't required to get paid overtime. So supposedly the idea was that that was somehow going to make drivers work less. That was the idea that was put forward. Obviously though, I mean in my mind at least if you make it so that for me to work 70 hours a week, I have to pay you less pay. That isn't really going to incentivize me at all to make you work less than 70 hours a week. So it doesn't really make sense, but supposedly that was the reason that was put forward is that it was somehow going to make drivers work less. Well obviously after deregulation, well, I don't have to pay drivers over time, so obviously I'm going to work you as much as I legally can for that particular rate, and I'm not going to offer you extra incentives because I don't have to.

And so the problem there obviously becomes that a lot of drivers start to get frustrated with the lack of overtime pay with the low wages, with the fact that you're always on the go, that you're working 70 hours a week and you're thinking, is this really worth it? Is this really worth it That third week you're away from home on again working that 65th hour. You're like, I just don't think I want to do this anymore. Well, what does the market normally do? Market normally says, well, if your job kind of sucks but requires a decent level of skill, and then the solution is you get paid more, that's the obvious market solution. Well, the problem is that instead of opting to pay drivers more, what many carriers did right after deregulation is instead they opted to expand the labor pool. So instead of paying drivers more, they do a different thing to relieve the market pressure, which is expand the labor pool because basic law of supply and demand is that the more there is of something, the less she necessarily will have to pay for it.

If paper is really, really common, I don't have to pay you the same price for paper as I would for say something that's less common. I don't know silver. So the more the greater the labor pool, the less likely you're to have to pay somebody to have to raise somebody's pay because guess what? There's two other people waiting to take your place, so why should I have to pay you anymore? So that's the option that they went with, and the obvious result of that is this thing that we call that we're calling the churn because they just churn through drivers. Instead of raising pay raising benefits, you have to just churn through people and somebody quits because the job kind of sucks. Well get that next guy and bring him right down and put him in the seat

Matt Cole: 
To demonstrate the driver churn that Charles mentioned. The report looks at CDL statistics that indicate there are approximately three new class A CDL holders for every one heavy duty long haul trucking job.

Charles Sperry:
One of the most shocking numbers that we came across in this particular report that I don't think really people have focused on previously is this number. It's three to one. Basically, we look through and analyzing in the United States there's roughly 400,000 new class ADLs issued every year. There's only about eight to 900,000 long haul trucking jobs in the United States that are, if you look out there at the Department of Labor, there's about eight to 900,000 long haul trucking jobs in the United States. What that means, you issue 400,000 CDLs every year. Those CDLs are valid at least five years depending on your state. That means for every single long haul trucking job in the United States, there are at least three people that have a brand new CDL that would be available to fill that job. We're not even talking about people that have their CDLs for years.

We're just talking about newbies, just new guys that have just gotten their CDL is their first time. There's three of those for every single available job. What you have is a retention problem because those people are getting cycled through, cycled through, cycled through. They get sick of this job right here because they aren't treating them right because they aren't getting enough pay because they're away from their home for extended periods of time, and so finally they just can't handle it anymore and they leave and maybe they go to another carrier, maybe they leave trucking entirely. Maybe they opted in for that free training and whatnot that you get at some carriers and the job was so bad that they take that $10,000 hit that they have to pay back their training. So that's basically what you're seeing. It's not a driver shortage issue, it's a driver retention issue.

Jason Cannon:
If the turnover issue largely is the result of working conditions and pay, why isn't the industry working to address those problems?

Charles Sperry:
Because the difficulty for an individual fleet to do something like that is that if you are the only one that's doing it, you are the odd man out. So let's say you decide to try to do that. There were some fleets that did that in the early two thousands, and the problem is they raised driver wages, they raised benefits, and they fixed their turnover issue. It dropped dramatically. The problem is you've raised wages and nobody else has, therefore a lot of other smaller fleet. Because of that hyper competitiveness within the market, you're no longer quite as competitive and those other issues that you've resolved such as driver satisfaction, such as turnover, such as safety, none of those have that obvious immediate line item. Budget compensation as it were, I can haul this load right here or a fraction of a percentage cheaper than the other guy there on the market.

There were huge benefits, but the benefits weren't quite as tangible when it comes to just your basic profitability, and so they had to stop. Unfortunately, this is a structural issue. It's not necessarily fault as it were of any particular carrier. Most carriers, I would say probably really do believe when they say that there's driver shortage because when they look at their lot, they see trucks that they'll have drivers in them and they think that means driver shortage, driver. Well, I mean what it means is that they lost the last six guys that they were going to have in those trucks right there. That's what's actually happening, but in their mind, think that's a driver shortage. It's a very difficult thing. Again, part of the issue is that you have non-market forces at play. You have government subsidies that have come into place because people have said, Hey, we can't get enough people in these trucks, so therefore we need to a increase driver pay or B, go to the government and ask them to subsidize our driver training programs. People have chosen option B, people have chosen to get the government to subsidize their driver training programs so they can span their labor pool so they can more effectively go through that churn process, and that's what you see over and over.

Matt Cole: 
Another interesting finding in the report is the downstream effects of high turnover at large fleets, which in a way has benefited smaller carriers who can often provide better pay and working conditions.

Charles Sperry:
The smaller carriers do benefit from that. That's naturally when people need the larger fleets because of dissatisfaction, where are they going to go? They might go to another larger fleet. They might experience the same issue there. Eventually they're going to trickle down to the smaller fleets. The smaller fleets benefit from it because they get somebody that's already been trained, so they don't have to worry about that issue. They get somebody that has already been treated fairly poorly, so they may not have to treat them super, super well, just a little bit better than the big guys out there. Unfortunately, because of this issue, there's been kind of that race to the bottom as it were when it comes to wages and benefits and not saying that a lot of the small carriers don't care. That's not true at all, and there's a lot of great people out there that want to treat their drivers.

It's just the industry as a whole has this particular mindset about what the proper level of compensation is and whatnot, and so obviously if the proper level of compensation say is $60,000 according to what the industry norm is, you're not going to just go ahead and give them 80, not going to be feasible for you. It's just not practical at all. You can't run your business that way. So yes, in certain ways, the small carriers benefit, I guess you might say from the churn in the sense that they simply operate within an environment where it exists and do the best they can within that environment, and so the obvious practical thing to do is scavenge the drivers that are trickling down to them. That's the logical thing to do in that situation.

Jason Cannon:
So just how does long haul trucking solve its driver turnover problem?

Charles Sperry:
Within the trucking industry itself, we've gotten ourselves into such a bind that it's very difficult to see a way that an individual carrier could do something to really make changes because to be honest, most of those carriers do have their hands tied because if they try to improve their driver's pace, so they wanted to do that well, because the margins, because of the extreme competitive nature of the market, the margins are fairly thin. For the carrier, you could say that there's some good margins other places, but as soon as they start trying to pay their drivers better, then another carrier that doesn't have that moral compulsion to treat their drivers right steps in and says, I'll do it for 2% less, and the shipper's like Done. Does the shipper really care about the driver's safety there on the road? I mean, maybe in some vague distant sense, yes, anybody would care.

Sure, but when the person that's signing the check sees 2% revenue improvement with that particular carrier rather than that one, that's an easy choice for them it seems. And so a lot of carriers are going to have a difficult time. Again, like I said, there were some people that tried it back in the early two thousands. Unfortunately, it didn't work long term for them. I think this what it really comes down to largely is going to be some changes needed on the regulatory level. I think you're going to need to see the exemption for driver overtime eliminated. I think that's a good start. Anytime that you have to pay somebody more for something, that's an incentive for you not to be like, okay, let's think about this here. I can really only afford to pay this driver X amount, so I'm going to work them all the way up to that amount, and if that means I have to work them less, fewer hours, then that driver's still going to get paid the same amount, but they're going to be working fewer hours.

That's just what overtime does, and so I think that that would be a good start. There's a lot of different possibilities that we can go into for places where regulators can get involved, and really in a lot of ways, it's not even so much about instituting new regulations. A lot of it is just removing old bad regulations that are kind of interfering in the market, and again, preventing market forces from coming to bear on the side of the driver, and that's what you see a lot of. And so I think that, again, if you look at the longer paper, we've got some ideas there, some possibilities, some suggestions and whatnot. But yes, I think that's really what a lot of it is, is to get old bad regulations that are preventing the market from coming to bear on the site of the driver from operating.

Jason Cannon:
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