DC Velocity - September 2014

ers are becoming eligible for bonuses after just six months, according to the executive.

About 7 percent of all carriers are now tying driver pay to performance standards, with performance-based pay adjusted frequently, said Gordon Klemp, president of the National Transportation Institute, a research firm specializing in driver issues, in an August webcast conducted by the investment firm Stifel, Nicolaus & Co.

Fleets are loosening their hiring standards in an effort
to cope with the shortage, Klemp said in the webcast.
According to Klemp, some companies are looking to recruit
individuals as young as 22 years of age, down from the
standard minimum age of 23 to 24 years old. Carriers that
recently required applicants to show two years of verifiable
driving experience now require as little as three months of
verifiable experience, he said
Executives at other carriers have spoken at length about
the growing shortage of drivers. Up to now, though, their
for-the-record written comments have been confined to a
few abstract slogans, such as a “challenging labor market.”
In implementing the largest driver wage hike in its 52-year
history, Swift Transportation Corp., the nation’s largest
truckload carrier by sales, went deeper than that. “After
assessing the current and expected environment, we believe
the best investment we can make at this time, for all of
our stakeholders, is in our drivers,” Swift said in a late July
shareholder letter. “Our goal is to clear the path for our
drivers by helping them overcome challenges, eliminate
wait times, and take home more money,” the letter said.

Swift said it believes that “enhanced pay packages” will allow it to retain more drivers, a somewhat bold pronouncement given the persistently high turnover among the labor pool. According to ATA, the first-quarter turnover rate at large truckload carriers hit 92 percent, the ninth consecutive quarter it exceeded 90 percent. The group pointed out that in 2005 and 2006, the last cycle of acute driver undersupply, turnover averaged 130 percent and 117 percent, respectively.

Swift’s generosity will result in increased cost pressures during the second half of the year. Those pressures should be mitigated by a combination of increased productivity derived from a more stable driver work force, rate increases, and an improving economy, especially in the fourth quarter, according to the company.

It’s a strained analogy given the absurdly wide difference in salaries, but drivers—and not just the cream of the crop—are starting to understand what Major League Baseball free agents feel like. Salt Lake City-based C.R.

England Inc., the country’s largest temperature-controlled
carrier, which uses a lot of team drivers, has lost 450 of
its original 1,650 teams to rival carriers in the past several
months, according to a trucking industry source. England
said those numbers are overstated.

Some carriers are poaching graduates of their rivals’ driver schools—in some cases trying to hire them while they’re still in school. Some will hire drivers with less experience than the companies had previously required. The industry source said that several southeastern carriers have begun shifting drivers between truckload and LTL operations to fill supply voids; in one case, truckload drivers are being asked to drive LTL runs, an unusual circumstance since the LTL driver shortage is less acute than on the truckload side.

Of the cluster of top-tier truckload carriers, only Knight Transportation raised base wages during the first half of the year, according to William Greene, transport analyst at Morgan Stanley & Co. With Swift now providing cover, Greene expects other truckload carriers to raise wages during the balance of the year.

“Given that fleet expansion is still the best way for carriers to grow operating earnings … having sufficient drivers to operate the trucks is critical to growth,” Greene wrote in a late July note. “Thus, while higher driver pay will limit margin expansion relative to other modes, we believe that without increasing base wages [truckload carriers] will continue to struggle to grow fleets and operating income in the long run.”

RATE INCREASES AHEAD?

For shippers and freight brokers worried about the specter of significant rate increases, the performance of the U.S. economy will be a key variable. So far, a long cycle of middling and inconsistent economic growth has allowed buyers of trucking services to escape the pricing squeeze that normally accompanies tightening supply. However, there is a growing belief that activity will accelerate throughout the rest of the year. Should the pickup be sustained over several quarters, rates are likely to soar as demand flies ahead of capacity.

Another issue is the federal government’s requirement
that all trucks be equipped with electronic logging devices
by the end of 2016. The transition could be brutal. Carriers
that may be weighed down with equipment and
go figure …

5. 5” x 5. 5” x 5. 5” The maximum cubic dimensions of a box needed to avoid the new dimensional weight charges to be imposed by UPS Inc. and FedEx Corp. later in 2014 or in early 2015. Anything below that threshold would be priced at actual weight. Anything above that would be priced at a higher dimensional weight.