Need proof the economy is on the mend? The driver turnover rate at large truckload carriers hit 89 percent in the third quarter, and it’s heading higher as trucking speeds toward 2012, according to the American Trucking Associations.
That’s a sure sign more freight is being shipped and drivers are in higher demand, said Bob Costello, the ATA’s chief economist, who points to the rapid increase in driver turnover that accompanied the recovery from the 2001-03 recession.
That turnover rate peaked at 136 percent in 2005, and cost carriers about $500 million a year at its worst, Costello said. This isn’t 2005, however, and today’s smaller post-recession truckload sector is a long way from that level of turnover. “I don’t know if we’ll ever get to that high level again,” Costello told The Journal of Commerce.
Still, the turnover rate rose 14 percentage points in the first nine months of 2011 and is up 50 percentage points from 39 percent in the first quarter of 2010.
“The bottom line is this: Demand for drivers is high, so driver turnover is high,” Costello said. “I think it will continue to go up” as the economy slowly expands.
Sidebar: Calculating Driver Turnover.
The driver turnover rate at truckload carriers with less than $30 million in annual revenue also rose 10 percentage points from the second quarter to 57 percent. That means on average truckload carriers are replacing 57 to 89 percent of their drivers annually, at a cost estimated to run between $3,000 and $8,000 per driver.
Over the first nine months of 2011, the driver turnover rate averaged 81 percent, according to the ATA. At that rate, a truckload carrier with 500 drivers would have to hire 405 drivers a year at a cost ranging from $1.2 million to $2 million.
That turnover rate is the flipside of the positive freight news truckload carriers reported in the third quarter and early fourth quarter, when manufacturing demand and pre-holiday retail shipments translated to a stronger-than-expected fall peak shipping season for truck and intermodal freight in North America.
The ATA separately reported seasonally adjusted truckload volume rose 3.2 percent in October, while truck tonnage increased 5.7 percent year-over-year.
Trucking analysts and individual carriers reported October’s freight gains carried into November. Landstar System, the sixth-largest truckload carrier, said load volume was up 9 percent year-over-year in the first 10 weeks of the fourth quarter.
“We close out 2011 with much confidence and look forward to 2012 with great optimism,” Henry Gerkens, Landstar’s chairman, president and CEO, told analysts in a Dec. 8 conference call. “We have created a platform for future growth in 2012.”
But in trucking, growth depends on drivers, and company employees and owner-operators are increasingly difficult for some trucking companies to find and keep. There is a shortage of people willing to accept long hours of physical work and days or weeks spent away from home for comparatively low pay.
Driver retention and the so-called driver shortage are largely a truckload problem: The turnover rate among less-than-truckload carriers is 10 percent, according to the ATA. That’s still a four-point increase from the second quarter. Shipper-owned private fleets “have next to no turnover,” Costello said. Dedicated carriers also report little trouble finding drivers. They recruit from truckload fleets.
Sidebar: You Get What You Pay For.
And because of the Great Recession, there are fewer drivers to hire. More than 330,000 tractor-trailer drivers dropped off trucking payrolls between 2008 and 2010, according to the Bureau of Labor Statistics. That 18.4 percent reduction in the number of tractor-trailer drivers in the U.S. wiped out a five-year 18.2 percent buildup in the driver pool. By May 2010, there were about 1,467,000 tractor-trailer drivers in the U.S., the lowest number tracked by the BLS since 1997.
That leaves truckload carriers battling to hire from a smaller work force and raiding other carriers’ driver pools as demand rises. “Fleets exacerbate the problem with sign-on bonuses,” Costello said. “I’m convinced that increases turnover.”
Mounting costs from higher turnover will bring more pressure to bear on carrier bottom lines and truckload pricing. Rates for full truckloads that increased on average 5 to 10 percent this year, according to various sources, will continue to rise.
“The good news is that demand is moving up overall,” Costello said. Tonnage figures show “we’re not slipping into recession. The economy is doing better than people think. But carriers are under more cost pressure than ever before, too.”