Derek Leathers is frustrated with those who don’t believe there’s a shortage of truck drivers in the U.S. “We were down 38 trucks in one of the best freight quarters in recent history” because of a lack of drivers, Leathers, president of $2 billion trucking concern Werner Enterprises, said at a shipper conference in May.
“The driver shortage is very real,” he said. “I can promise you I didn’t think it was a coy idea to park 38 trucks in (the third) quarter so I could talk about it at NASSTRAC. We worked as hard as we could to fill every truck. It’s just that difficult.”
There’s no doubt truckload carriers large and small are having difficulty finding drivers, though the problem doesn’t seem to be as acute in mid-2012 as it was a year ago, largely because of a slower economy.
Noel Perry, senior consultant for FTR Associates, estimates the trucking industry is short about 90,000 of the drivers it needs today, which he considers “a minor problem” for motor carriers and their customers. “At the peak, it may mean you’ll pay more for spot (freight shipping), but it doesn’t really change anybody’s supply chain,” Perry said.
But consider this scenario: If the U.S. economy rebounds at a much faster pace after the next recession — or even next year — generating a real surge in shipping demand, where will the drivers needed to haul that freight come from?
“We went into the last recession with a surplus (of drivers), and we’ll go into the next one with a shortage,” Perry said. The probability of a driver shortage that could cause real supply chain pain in the next recovery is increasingly high, he warned. “The real long-term story is that the margin of error is getting smaller every year. We’re increasingly vulnerable to the shock of expansion or regulatory change.”
That’s good reason for shippers and trucking companies to redouble efforts to solve a labor issue that’s plagued them for a century. (One of the earliest references to a truck driver shortage, then called “the motor truck driver problem,” dates to 1914.) The first steps toward solving a problem, however, are admitting one exists, correctly identifying it and taking responsibility for it. Shippers and carriers have taken the first step, but they’re not moving in tandem toward the next two.
What is the driver shortage? Is it an absolute lack of people who could drive an 80,000-pound tractor-trailer — akin, say, to a shortage of rations on a polar expedition or future manned flight to Mars, where there’s no way to purchase more rations when supplies run short? Or is it a shortage of people willing to work as truck drivers for the pay and conditions they’re offered — a market problem that could be solved by a change in market conditions?
Evidence points to the latter. The number of heavy-truck or tractor-trailer drivers employed in the U.S. fell 13.4 percent, or by 226,850, between 2007 and 2010, according to the latest data from the U.S. Bureau of Labor Statistics. About 42,000 truck drivers joined the payrolls last year, a 2.9 percent increase. However, that means almost 185,000 CDL-carrying truckers who earned a living on the road in 2007 have yet to return to the driver’s seat — more than twice the number of truckers in Perry’s estimated 90,000-driver shortage.
Why haven’t those ex-drivers leaped at opportunities to return to the road, including signing bonuses? Have they left over-the-road trucking for another field? Do they have poor safety records, or just a poor impression of trucking? It’s a conundrum that has many observers scratching their heads.
“How can we have the slowest recovery in 40 years and not have drivers?” asks Richard Mikes, a founder and managing partner at Transport Capital Partners and a former Ruan Transportation executive. “There’s something wrong with the equation here. We’ve got 8.3 percent unemployment and we can’t get drivers?”
Whatever the reason, the “equation” that for decades supplied truckload carriers with drivers and shippers with low transportation costs is no longer working. Changing that equation won’t be easy, but unless companies try now, the situation could become much worse, and not just for the reasons Perry cites. Unless carriers take systemic action to attract and keep drivers, today’s market-based shortage could evolve into a more troubling skills-based shortage.
Con-way Truckload’s Bert Johnson sees an analogy in a shortage of skilled maintenance technicians. “Years ago, you could hire anybody who could turn a wrench. Now maintenance is not about turning wrenches, but working with computers and electronics, and there’s a true shortage of certified maintenance workers,” the director of human resources and driver recruitment for the Joplin, Mo.-based carrier said. “We’re going to have that in the driving world.”
In the long term, the cyclical, seemingly perpetual driver shortage threatens trucking’s core capability: moving goods wherever and whenever customers demand. A true shortage of drivers — one that couldn’t be fixed by adjusting market factors such as wages or rates — would put a chokehold on shipper supply chains and push transportation costs to dazzling heights. That’s not a situation shippers, especially those who may have seen freight sit on docks when capacity tightened in 2004 or 1998, want to encounter. Neither do truckers. High driver recruitment and retention costs already sap motor carrier profits and drain resources that could be better dedicated to reinvesting in operations to build more sustainable businesses.
Driver turnover at large truckload carriers — which exacerbates any shortage — surged to 90 percent on average in the first quarter, its highest point since 2008, according to the American Trucking Associations. That means a carrier with 500 drivers has to recruit 450 drivers a year just to keep its driving pool stable. That company probably won’t lose 450 of its 500 drivers, but it may have to fill one truck seat multiple times in a year. With recruitment costs ranging from $3,000 to $8,000 per driver, that carrier could spend up to $3.6 million just to maintain its payroll status quo — a high cost of doing business all too typical in trucking.
No other problem poses a more fundamental challenge to the viability of truckload carriers and the model of irregular-route, long-haul truckload service that has evolved since trucking was deregulated in 1980 — not to mention the shippers who depend on that long-haul service to satisfy their customers. And there are industrial shippers, particularly in manufacturing, who still rely on that long-haul service. Distribution is increasingly regional, but it’s not all regional.
It isn’t hard to get to the roots of the driver shortage. They crop up consistently during any economic expansion. What’s difficult is deciding which root to attack first.
The two biggest root problems are driver pay and what carrier executives call “lifestyle” issues — namely that long-haul drivers work long hours and can be away from home for weeks. Trucking executives used to downplay the importance of pay as a contributing factor to the driver shortage in favor of faulting the driving lifestyle, but that’s changing as truckload capacity tightens.
Over the past six months, several truckload executives have admitted what truckers say they’ve known for years: Low pay keeps potential drivers away. “Our drivers today are underpaid,” John White, president of U.S. Xpress, said at the NASSTRAC conference, where he spoke on a motor carrier panel with Werner’s Leathers. “Their wages have not kept pace with inflation, and their earnings are frankly less than they were 10 years ago.”
To attract more drivers, “We’re going to have to do something fundamentally different,” White told shippers.
Labor Department statistics bolster his claim. The gap between the average tractor-trailer driver wage and the average U.S. wage for all occupations widened from 1 percent in 2001 to 11.9 percent in 2011. The overall average U.S. wage climbed 32 percent during that decade to $45,230, while the average tractor-trailer driver wage rose 18 percent to $39,830.
That’s an average that includes all types of heavy-truck driving work, not just over-the-road truckload driving, but $40,000 is considered close to the average annual wage of many long-haul truckload drivers.
“Our average driver makes $850 a week, while the typical driver makes $700 or $750,” Steve Russell, founder and CEO of Celadon Group, parent of Celadon Trucking, told The Journal of Commerce in March. “If they spend $150 a week on breakfast, lunch and dinner, they’re netting $550 to $600,” the equivalent of $27,500 to $30,000 a year. At that level, in many cases, “You’re better off sitting at home on unemployment.”
That’s what many trucking executives believe former drivers have been doing, enjoying up to 99 weeks of extended unemployment benefits. The evidence for that is anecdotal, however. A Kaiser Family Foundation/NPR study released in December found only 22 percent of those unemployed for a year or more were receiving unemployment benefits, and a 2010 Federal Reserve study found extended benefits accounted for about 0.4 percentage points of the increase in the national unemployment rate during the 2008-09 recession — a figure representing about 600,000 potential workers, according to the Federal Reserve Bank of San Francisco. In any case, extended unemployment benefits will be phased out soon.
At the same time, truck driver wages are rising. Werner Enterprises, which operates 7,300 tractor-trailers, raised its average pay by 1.5 cents per mile year-over-year in the second quarter. Other companies are following, but pay will have to rise much higher much faster to cut into any shortage of drivers.
In its most recent survey on truck driver wages, Transport Capital Partners found 70 percent of truckload carriers expect wages to increase up to 5 percent over the next year, while 20 percent expect a 6 to 10 percent hike.
How much pay will it take to attract and retain drivers? “From the carrier’s perspective, you’re going to have to come up with between $50,000 and $70,000 per year,” said Mikes, compared with $40,000 to $50,000 today. “We’re about $10,000 to $20,000 short what carriers now say the drivers have to earn.”
That’s a large gap for carriers to close without a significant increase in rates from shippers. “Our average driver, for a full year of service, is probably making $50,000,” Johnson said.
Raising that average $10,000 a year for its 3,000 drivers would cost Con-way Truckload $30 million. “I think everybody recognizes the problem, but everything is driven by the rate increases,” he said.
Until driver pay increases substantially, however, truckload carriers will struggle to compete for drivers with higher-paying private fleets. “The median private fleet driver pay is $67,411 a year,” said Johnson, citing figures from the National Transportation Institute. Median means half those drivers make more, half make less, than $67,411 a year.
Private fleets owned by manufacturers or retailers “have less than a 15 percent turnover rate,” Johnson said. “They typically have drivers waiting for those jobs.” Less-than-truckload carriers have an 8 percent turnover rate, according to the ATA.
That difference in turnover from an LTL or private carrier to a truckload operator reflects not just pay but those perennial lifestyle issues at work. Private fleet and LTL drivers typically are home most nights of the week, while the average over-the-road truckload driver may only get home once every two weeks, Johnson said.
Changing the “lifestyle” may be as hard, if not harder, than raising pay for carriers founded on the premise they will haul a truck full of freight anywhere in the country. The truckload sector’s basic premise is based on that irregular-route, long-haul service. To sustain it, carriers may have to charge much more in the future.
Most truckload carriers already are moving toward a more regional, shorter-length-of-haul service model, mixed with using intermodal rail for those shipments that no longer pay quite enough to provide an adequate return or even cover costs. Some carriers are investing more in teams. But in the long term, long-haul service provided by solo truck drivers is likely to come at an increasingly premium price