Could higher truck driver pay actually be working to keep more drivers in truck cabs? That looks to be the case, as the driver turnover rate for large truckload carriers — those with more than $30 million in annual revenue — dropped to 78 percent in the fourth quarter, according to the latest estimate from the American Trucking Associations (ATA). That was a nine percentage-point drop from the third quarter.
“Either freight volumes are decelerating and, as such, fleets pulled back on recruiting efforts or fleets’ efforts to increase pay are paying dividends in the form of reduced turnover,” Bob Costello, ATA chief economist, said in a statement. “The truth probably lies somewhere in between, but it is a trend that bears watching.” Overall, the driver market is still “tight,” he said.
Trucking companies, both for-hire truckload and less-than-truckload carriers as well as private carriers operated by shippers, went all out to attract drivers with higher pay and bonuses in 2018, with some companies raising pay multiple times and using higher pay to target specific types of drivers. Walmart, for example, may pay nearly $90,000 a year for new drivers.
The National Transportation Institute (NTI), which monitors more than 500 pay packages across 75 different categories, says truck driver pay rose close to 10 percent on average last year, with 20 percent of motor carriers that increased pay doing so more than once, an “unusual” number. In 2018, the kind of pay hike that once took three years occurred in 12 months, the NTI said.
In an interview late last year, Gordon Klemp, principal and founder of NTI, put the median truck driver pay at for-hire, over-the-road, and regional truckload carriers at about $58,800 a year, although calculations for 2018 were still under way. That’s well below the $75,000-80,000 a year executives at large carriers say is necessary to attract and keep truck drivers in today’s market.
Regardless, the truck driver turnover rate at large carriers — the percentage that measures the rate at which truck drivers leave a carrier and must be replaced — was down 20 points in the fourth quarter from its most recent high of 98 percent in the second quarter of 2018. The drop is another indication trucking markets rebalanced in the second half of 2018 after a tight and chaotic start to the year.
Small carrier surge
The driver shortage at large truckload carriers probably hit its high point in the first half of last year, spurred by surging freight demand and the electronic logging device (ELD) mandate, which cut into time drivers spent behind the wheel. That meant carriers had to find more drivers to haul the same amount of freight, let alone more drivers to handle added shipments.
By the start of the second half, shippers were accepting higher rates to lock in capacity, which enabled carriers to raise pay. That apparently shifted freight thrown onto the spot truckload market in the first half back to contract carriers, helping to lower spot prices. Routing guides, in which shippers list preferred carriers, were reset and market balance restored.
That likely put pressure on smaller carriers that rely more on the spot market for loads, and indeed, the driver turnover rate at smaller carriers rose five percentage points in the fourth quarter to 77 percent, just one point below the large carrier turnover rate. The 77 percent churn rate was still three points lower than the rate for the same group in fourth quarter 2017.
Between 2012 and May 2018, the number of active for-hire carriers with one to six trucks jumped nearly 70 percent, with smaller carriers hiring drivers faster than larger competitors, according to an analysis of Federal Motor Carrier Safety Administration data by QualifiedCarriers.com and freight management company Tucker Company Worldwide.
“Since February 2012, by a more than [a] two-to-one ratio, drivers have gone to the 1-100 truck fleets, versus the 501-plus truck fleets, the largest carriers,” Jeff Tucker, CEO of both companies, said. “That's a huge shift going on in the market.” In the last six years, carriers with up to 100 trucks have added a net 335,000 drivers, and for-hire fleets in total added more than 551,000 drivers.
The jump in the turnover rate at smaller fleets, as measured by the ATA, may indicate some drivers at those companies are moving up to larger fleets as spot market rates drop. Currently, those rates are down by double digits from a year ago, a market reversal that hits smaller carriers and independents harder than large carriers with shipper contracts.
Some of those drivers may also be leaving trucking for higher-paying jobs in construction or local trucking jobs. With the unemployment rate at 3.8 percent, the US economy is at or very near what economists call “full employment,” meaning anyone who wants to work can find work. That puts upward pressure on wages and leads to labor shortages in more professions than just trucking.
If you pay them...
Trucking has demographic challenges, with an aging driver workforce, but the 20 percent drop in the large carrier turnover rate lends weight to the argument that, “If you pay them, they will come” and drive trucks. Anecdotally, companies that have raised pay have reported steep drops in turnover rates to well below the industry averages reported by the ATA.
Shippers should expect more trucking companies to not only raise pay but change pay models to make weekly wages more consistent. Heavy-haul flatbed operator Daseke Inc. is rolling out a pay program across its 17 subsidiary companies that combines a minimum mileage-based salary of at least $65,000 a year with additional wages for extra miles and safety bonuses.
“If you’re in a full employment economy, where prospective truck drivers have more choices — they can work in a factory, construction, local driving job — we have to do some different things to appeal to that prospective driver,” founder, chairman, and CEO Don Daseke said. “I’d like to see all of our truck drivers make $100,000 a year in five years, and that could happen.”