Rising labor costs chief obstacle to adding US truck capacity

Rising labor costs chief obstacle to adding US truck capacity

A truck travels on a US road.

Trucking companies at the NASSTRAC Shippers Conference say they aren’t having an easy time finding capacity either, citing rising labor costs and a shrinking labor pool. And there are other sector issues they are dealing with that shippers never see. Photo credit: Shutterstock.com.

ORLANDO, Florida — US shippers may be struggling with rising freight rates, but trucking companies are struggling with higher costs as well, especially labor costs associated with drivers, trucking executives said at the NASSTRAC 2018 Shippers Conference here Tuesday.

Executives from a truckload carrier and two less-than-truckload (LTL) carriers laid out their argument that trucking companies have as tough a job ahead of them as their shipper customers when it comes to navigating their way through a higher-cost transportation landscape.

They called for greater collaboration to correct inefficiencies and, in effect, create the capacity for which shippers are clamoring, and paying premium rates to obtain. However, they indicated they are just as constrained as their customers when it comes to securing additional capacity.

“Where are we going to find drivers, and how do we continue to increase capacity to meet all the needs of our customers? Those are the two biggest challenges today,” Greg Gantt, president and chief operating officer of Old Dominion Freight Line (ODFL), said during a panel discussion.

US trucking’s crisis: not nearly enough drivers

Whether a trucking company is a truckload or LTL operator, recruiting and hiring drivers has become the top priority and the major obstacle to expanding capacity shippers want. Even record net orders for Class 8 heavy-duty trucks probably won’t change the capacity calculus.

“We’re not going to be able to solve all problems with trucks and trailers given where we are on the labor front,” Craig Callahan, executive vice president and chief commercial officer for Werner Enterprises, said during a trucking executive panel at the three-day shipper conference.

“We’re not going to sit on our hands and bemoan the situation,” Callahan said. “We have to offer very competitive compensation, the best in equipment, and infrastructure that allows [drivers] to be productive but also gives them certain amenities when they come through our terminals.”

Driver compensation “can’t be spread like peanut butter,” Callahan said, but starting pay for a new driver “has to be around $50,000 a year. Within a year or so, that labor pool [of new drivers] needs to be able to see $60,000 [a year] pretty clearly. That’s the price of admission.”

LTL carriers historically have had less of a truck-driver turnover problem than long-haul truckload operators, but the LTL industry increasingly feels the pinch as the national unemployment rate hovers around 4 percent and could drop even lower.

Expanding its capacity, in terms of facilities, is a key goal for ODFL. “Being able to keep up with facility needs is a challenge,” said Gantt, who will become CEO of the LTL carrier on May 16. “But if you don’t have the manpower, what good is it to have the facilities?”

Balancing shipper expectations in a get-it-there-sooner market

“We’re struggling in some cases to balance shipper expectations with the driver shortage,” Tom Connery, president and chief operating officer of New England Motor Freight (NEMF), a Northeast regional LTL carrier. “That will drive changes in the industry over the next coming years.”

Those expectations are in flux at the moment, however. Shippers selling retail goods expect more precision in freight deliveries, but they’ve also seen transit times and logistics networks thrown out of whack in the aftermath of the US electronic logging device (ELD) mandate.

Since December, stricter adherence to truck driver hours-of-service rules under the ELD mandate has shortened the distance many drivers travel in a day, lengthening transit times, and creating a situation in which trucking assets and drivers increasingly are displaced.

Not only is freight demand higher than truck supply, but that supply isn’t where shippers expect it to be. “Never before have we seen this broad a disconnect between capacity and demand,” said John Larkin, managing director for transportation and logistics at Stifel.

“There are certain length-of-haul lanes that are under pressure,” Callahan said, singling out 450- to 650-mile lanes. Those are the lanes commonly called “tweener lanes” because transit times fall between one and two days. Delays easily add a half day or a day to transit times.

Incontrovertible impact of ELD on work schedules

“There’s no doubt in my mind that a layer of what we’ve seen in rate inflation is because of this ELD issue,” Callahan said. “You have no choice but to raise your pricing to offset the loss of utility. And about 4 to 7 percent of capacity still is not ELD-compliant,” he said.

Another ELD effect is evident at ODFL and NEMF: a shift in freight from truckload carriers to LTL operators. “Our average weight per shipment is up 7.5 percent on a year-over-year basis,” Connery said. “That speaks volumes about the impact [of electronic logging].”

“The Northeast region is a tight truckload market to begin with,” he said. “We’re seeing 35-skid pick-up orders spread across three bills of lading that would have been a truckload order. We’re having to tell customers, ‘Time out! We can’t take truckload after truckload day in and day out.’”

Shippers and truckers at NASSTRAC said they need better communications about rates, capacity, and service. “When we understand what their needs are, and they understand what we can do, the relationship flourishes,” Gantt said. “We need to find what’s best for all of us.”

“In any relationship, trust is built on transparency,” Callahan said. “There has to be an openness between both parties. We don’t win on every front. Key customers don’t win on everything either. But at the end we can look each other in the eye and move forward.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.

 

Comments

There needs to be a correlation between cost and price. So this argument is questionable at best. When costs rise in any for profit industry, either the prices rise or they fail financially. If labor costs rise due to shortages in labor, logic says you either pay more to attract more labor or slowly lose it and die. Competitiveness with other modes becomes an issue, but trucking has always been a relatively higher cost option. No one likes higher costs, but if you need the service, you have to pay for it. Again, we are talking trucking within the confines of the US.