Driver Pay Hikes Expected in Second Quarter as Freight Demand Grows, Expert Says

This story appears in the Feb. 28 print edition of Transport Topics.

CORAL GABLES, Fla. — More truck drivers will be receiving pay increases in the second quarter as fleets’ prospects improve and driver supply tightens, a compensation expert told an industry conference.

Between 8% and 12% of truckload fleets are expected to boost pay in the second quarter, with an average increase of 2 cents a mile, said Gordon Klemp, whose Kansas City, Mo.-based National Survey of Driver Wages is based on about 350 fleets’ pay patterns. Klemp spoke Feb. 17 at the BB&T Transportation Services conference here.

The stepped-up pace of increases follows a year when pay hikes were scarce as most fleets emerged from the recession and gradually improved earnings above 2009 levels.

“We expect the rate of pay raises to accelerate,” Klemp told TT, noting that every CEO he has spoken with in recent weeks has said they expect to increase wages this year.

“There are two major factors” driving the increases, Klemp said. “Every carrier is experiencing a very difficult time hiring good drivers and one of the issues they are bumping into is pay.”

“The second is that freight looks better than it has, which gives them the ability to better utilize equipment and improve their margins so that they can make the [pay] increases,” he said.

Driver pay increases follow profit improvement, Klemp said, because it takes “a leap of faith” for a fleet to raise wages before margins improve.

American Central Transport Inc., Liberty, Mo. which announced hikes effective March 1 for both company and owner-operators, said it bases pay on a variety of factors that emphasizes performance.

Pay for ACT company drivers is rising to as much as 45 cents a mile  from 39 cents, and owner-operators’ loaded pay is increasing to 98 cents a mile from 90 cents a mile, Tom Kretzinger Jr., president of ACT, told TT.

“We made good progress on rates in 2010, and this has allowed ACT to jump back to the head of the pack in driver pay,” Kretzinger said. “Now that the economy has improved, we have found it more difficult than ever to find drivers that meet our standards.” 

ACT bases driver pay on safety, utilization, customer service, fuel management and fuel purchasing network compliance. Pay levels are reviewed twice a year.

Klemp said the approach taken by companies like ACT to tie pay to specific performance such as safety will proliferate in the future.

He added that there has to be a balance, since fleets noted a potential problem if pay packages become too difficult for drivers to understand. For example, he said one fleet he didn’t name based its pay on 300 factors.

“The challenge is to keep [pay] simple and understandable, so we may see some carriers simplify their pay lines,” Klemp said. “There will still be many who pass on a 2-cent-a-mile increase and hope for the best.”

Klemp said the coming increases will be a combination of restoration of prior reductions and growth above pre-recession levels.

Last year, pay rose the most in the flatbed sector, which saw a sharp business surge beginning in the spring, as increased manufacturing boosted demand for drivers and equipment and reversed the earlier drop in volume tied to the housing and construction markets’ collapse.

On average, truckload for-hire fleet drivers now make about $47,000 a year, Klemp said, or about 39 cents a mile. Private fleet drivers average around $63,500, he added.

Klemp said that if pay levels increase by about $8,000 annually, or 17%, turnover for truckload fleets could be reduced by about half. That turnover, which was about 50% in the third quarter, began to rise again last year after hitting historic lows during the recession.

Driver recruitment could become easier if pay levels for first-year drivers climb by $5,000 a year from the current average of $38,000 to $42,000, Klemp said.

Scott Arves, CEO of Transport America, Eagan, Minn., said that while driver pay is important, being flexible in assignments also is an important feature in keeping driver turnover under control.

“We used to have drivers who were willing to stay out for weeks at a time,” he said. “That doesn’t happen anymore. Much of the fleet wants to be home weekly. We are designing pay and quality of life programs to meet increasingly differentiated needs.”

Driver supply also can be a factor in acquisitions, Arves said.

Acquisitions can be driven by a need to expand a fleet’s customer base, particularly when freight is weak, as well as a desire to hang on to drivers when they are scarce, he said.

“We are trying to do both,” through an early 2011 acquisition of Southern Cal Transport, Arves said. “We are betting that the customer will reward companies that bring assets into play. If you do a deal and you can’t hang onto the drivers, that is really bad. We want to hold into 100% of the drivers.”