Higher Rates, Driver Pay Seen as Capacity Tightens, Costs Rise

This story appears in the Feb. 24 print edition of Transport Topics.

MANALAPAN, Fla. — The driver shortage and rising costs are likely to boost both motor carrier freight rates and driver pay, though it’s not clear yet how much either will increase, industry officials said.

“Carriers are going to demand pricing [increases] because they have to, to survive” as costs rise, said Werner Enterprises President Derek Leathers. He said the driver market is the “toughest” in his career.

Leathers spoke during the Stifel Nicolaus investor conference here on Feb. 12.

Rates per mile rose steadily throughout 2013, including 3.1% in the fourth quarter at Werner.

“This is a year when the market will bear a little more rate improvement,” said David Jackson, president of Knight Transportation, whose revenue per mile accelerated to 3.4% in the fourth quarter, after being flat earlier in 2013.

“As [freight] rates go up, we can look at the commensurate percentage of [driver pay] increases,” Jackson said.

Vin McLoughlin, chairman of Cardinal Logistics Management Corp., also highlighted the connection between rates and driver pay, saying, “As GDP and rates go up, that will allow us to pay drivers more. We have lived a charmed life [with driver pay]. Now it is time to pay the piper.”

Werner ranks No. 13 on the Transport Topics Top 100 For-Hire Carriers in the U.S. and Canada. Knight is No. 31 on the TT for-hire list, and Cardinal is No. 34.

“It’s never been more difficult to keep drivers,” Leathers said, citing new constraints such as a 12% drop in government assistance to help pay for training new drivers.

Jackson didn’t give a 2014 driver pay increase target, but said wages could rise 12 cents per mile over the next four or five years.

That would be a marked change, since average dry van base pay has risen just 7.7% to 37.2 cents per mile since 2008, according to the National Transportation Institute, whose driver compensation reports are based on data from more than 300 truckload fleets.

“The fundamentals of the driver-pay market have changed,” Gordon Klemp, a principal at NTI, told Transport Topics. “We are seeing private fleets for the first time advertising for drivers,” with the promise of higher pay than for-hire carriers, Klemp said.

He also cited greater competition for over-the-road drivers from intermodal operators whose drivers can “now make a living and get home more often.”

Oil-field exploration also is attracting OTR drivers through pay increases, he added.

As a result, base dry van pay, excluding performance pay such as safety bonuses, will rise an average of about 3 cents per mile, or nearly 8% this year, Klemp predicted.

“If there is a caveat to this, it is freight rates,” he said, adding that he believes more than 50% of fleets will raise driver pay. “Shippers are becoming more convinced that rates will have to go up. Those higher rates are the enabler for a driver-pay increase.”

Meanwhile, a Feb. 11 Bloomberg/Internet Truck Stop survey of carriers and freight brokers found that 60% of survey respondents expect higher rates over the next three to six months, the highest percentage in at least a year. Just 6% expected rates to decline.

Stifel Nicolaus analyst John Larkin said in a Feb. 14 report he believes dry-van rates are most likely to rise  2% to 3%, possibly less.

However, “If the economy were to truly accelerate and/or if the onslaught of federally mandated safety rules sufficiently shrinks effective capacity, these pricing estimates could easily prove too conservative,” Larkin said.

He didn’t specify how much driver pay might increase, though he underscored driver difficulties.

“Finding drug-free, CSA-compliant drivers remains a challenge, despite the commendable efforts on the part of many carriers to establish training schools, attract veterans, increase base pay, increase pay for performance, specify more driver appurtenances in truck tractors, modify/soften fleet manager tactics, work with shippers to improve the driver experience while loading/

unloading or dropping off/picking up a load, etc.,” Larkin wrote.

Other major fleets also predict higher rates.

David Parker, CEO at Covenant Transportation Group, believes “there is a good opportunity for rates to rise above the 2-4% range.”

Parker said the company raised driver pay 8% in each of the last  three years. The disparity between rates and pay dramatized the need “for margins to get to an acceptable level.”

Jerry Moyes, Swift Transportation chairman and founder, said the company hopes to top 2013’s freight-rate increase of about 2.9%.

“Customers are talking to us and saying they are excited about [their business in] 2014, and they are nervous about capacity they haven’t been able to find,” said Swift CEO Richard Stocking. “It is February and we are overbooked. If that continues, we are looking to have a very good year.”

C.R. England CEO Chad England said he believes rates could rise 3% to 5%, helped by growing success in the spot market, where volumes and rates have been strong.

“We feel the freight situation is looking pretty good,” said England.

Swift ranks No. 7 on the TT for-hire list, while C.R. England is No. 19 and Covenant is No. 41.