Opinion: Driver Pay — The New Metric

By Gordon Klemp

Principal

The National Transportation Institute

This Opinion piece appears in the June 21 print edition of Transport Topics. Click here to subscribe today.

The past 10 months have seen a precipitous decline in the quality of driver applicants. There are recruiters everywhere saying, “Good applicants are getting scarce.”

As with so many problems besetting the trucking industry today, this one has its roots in the economic downturn that began in late 2006 and resulted in the recession that displaced a significant number of drivers.

Shrinking demand drove many fleets into bankruptcy, and the “right-sizing” of surviving fleets became the rule rather than the exception.

While bankruptcies dumped both marginal-quality and high-quality drivers into the same hiring pool, right-sizing was performed in a very surgical manner: Fleets methodically cut the least-productive drivers and retained their high-productivity counterparts, adding lower-quality drivers to the hiring pool.

Over the years since 2006, high-quality drivers who were dumped into the ranks of the unemployed have provided a ready supply of good applicants. Fleets have enjoyed the benefit of being able to replace departing drivers with strong replacements. But now this pool of good-quality applicants has run dry.

Also significant to the current driver supply situation are a recession-driven decrease in driver pay and the dropping rate of driver turnover, which at a little more than 40% is at an all-time low. That’s because drivers have been looking first for security and are reluctant to jump ship to a carrier they don’t know.

These factors have left the industry at a point where the available driver pool is dominated by marginal candidates. As a result, fleets across the country are having a difficult time finding highly qualified drivers to expand their capacity or even to find replacement drivers.

Will good-quality drivers become more available? It’s not very likely. Low churn and decreased driver pay will combine with improving freight demand and the implementation of the Federal Motor Carrier Safety Administration’s Comprehensive Safety Analysis 2010 — which is replacing FMCSA’s SafeStat program — to have a negative effect on the balance of driver supply and demand.

While views differ on the effect a fully implemented CSA 2010 will have on the supply of drivers, a recent poll of subscribers to my organization’s National Survey of Driver Wages showed that the preponderance of carrier executives surveyed believe CSA will cut driver supply.

When responding to the question of what percentage of the driver pool would be lost based on CSA scores, the majority of responses fell in the range of 4% to 8%. If these estimates are correct, CSA will exacerbate what quickly is becoming a driver shortage.

So, where does this put us? First, it is likely that by Labor Day we will pass the tipping point where the inability to hire qualified drivers will begin to force freight rates up significantly.

The second natural consequence of this convergence of government regulations and supply-and-demand imbalance, amplified by a relatively long “driver build cycle” (the time it takes to attract significant numbers of new entrants to professional driver ranks and to train and deploy them), is sharply rising driver compensation.

Evidence of this growing pressure to raise driver wages was seen during May, when the National Survey of Driver Wages recorded more truckload carriers increasing company driver and owner-operator pay the second quarter of 2005.

Making predictions is not a low-risk activity, but having thought long and hard about the effect of the new CSA regulations, it is very likely there will be a major change in the basis that determines a driver’s mileage or percentage pay rate.

During the pre-CSA years, the most important metric in determining incoming driver pay has been current verifiable Class 8 experience. In a post-CSA implementation environment, it is very likely that a driver’s CSA score will become the major metric in determining a driver’s market value.

In the post-CSA market, shippers and insurance underwriters will see carriers as a sum of their drivers’ CSA scores. Fleets with attractive CSA scores are likely to be favored by shippers, giving these fleets a decided edge when bidding on attractive contracts. A strong CSA score will be the new competitive edge. An anemic CSA performance is likely to be reflected in a weak rate structure and a nonpreferred status.

It follows that the major factor in driver pay will become the CSA score. By this time next year, carriers will be adjusting their pay scales to reflect CSA scores for both incoming and existing drivers. The pay scale of the future will pay drivers first based on their CSA score, not on experience or longevity. Driver incentives for on-time delivery, fuel management and other activities that affect the bottom line and customer satisfaction will not go away.

Drivers’ CSA performance will become the major metric in a driver’s earning power.

The National Transportation Institute, Kansas City, Mo., surveys and analyzes truckload carrier trends, including driver pay and benefits. NTI publishes the National Driver Wages Survey.