Pressure Builds to Raise Pay for Drivers as Demand Grows

As drivers and hauling capacity become scarcer, pressure is building for pay increases for truckload fleet drivers that could top 10% by this time next year, according to several experts.

Fleets will have to raise company driver pay 3 cents to 5 cents a mile in the next 12 months to keep trucks rolling, Gordon Klemp, president of the National Transportation Institute, said on June 3. Raising pay that much would mean $3,300 to $5,500, or 7% to 11%, a year and more for experienced drivers, who typically make about $50,000 annually, said Klemp.

“Pay improvements for drivers are really needed,” Klemp said, adding that current compensation “doesn’t have a lot of appeal if you are gone all week. We need to go quite a bit further.” Klemp’s firm surveys compensation trends at nearly 350 truckload fleets.

Another report, based on a survey of fleets by analysts at Wolfe Trahan & Co., projected a 5% driver pay increase this year, climbing to 10% or more next year.

Pressure to increase pay is strongest in the flatbed and dry-van sectors, where the gap be-tween the best- and worst-paying fleets is at historic highs of up to 16 cents a mile, Klemp said. Typically, that spread is 7 to 9 cents a mile.

The spread between the highest-and lowest-paying fleets grew because a small number of carriers raised pay, sometimes to more than 50 cents a mile, while those on the bottom lagged, with low-end rates remaining at just over 30 cents a mile.

“The folks on the bottom will have to move pretty quickly on pay, or they will see churn grow” as drivers leave for higher-paying work elsewhere, Klemp warned. “Fleets will have to raise pay to keep them.”

Driver turnover, or churn, is driven by people seeking higher pay, but it doesn’t relieve overall driver-supply woes because no workers are added to the fleet, Klemp said.

Truckload turnover jumped to 69% for fleets with $30 million or higher revenue and rose to 49% for fleets below that mark, American Trucking Associations’ latest report showed. Turnover hit a historic low of 35% late in 2009 during the depths of the recession.

To date, relatively few fleets have raised pay.

“We have observed no broad-based increases in driver pay to date, although carriers are now openly talking about raising driver pay more materially later this year,” Wolfe Trahan’s June 7 report said.

In comments at Wolfe Trahan’s late May investor conference, Swift Transportation and Knight Transportation predicted second-half 2011 pay increases for drivers, and Werner Enterprises officials said they anticipate pay adjustments on a lane-by-lane basis.

“We see the potential for more significant high single-digit or even double-digit type [pay] rate increases next year and/or in 2013 should driver supply become as tight as some industry experts expect,” the report stated.

Both sources tied future pay increases to new federal steps such as Compliance, Safety, Accountability and changes in hours-of-service because both moves are expected to reduce the driver pool, generating pay increases for those who remain.

To compound matters, Klemp said for-hire fleet drivers also can seek much better-paying jobs at private fleets, raising the pressure on carriers that already are seeing turnover rates rise.

Private-fleet driver pay averages $67,400 annually, about 35% more than for-hire fleets, Klemp said.

Giving for-hire drivers an in-crease to reach private fleet pay would boost freight rates 11% to 12% for shippers in order to compensate for the increase, said John Larkin, an analyst for Stifel, Nicolaus & Co.

“It’s easy for the private-fleet guys to find all the good talent they want,” Larkin said. “Any smart truckload driver would want to upgrade to a private fleet.”

“I don’t think this [pay and rate increases] will happen anytime soon, though,” he said, because even such a steep pay increase would not be enough to attract younger workers to truck driving. 

Klemp said there isn’t yet a nationwide driver shortage, though regions such as the Northeast already have run short of drivers.

Others believe the situation already is severe.

FTR Associates, a consulting firm, estimated on June 9 that there already is a shortage of about 100,000 drivers, with the prospect of an increase as seasonal freight volume grows, reaching 200,000 by the end of 2011.

Drivers are increasingly scarce, Klemp said, because extended unemployment benefits, along with untaxed off-the-books work, have allowed some former drivers to make nearly identical money without returning to the road.

At the same time, 27% of the driver corps that was working 10 years ago is at, or past, retirement age.

Driver supply also is curtailed because many fleets closed their driving schools during the recession as the need for drivers dwindled and cost reductions were in vogue.

“We have just gutted our ability to get people into the industry,” he said. “Many of the drivers on the road today came through those schools.”

One exception to the trend, he said, was Swift Transportation, whose training school is aiming to add 1,700 drivers.

Pay pressure is limited among refrigerated fleets, Klemp said, because their freight levels didn’t drop as much during the recession and driver demand remained more stable.