Truckload Execs Predict Rate Increases on More Freight, Fewer Drivers

This story appears in the March. 11 print edition of Transport Topics.

LAS VEGAS — Simultaneous improvement in freight demand and a sharp shrinkage in driver candidates is squeezing truck capacity and ratcheting up pressure to raise rates now, ahead of expected productivity losses from upcoming hours-of-service rule changes, according to several fleet executives.

Top managers from three of the nation’s largest truckload fleets delivered that message here during the Truckload Carriers Association’s annual meeting last week.

“We have seen our costs go up 6% a year and our rates are up 3%,” said Max Fuller, chairman and CEO of U.S. Xpress Enterprises on March 5. “With capacity tightening, we are going to see more rate increases than at any other point in the last three years. There has got to be a catch-up.”

Fuller told Transport Topics the pressure on rates this year could rival 2004, when the driver shortage contributed to rates that grew 8% or 9%, most of which was passed along as higher pay.

“We are optimistic that we are seeing some improvement in demand,” said Dan England, chairman of C.R. England and a past chairman of American Trucking Associations, who predicted a 3% to 4% increase. “At the end of last year, things were kind of soft.”

“The market is tightening as we speak,” said Derek Leathers, president and chief operating officer of Werner Enterprises, who observed that recent storms have illustrated how quickly the supply/demand equilibrium can be disrupted.

“There is a certain dialogue we have to have with our customers,” he said. “We have to collaborate on rate relief. Rates are driven by cost pressure and headwinds. The cost of new trucks has risen 40%. We have to reinvigorate ourselves. We have to have a reinvestable business.”

“If the shipper wants his product moved, it is paramount that they look at the price they are going to pay,” said Fuller, noting that inflation-adjusted rates are just 38 cents per mile higher now than they were in 1984. That represents a rate increase of around 30% over a period when inflation boosted consumer prices more than 100%.

“The driver situation is most serious,” said Fuller, who is hearing of a 20% or greater drop in applicants.

“We think a lot of drivers may have left the trucking industry for construction. We have had some older drivers retire because they feel they have been harassed by all the regulations,” he said.

“Drivers are throwing their hands up and saying, ‘I’m done,’ ” Leathers said, citing feedback from regular breakfasts he hosts for million-mile drivers and the drop of more than 10% in applicants since late last year. “The biggest worry is the good people we are losing.”

Applications to driving schools have fallen 18%, a source told TT during the conference.

“Our frustration and the industry’s frustration is that only in Washington at a time when we have high unemployment could they make it more difficult to hire people,” Leathers said, referencing policy changes affecting the hiring of drivers with criminal records.

At the same time, the executives spotlighted productivity losses from HOS rule changes that are scheduled to take effect July 1.

England anticipates a 6% drop in productivity on a typical 1,300-mile run, but he also said rates would have to rise another 4% or more as a result.

Leathers noted that carriers have an obligation to go back to shippers without exaggerating costs so that customers understand HOS changes will force fleets to add trucks or shifts.

Keith Pirnie, vice president of operations for Grand Island Express, told TT he’s having difficulty finding drivers for his fleet and that a new round of rate increases will be necessary.

“The secret is going to be to retain the drivers,” he said. “You have to educate the customer to their needs. You have to seek out driver-friendly freight.”

John Pope, chairman of Cargo Transporters Inc., Claremont, N.C., said he also has seen rising freight demand, along with a 7% to 10% drop in driver applicants this year.

Pope also said HOS changes would have a significant effect, effectively taking one hour out of a driver’s current workday.

Rick Williams, president of Central Oregon Truck Co., Redmond, Ore., said he is seeing “solidly steady” demand at his longhaul flatbed fleet.

Unlike others, he said he doesn’t expect to see much change in rates or driver pay in 2013, which will be a good year for freight, with the expectation of an even better 2014.