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Focus: Transportation Management

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From SCDigest's On-Target E-Magazine

Jan. 25 , 2012

Logistics News: Carrier CEOs Says Driver Pay Must Rise to over $60,000 - but will Shippers Come Along?

Would Represent about a 30% Increase over Current Pay, and Likely Raise Rates by 11%

SCDigest Editorial Staff

There is a growing sense of urgency about a current shortage of over-the-road truck drivers, with deep concern that the problem is likely to get much worse over the next few years, causing a capacity crisis in the industry not for shortage of tractors or trailers but the drivers needed to move them.

SCDigest Says:

Shippers could then expect freight rates to also rise by about 11% based on the increased driver wages alone, before any other cost factors.

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As we reported last week, the analysts at FTR Associates, a transportation related research firm, have estimated the driver shortage in 2012 will be about 180,000, with several pundits, such as transportation economist Noel Perry, saying that could rise to as high as 350,000 over the next few years. That would be similar to levels seen in the 2005 era, when the driver shortage played a strong role in the extreme capacity crunch that drove rates much higher and caused much shipper angst for nearly two years.

Now, the latest quarterly report from Transport Capital Partners, based on a survey of CEOs and other executives at truckload carriers, finds a strong majority of those executives believes average driver wages must rise substantially to retain an acceptable level within the industry and to attract more new drivers into the pool.

According to the just released Q4 2011 survey, 65% of the trucking executives surveyed said that wages must rise to more than $60,000 annually to attract and retain drivers. That's versus averages wages of about $48,000 in 2011, according to US Bureau of Labor statistics.

That 65% is up from 49% in the Q2 survey, meaning there has been a significant jump in just six months, as evidence continues to mount based on surveys and studies such as this one and the carriers' own experience trying to hire drivers that a real problem is emerging.

As shown in the figure below, a sizable percentage of trucking executives believes the wage level needed to go even higher to provide a sustainable level of drivers in the industry. A little less than one-third of those surveyed believe the wage rate needs to go above $70,000 annually to meet the industry's needs for drivers.

Survey of Trucking Company Executives

Source: Transport Capital Partners

(Transportation Management Article Continued Below)

CATEGORY SPONSOR: SOFTEON

There were some differences in the perceptions between larger and smaller carriers, though really not that much in the end. Some 28% of carriers with over $25 million in annual revenue think wages need to go past $70,000, versus only 8% of smaller carriers, for example. And about 32% of smaller carriers believe wages between $50,000 and $60,000 will be sufficient, versus just about 22% of the larger carrier execs.

Still, the clear preponderance of both groups - between 40-50%, say wages somewhere between $60,000 and $70,000 are needed.

Source: Transport Capital Partners

Taking the mid-point of that range, average wages of over $65,000 annually would represent a roughly 35% increase over current pay rates. That percentage might be a little overstated, as the average at larger carriers is probably somewhere above the overall average of $48,000 currently.

So if we backed that down a little and said a 30% increase in wage rates are needed in the industry, how would that filter down into increases in the rates shippers pay?

A recent study by the American Transportation Research Institute found that driver wages and benefits comprise 36.5% of a carrier's total cost per mile. If those costs were to rise by 30%, it would mean the total cost per mile would increase by about 11% (.365 x .30). (Note: we are also allowing the benefits costs to rise by 30% as well given health care cost escalation, etc.)

Shippers could then expect freight rates to also rise by about 11% based on the increased driver wages alone, before any other cost factors.

Of course, the question is whether such increases would be done across the board at most carriers, meaning shippers wouldn't be able to ditch carriers raising wages and rates, or (more likely) occurring in a more piecemeal fashion, presenting the same type of competitive barriers to reaching a market-clearing level of compensation that has existed for years.

Do you see driver wages rising about the $60,000 level on average any time soon? As shippers' habits as much to blame for the inability to get wages to a self-sustaining level as anything else? Let us know your thoughts at the Feedback button below.

Recent Feedback

Alfred Marshall, the preeminent 19th century English economist stated, business-owners have as much power to influence wage-rates as they do the price of a commodity - so in other words, as much as we would like to drive rates lower, it's the market and the principles of supply and demand which dictate these things. I am not privy to the data, but I would wager that there is an abundance of drivers today, willing to work at that average ~$50K range stated in the article based upon current/past market conditions. BUT....with regulation which essentially, artificially constrains and lowers the labor-pool, there will be the adverse effect of higher wage-rates for those drivers who remain eligible to work. In the hopes that regulations such as CSA will ultimately have a positive impact, improving the quality of the freight-hauling industry, there is a real possibility that the labor and rate market will see high-need lanes going to the "best" drivers ("best" = fully documented,no accidents, healthy, etc.) at premium pricing...$60K may not be that far away at all given the right set of circumstances, for which we seem to be primed.

Andrew K
Manager Transportation / 3PL
Marcal Paper
Jan, 25 2012

The rates the brokers and shippers are offering today is laughable. Every load is skimmed and the O/O gets the lowest percentage of what the load actually pays. Owner/Operators are retiring or just getting out of the trucking industry because of the "low-balling" of rates. I have fought this battle for 30 years and I am only 52, but there is a time when you have to realize that greed, through Internet brokering and posting low rates, has beaten you.

Joe Shinpaugh
Owner-Operator
Self Employed
Jan, 25 2012