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September 19, 2016 4:00 AM, EDT

Driver Pay Levels Flatten

Second-Quarter Increase Is Least Since 2009
John Sommers II for TT

This story appears in the Sept. 19 print edition of Transport Topics.

Driver pay increases during the second quarter sank to the lowest level in seven years as fleets show almost no interest in raising compensation to attract drivers when lackluster freight levels don’t require that step, according to an industry official who studies pay levels.

Gordon Klemp, founder and president of The National Transportation Institute, told Transport Topics the average increase was less than a half-cent per mile, the smallest change since the second half of 2009, when a recession-related five quarterly periods of actual pay reductions occurred.

On a percentage basis, the amount of the increases during second- quarter 2016 was barely 1% on average for a driver with three years’ experience.

“This time, the dynamics are different from the recession,” Klemp said. “Fleets are continuing to focus on improving the overall quality of their driver corps. They would be raising their risk by decreasing wages. Nobody is ready to step into that. During the recession, there were lots of drivers to choose from because freight was so scarce. People were desperate to get a job and were willing to take a cut.”

Interest in driver pay increases has waned through a combination of fewer reasons to try to lure drivers from other carriers and also the slumping contract rate environment curtails fleets’ financial ability to boost compensation.

The findings by NTI, which tracks compensation at more than 350 truckload fleets, continued to illustrate the trend that was evident in the first quarter, when the percentage of fleets that announced increases was only about 1%.

The appetite for driver pay increases reached a peak in the third quarter of 2014, when a strong freight market and rising rates prompted 42% of fleets to boost compensation. There still have been prominent individual fleet increases since the second quarter of 2015 by carriers such as Werner Enterprises Inc., which ranks No. 15 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada, and No. 32 Celadon Group Inc. Werner’s increases were about 9%, according to a regulatory filing. Celadon, seeking more team drivers, raised mileage pay 10% or more depending on the trip.

Klemp also continued to link driver pay trends with turnover, the chronic industry issue that eased modestly in American Trucking Associations’ latest report but remains at elevated levels.

“No [fleets] said they are trying to address turnover with wage increases,” Klemp said.

John Anderson, advisory director for Greenbriar Equity Group and a former transportation industry senior executive, told TT last week that driver pay adjustments have been and will be “very sensitive” to the level of market need. That means, he said, that the number and extent of increases will tend to be very gradual as long as the changes in freight markets aren’t sudden.

“The only time there is likely to be a sharp spike in driver pay is when there is an unexpected surge in demand,” he said.

Fleets also face hurdles when they try to raise rates — and profits — more than driver pay is increased, Anderson said, because shippers are sophisticated enough to assess the impact of those pay adjustments and challenge them.

Based on spot market rate trends, broader indicators such as the Cass Freight index of truckload linehaul rates and other commentary, rates haven’t yet risen above seasonal patterns in recent months and overall remain below 2015 levels.

For example, Keybanc Capital Markets analyst Todd Fowler said, “Freight activity has been largely seasonal in the third quarter of 2016 to date. Absent material network disruptions, do not anticipate stronger than typical seasonal trends.”

In a recent report, he said a sample of publicly traded fleets’ revenue per total mile net of fuel surcharges was 4% lower, but costs were little changed.

“[Equipment] utilization remains at the midpoint to lower end of the five-year range reflecting excess capacity and slightly elevated inventories, potentially restricting more meaningful improvement in pricing dynamics.”

Klemp believes that fleets should see some improvement in market conditions within 12 months, when supply-and-demand balances change as a result of a solid pickup in economic conditions that hasn’t yet occurred and the impact of regulations that could cut driver supply.

While national driver pay trends were flat, some regional increases in the 2%-to-5% range have occurred as demand picks up in some areas for trucks to deliver products such as scooters and all-terrain vehicles, Klemp said.

Because trucking is a scalable industry that can add or subtract resources such as drivers based on market conditions, Anderson said fleets are in a much easier position than chemical companies, which may have to resort to building large plants that can cost hundreds of millions of dollars to add capacity.