Opinion: Ignoring Driver’s Pay Is Risky Business

By Daniel P. Bearth, Staff Writer

In the early days of the truckload industry – barely 20 years ago – companies like M.S. Carriers and J.B. Hunt Transport had a sure-fire way to make money.

Buoyed by demand from shippers accustomed to paying regulated freight rates and a plentiful supply of drivers, truckload carriers simply added as many trucks to their fleets as they could each year. The rapid expansion produced a rising tide of profitability and led to a parade of fleets cashing in on their success by going public in the mid-1980s.

As the supply of drivers has dwindled, however, this formula no longer works.

In 1996, M.S. Carriers was among the first truckload carriers to announce a major pay raise and incentive package for drivers. That was followed in February 1997 by J.B. Hunt’s historic decision to boost driver pay by 8 to 12 cents a mile, a level that is still unmatched in the industry.

At that time, J.B. Hunt Transport President Kirk Thompson predicted that “he who has the drivers wins.”

He was right. As we reported recently, a booming economy is putting more pressure on fleets to raise pay.

But that’s not the whole story.

Although mileage rates have been rising for several years, drivers’ compensation still isn’t anywhere near where it needs to be.

According to SignPost Inc., a Hudson, Wis.-based firm that conducts a national survey of driver wages, the typical over-the-road driver for a dry van truckload carrier earns $37,598 a year.

For years, Russell Gerdin of Heartland Express has been saying that drivers need to make at least $50,000 a year to match the pay level of jobs in construction or factories, which make far fewer demands on a person’s time and do not require long trips away from home.

While many fleets have been reluctant to take the lead in raising driver pay, they may soon have no choice.

Even Wall Street is beginning to take notice. Morgan Stanley Dean Witter, a prominent New York investment firm, recently noted that mileage rates paid by a group of premium truckload carriers have gone up at about the same rate as the increase in wages for all private industry workers. But with annual turnover rates near 100%, an increase of two or three cents a mile “is certainly nowhere near the level needed to solve the problem.”

“It is amazing to see that eight of the 13 largest carriers have not raised pay at all over the past year, and three of them have not raised pay in two years,” Morgan Stanley Dean Witter said.

J.B. Hunt’s 1997 pay raise pushed its wage scale 34% above the industry average and cut its annual driver turnover from 125% to below 40%, according to estimates by the investment firm. The wage premium has since come down to 22%, and its turnover has drifted back up to over 50%.

At Werner Enterprises, officials have made use of information technology to relieve drivers of paperwork burdens and add to the number of miles that its trucks are legally driven, a combination that has potential to boost driver pay while increasing profits by improving asset utilization.

Knight Transportation is one of a handful of truckload carriers that have made effective use of stock options to supplement driver pay, although recent weakness in its stock price has put more pressure on the company to raise pay levels.

To attract drivers, nearly all fleets are buying plusher trucks and working with shippers to eliminate wasted time at loading docks.

While some safety advocates argue that drivers should be paid by the hour, the issue is not how drivers are paid, but how much.

Teamsters union officials point out that turnover among unionized truck drivers, some of whom are paid by the hour and some by the mile, but who earn 30% to 40% more than nonunion truck drivers, is practically nonexistent.

In a report sure to draw more media attention to the issue, Michael H. Belzer of the University of Michigan released a survey that shows that the typical over-the-road truck driver works 65.7 hours a week, 5.7 hours more than current rules allow, and may put in some 875 extra hours each year for no pay. Belzer’s report, entitled “Sweatshops on Wheels: Winners and Losers in Trucking Deregulation,” is due to be published in March.

Clearly, the risks of ignoring the issue of driver pay in the truckload industry are growing greater every day. The lack of qualified drivers is severely limiting the ability of many truckload fleets to expand at a time in which demand for freight hauling is growing rapidly.

At stake is not just trucking’s bottom line but also the health of the economy, which is increasingly dependent on fast, reliable and efficient truckload services. And as our recent stories on e-commerce point out, drivers are the linchpin of a new era of home delivery fueled by Internet-based retailers.

The time has come for truckload carriers to face up to the issue that has been building ever since deregulation of trucking in 1980. Drivers can no longer be treated as a commodity if carriers are going to survive and provide the kind of service shippers demand in the new economy.

William H. Clark, the new owner of Trans-States Lines and a management consultant for more than 30 years, says the issue goes beyond driver pay.

“In our market segment, we have not paid attention to the human resource side of the business,” he said in a recent interview. “People are more important than any customer.”

By transforming the business culture at Trans-States Lines, Clark said he is preparing the company to successfully compete in the new century.

It appears that truckload carriers have finally reached the point where drivers are doing more than delivering freight. They are determining the fate of some companies and perhaps an entire industry.