Stay ... just a little bit longer

In late June, Con-way Truckload, the truckload unit of transport logistics giant Con-way Inc., launched a partnership with a driver training school in Detroit. Under the partnership, students would receive reduced tuition rates while in school and be eligible to have up to one-half of that tuition reimbursed by the company when they graduate.

Con-way Truckload then extended an extraordinary carrot: It would waive the traditional "commitment" contract requiring a new driver to remain with the carrier for a specified period or else return the reimbursement. In other words, there was nothing to keep students from taking advantage of the subsidized training then moving on once they earned their commercial license.

Herb Schmidt, Con-way Truckload's president, said the waiver is an indication of the company's confidence in the quality of its work environment. "We want drivers to be here because they want to be, not because they are contractually or financially obligated to be," he said.

The waiver represents an unconventional approach to keeping drivers in what could become an unprecedented period of driver demand. While the nation struggles through a painfully prolonged period of high unemployment, driver jobs go begging. Consultancy FTR Associates estimates the industry is short about 188,000 drivers. National Transportation Institute (NTI), a firm that tracks driver employment and compensation trends, pegs the shortfall at about 30,000.

The revolving door
Beyond the shortage, however, lies a more pernicious problem: driver turnover, known in industry parlance as "churn." A report by the American Trucking Associations (ATA) estimated that, based on first-quarter numbers, 75 percent of drivers for large truckload fleets will turn over in 2011, the fastest clip since the second quarter of 2008. Turnover at smaller truckload fleets is projected at 50 percent, the highest annualized level reported since 2008's third quarter, according to the report.

Some of the turnover is due to attrition from death, retirement, and drivers' leaving the business. But Bob Costello, ATA's chief economist, said most of the churn comes from drivers becoming free agents who make their services available to the highest bidder. Costello said he expects the turnover rate to rise as freight demand accelerates, the number of retirees outpaces new entrants (one of every six drivers is 55 or older), and new safety regulations like CSA 2010—an initiative designed to winnow out marginal drivers through a complex grading system—give drivers with solid safety records more bargaining power than they've had in years.

For carriers, churn is a serious headache. Replacing a qualified over-the-road driver takes time and money. An unexpected departure also wreaks havoc on a carrier's network.

Shippers, meanwhile, get hit two ways: Not only does churn threaten to disrupt their supply chains, but it forces them to pay higher rates to compensate truckers for rising labor costs. Lana R. Batts, a long-time top trucking executive and now a partner in Transport Capital Partners LLC (TCP), a transport mergers and acquisitions advisory firm, said virtually all of the revenues obtained from rate increases will be sunk into paying escalating driver wages.

Estimates vary on the likely impact of wage increases on the nation's fleets. Leo Suggs, CEO of the former Overnite Transportation Co. and now chairman of Dallas-based contract carrier and third-party logistics service provider Greatwide Logistics Services, told an industry conference recently that wage hikes could drive up truckload rates by 5 to 15 percent over the next year. However, Schmidt of Con-way Truckload predicted only a 2- to 3-percent increase during that time due to general economic softness and labor slack in other industries like construction that compete for the same workers.

Schmidt added, however, that should the economy pick up appreciably, "there will be a driver shortage the likes of which we've never seen before." Right now, he said, "I've seen worse."

Ongoing wage problem
Carriers seeking to keep their drivers don't have much in the way of options. They can pay their drivers more, redesign their networks to provide drivers with predictable schedules and a better work-life balance, or a combination of the two.

Wages appear to be trending upward. Rates for owner-operators have climbed to $1 per mile from 92 cents a little more than a year ago, according to Gordon Klemp, president of NTI. Driver wages at for-hire carriers are also rising, though not at the same pace, he said.

Another factor in drivers' favor is that carriers are asking their drivers for more miles, which pads the paychecks of drivers paid on a per-mile basis, said Klemp.

But the industry has a ways to go to achieve the kind of wage levels that attract drivers or keep them from jumping to rivals. According to FTR estimates, the median annual salary for a truckload driver is about $48,000, though pay will range from $35,000 to $75,000 depending on the trucker's financial condition and the driver's qualifications. For drivers at less-than-truckload (LTL) and private fleets, the average is about $58,000, said Noel Perry, a senior analyst at FTR. Klemp pegs the median annual salary for a dry-van truckload driver in the Midwest at about $46,700. He did not have details on salaries for drivers at LTL or private fleets, but he said they are higher.

A recent survey of 150 fleets by TCP said wages need to be in the $50,000- to $70,000-a-year range to draw applicants into the field and keep them once they're hired. Klemp said the median driver salary needs to reach about $67,000 a year to accomplish both objectives.

Of equal importance is to narrow the wide gap between the wages of drivers working for truckers in the top quartile of payors, and those at carriers in the bottom quartile, Klemp said. The differential currently sits at a historic high of 16 cents per mile, well above the traditional gap of nine to 10 cents per mile, according to NTI data. Until the gap is closed, "you will continue to have churn," he said.

Batts of TCP said wages must rise to keep drivers performing a job so critical to the U.S. economy but which presents serious work-life challenges due to long periods of time away from home. "If you are going to have an awful lifestyle connected with the job, you need to be overcompensated for it," she said.

Keeping drivers content
Carriers, for their part, recognize this fact. For example, J.B. Hunt Transportation Services Inc., the company perhaps most closely associated with long-haul trucking, is diverting more of that freight to intermodal rail service as it focuses its truck network on more regionalized deliveries. Hunt and other carriers realize that intermodal service, besides reducing their line-haul costs, boosts driver retention because shorter hauls at the regional level mean more time at home.

Kane Is Able Inc., a trucker and third-party logistics service provider, keeps its 200 drivers operating at distances of about 300 miles each way, thus maximizing home time. That factor, as much as anything, makes driver churn a virtual non-issue, said Lawrence Catanzaro, the company's vice president, transportation safety and recruiting. "We don't have a lot of turnover. When we get drivers, we generally keep them," he said.

Most of the driver retention precepts are not rocket science, carrier executives say. Companies must stress communication with their drivers, create a pleasant work environment, provide opportunities for advancement either within the unit or with another company division, and monitor their competitors to uncover best practices and to stay a step ahead.

With CSA 2010 at the top of everyone's mind, carrier executives stress that working with drivers to improve their safety scores has the ancillary benefit of improving morale and minimizing churn.

"You are improving a driver's performance, which will make a company more valued in a customer's eyes. But it also shows the drivers that the company cares about their life and their work," said Charles W. Clowdis Jr., managing director, transportation consulting and advisory services at consultancy IHS Global Insight.

Shippers can play a part by making their freight more driver-friendly, executives say. "Attention to proper loading, adjusting pickup or delivery times to better accommodate [current driver hours-of-service] regulations, and managing driver [wait times] are more important than ever," said Mark Rourke, president of the truckload division of trucking and logistics giant Schneider National Inc. "Shippers need to be cognizant of the downstream impact of their freight on drivers."

"It's pretty simple," said Schmidt of Con-way Truckload. "Run an efficient dock, turn the loads quickly, and get the driver moving on down the road."