HOS compliance cutting driver wages by as much as 5.6 percent, survey finds

The federal government's new rules governing a commercial truck driver's hours of service (HOS) has reduced median driver wages by between 3.2 and 5.6 percent by cutting the number of hours in a driver's workweek, according to a survey by the National Transportation Institute (NTI), a Kansas City-based consultancy.

The survey, to be released later this month, canvassed 412 trucking firms. Specific wage reductions will depend on the nature of the job and the types of services that drivers perform, according to Gordon Klemp, founder and president of NTI.

NTI estimates align closely with projections by Cameron Holzer, president of CRST Expedited, which announced earlier this month a $10 million wage increase over the next 12 months covering about 4,000 drivers. The increases, which take effect tomorrow, are the largest in the Cedar Rapids, Ia.-based truckload transportation and logistics carrier's 58-year history. CRST Expedited is the largest unit of the $1.3 billion concern CRST International.

Holzer said the increases are aimed in part at offsetting the roughly 5-percent wage hit its drivers have taken as a result of HOS compliance. Holzer wouldn't comment on driver wages at his company. It is believed that base wages for truckload drivers range between $48,000 and $55,000 a year.

The hours-of-service rules were written in December 2011 and enforced 18 months later. The rules reduce a driver's seven-day workweek by 15 percent to 70 hours from 82 hours. For the first time ever, drivers have limits placed on their traditional 34-hour minimum restart period, requiring it to occur once every seven days and to include two rest periods between 1 a.m. and 5 a.m. over two consecutive days. The 2011 rule bars truckers from driving more than eight hours without first taking at least a 30-minute break. The rule left unchanged language allowing drivers to operate 11 consecutive hours behind the wheel; safety advocates had hoped the agency would reduce it to 10 hours.

The rules were the subject of a fierce legal battle pitting the Federal Motor Carrier Safety Administration (FMCSA), which wrote and enforced the rules, against the unlikely alliance of safety groups and the American Trucking Associations (ATA). However, in early August a federal appeals court in Washington, D.C., let stand virtually all of the FMCSA rules, effectively ending the legal fight.

To accommodate the rules, CRST Expedited uses two-driver "sleeper" teams that operate dry van services over a median length of haul of 1,400 miles. A typical sleeper team can make a 1,000 to 1,200-mile run in a 24-hour period while still meeting HOS guidelines, according to Charles W. Clowdis Jr., managing director-transportation for consultancy IHS Global Insight.

EXPEDITED VS. NONEXPEDITED
Expedited shipments are time-sensitive in nature and can command as much as a 50-percent rate premium over shipments not needing rush deliveries, according to Clowdis. Shippers are willing to pay more for urgent, time-definite deliveries, and CRST Expedited will be able to embed the higher labor costs in its rates, Clowdis said. Holzer said customers understand CRST Expedited's position and are willing to tolerate higher rates. Perhaps not surprisingly, Holzer said the wage increases would not apply to drivers working for CRST's nonexpedited operation.

Holzer said the increases are also designed to retain CRST Expedited's existing drivers and to add about 200 new drivers to its fleet. CRST Expedited is experiencing driver shortages in California, the Midwest, and Texas, Holzer said. "We will hire from most any region at this time," he said in an e-mail.

Wage increases will continue beyond this year, and top performers can see their wages rise well above the median per-driver rate, Holzer added.

OVERDUE FOR RATE INCREASE?
The last time industrywide driver wages rose appreciably was in 2004 and 2005 when they increased by about 20 percent over the two years, according to Noel Perry, a principal for Transport Fundamentals, a consultancy. The gains were fueled by a tight market for drivers and by an economic boomlet propelled by what was in retrospect a pyrrhic rise in housing-related activity. A freight recession which began in 2006, the collapse of the housing market, and the financial crisis and subsequent recession forced drivers to effectively give back half of those gains, Perry said.

Perry, who for several years has forecast an acute driver shortage by the middle of the decade, said the market is overdue for a sustained upward spike in rates as a result. Besides a reduced labor pool, freight demand is "moderately positive," Perry said. In addition, fleet operators have been unusually reluctant in the past few years to push through wage increases, he said. Carrier executives burned by the downturn have focused more on controlling costs rather than on adding capacity or boosting the revenue line with price hikes, according to Perry.

A quarterly carrier survey issued last week by consultancy Transport Capital Partners found that conservative habits die hard. The number of carriers expecting capacity additions of less than 5 percent has risen to 45 percent today from 22 percent in February 2011. The number of respondents that expected to increase capacity fell to between 6 and 10 percent today from 25 percent in February 2011, according to the survey.

Part of that reluctance may be due to a change in shipper views of end demand. A quarterly survey of shippers from investment firm Morgan Stanley & Co. found that 45 percent plan to reduce inventory over the next six months. In June, the last time shippers were polled, the figure stood at 39 percent. About 19 percent of respondents said they plan to boost inventories, up from 17 percent in the June survey. The firm said the decline in shipment activity correlates with shippers' projections that capacity will loosen among all transport modes.

But even if capacity eases, will that be enough to offset the scarcity of labor? Klemp of NTI said the pool of qualified drivers remains very shallow and few new drivers are entering the trade. The situation is so critical that recruiting managers are making "exceptions" to their base driver qualifications criteria just to put drivers in the seats, he said. The anecdotal evidence is supported by NTI's survey results that show a decline in the minimum experience levels of driver candidates, Klemp said.

The difficulty in retaining truckload drivers is exacerbating the problem. The ATA said last week that the annualized turnover rate at large truckload fleets—defined as carriers with more than $30 million in annual revenue—rose to 99 percent in the second quarter, up two percentage points from first quarter numbers. This pushed the turnover rate to its highest point since the third quarter of 2012 and just above the annual rate of 98 percent in 2012, ATA said. Klemp expects the third-quarter turnover rate to hit 100 percent.

Rates will need to head higher as fleets pay more to retain good drivers in a tightening market, Bob Costello, ATA's chief economist, said in a statement. Klemp added that perhaps never before in trucking's long history has driver retention strategy been as important as it is today.