The message was as blunt and direct as the nation's largest truckload carrier by sales could deliver it: We need drivers, we need them now, and we will pay dearly to recruit, hire, and retain them. The one variable is whose hide the higher costs will come out of.

Executives at other carriers have spoken at length about the growing shortage of commercial drivers. Up to now, though, their for-the-record written comments have been confined to a few abstract slogans such as a "challenging labor market." In disclosing its second quarter results on Friday, Phoenix-based Swift Transportation Corp. went deeper than that. It said a higher-than-expected shortage of drivers forced it to sell more trucks in the quarter to offset the cost impact of idled equipment. Then it stated what everyone has been thinking but had not put in writing: "After assessing the current and expected environment, we believe the best investment we can make at this time, for all of our stakeholders, is in our drivers." The shareholder letter went on to say, "Our goal is to clear the path for our drivers by helping them overcome challenges, eliminate wait times, and take home more money." The result, Swift said, will be the largest hike in driver wages in its 52-year history.

Swift said it believes that "enhanced pay packages" will allow it to retain more drivers, a somewhat-bold pronouncement given the persistently high turnover among the labor pool. According to the American Trucking Associations, the first quarter turnover rate at large truckload carriers hit 92 percent, the ninth consecutive quarter it exceeded 90 percent. The group pointed out that in 2005 and 2006, the last cycle of acute driver undersupply, turnover averaged 130 percent and 117 percent, respectively. It estimates that 30,000 to 35,000 driver positions are currently unfilled. Nöel Perry, principal, transportation economics, and managing director for FTR Associates, a consultancy, puts the number at about 201,000.

Swift's generosity will result in increased cost pressures during the second half of the year. Those pressures should be mitigated by a combination of increased productivity derived from a more stable driver workforce, rate increases, and an improving economy especially in the fourth quarter, according to the company.

DRIVER FREE AGENCY
It's a strained analogy given the absurdly wide difference in salaries, but drivers—and not just the cream of the crop— are starting to understand what Major League Baseball free agents feel like. Salt Lake City-based C.R. England Inc., the country's largest temperature-controlled carrier, which uses a lot of team drivers, has lost 450 of its original 1,650 teams to rival carriers in the past several months, according to a trucking industry source. England, however, says that that number is "vastly overstated." Some carriers are poaching graduates of their rivals' driver schools—in some cases trying to hire them while they're still in school. Some will hire drivers with less experience than the companies had previously required. The industry source said that several southeastern carriers have begun shifting drivers between truckload and less-than-truckload (LTL) operations to fill supply voids; in one case, truckload carriers are being asked to drive LTL runs, an unusual circumstance given the LTL driver shortage is less acute than on the truckload side.

Truckload drivers, on average, earn base salaries of between $50,000 and $60,000. LTL and private fleet drivers earn more. The consensus is that truckload driver wages need to rise about 20 percent to have any meaningful impact on hiring and retention.

Of the cluster of top-tier truckload carriers, only Phoenix-based Knight Transportation Inc. raised base wages during the first half of the year, according to William Greene, transport analyst at Morgan Stanley & Co. With Swift now providing cover, Greene expects other truckload carriers to significantly raise wages during the balance of the year.

"Given that fleet expansion is still the best way for carriers to grow operating earnings ... having sufficient drivers to operate the trucks is critical to growth," Greene wrote in a note yesterday. "Thus, while higher driver pay will limit margin expansion relative to other modes, we believe that without increasing base wages [truckload carriers] will continue to struggle to grow fleets and operating income in the long run."

RATE INCREASES AHEAD?
For shippers and freight brokers worried about the specter of significant rate increases, the performance of the U.S. economy will be a key variable. So far, a long cycle of middling and inconsistent economic growth has allowed truck users to escape the pricing squeeze that normally accompanies tightening supply. However, there is a growing belief that activity will accelerate throughout the rest of the year. Should the pickup be sustained over several quarters, rates are likely to soar as demand flies ahead of capacity.

Another issue is the federal government's requirement that all trucks be equipped with electronic logging devices by the end of 2016. The transition could be brutal. Carriers who may be weighed down with equipment and compliance costs could seek to raise rates to compensate. Many may fall by the wayside. Donald Broughton, analyst at Avondale Partners, an investment firm that tracks truckload carrier failures, said the potential failure rate triggered by compliance with the new mandate will dwarf anything that's been seen in the past few years, which includes the period of the Great Recession. Perhaps unsurprisingly, Perry of FTR projects that the driver crisis will peak around 2016.

Benjamin J. Hartford, analyst for Robert W. Baird & Co., said the rules should "reinforce to shippers both the looming restrictions of capacity and the increased risk of legal liability from partnering with noncompliant carriers." Those factors, in and of themselves, should make shippers sit up and take notice, Hartford said.