Holding onto new drivers for just 90 days could dramatically cut turnover, ATA economist says

How important is it for truck fleets to retain newly hired drivers for 90 days? Very, according to the American Trucking Associations' (ATA's) chief economist.

Bob Costello told the NASSTRAC shippers conference and transportation expo in Orlando yesterday that driver turnover rates would be roughly halved if all new hires stayed for the first 90 days of their employment. If Costello's estimates are accurate, that would pound a major dent into turnover, which for large fleets—those with more than $30 million in annual revenue—hit 102 percent in the fourth quarter, according to ATA data released Monday. That marked the second straight quarter that turnover for large fleets hit 100 percent or higher, and the first time that's happened in back-to-back quarters in four years, ATA said.

At smaller truckload carriers, the fourth-quarter turnover rate rose 21 points, to 89 percent. Still, the churn at smaller fleets was six points less than in 2014's fourth quarter, ATA said. The turnover rate at less-than-truckload (LTL) carriers rose one point, to 11 percent, and averaged 11 percent for all of 2015, ATA said. LTL driver turnover is usually less than in truckload due to higher pay and because LTL's relatively short hauls allow for more home time for drivers.

For fleets, driver retention has been as challenging as, if not more than, recruitment. Qualified drivers, well aware that carriers are upping wages for good operators, are not shy to jump from carrier to carrier at almost a moment's notice. The jilted fleet loses a driver and then has to invest the time and money to find a replacement.

Late last year, ATA estimated that the industry was short about 48,000 drivers. If current trends continue, the driver shortage will reach 175,000 by 2024. Costello said he doesn't expect the shortfall to be so acute because it would lead to intolerable increases in the prices of goods, as there won't be enough drivers to move them to market. The shortage will be due mostly to the pace of driver retirements—the average driver is at least six years older than the average worker in other industries—and the dearth of women in the field, Costello said. Women account for only 6 percent of all drivers, according to ATA data.

For now, there is less pressure on fleets to find drivers, because freight demand isn't particularly strong. U.S. GDP will grow by only 2 percent this year as a strong dollar makes U.S. exports less price competitive in world markets and also hits domestic production by cheapening import prices, Costello said. In addition, the surge in shale energy exploration and development, which proved a major tailwind for truckers from 2010 to 2014, has dramatically abated.

Elevated inventory levels in the U.S. are dampening new order activity, as businesses can sell from existing inventory rather than place orders to be shipped. The government's total ratio of inventories to final sales, which covers industry, wholesalers, and retailers, hit 1.41 in February, its highest level since mid-2009. The ratio needs to decline to between 1.30 and 1.35 to spur a new cycle of ordering and shipping, according to Costello.

However, Lee Klaskow, senior analyst, transportation and logistics, for Bloomberg Intelligence, told the gathering that inventory levels will remain elevated for the rest of the year and possibly into 2017, as the supply chain struggles to reduce a nearly two-year accumulation that began with the awful winter of 2013-14 that paralyzed much of the country's freight network and compelled businesses to hold more buffer stock as a form of insurance against late or missed deliveries.

Fleets that added tractors and trailers in 2015 are now in the process of scaling back their activity. Tractor counts at truckload carriers, which rose 0.7 percent in 2015, will decline 0.6 percent in 2016, Costello predicted. In the LTL segment, tractor counts, which rose 5.6 percent in 2015, are now increasing at less than 2 percent, he said.

The cumulative impact of these trends is a renewed buyer's market for trucking services. Spot, or noncontract, truckload rates are in free fall, with no immediate end in sight. Contract rates, which have held relatively steady but generally follow the spot market's lead, will stagnate this year, according to Klaskow. The analyst sees truckload pricing at the major carriers as either staying flat or rising up no more than 2 percent during the 2016 cycle.