It's been a rocky last six months for U.S. motor freight shippers, and if the forecasts from three top trucking executives at yesterday's NASSTRAC annual Shipper's Conference and Transportation Expo are any indication, it's likely to get rockier.
None of the three sugarcoated the conditions ahead. None seemed optimistic the environment of tight capacity and higher costs being felt almost across the board would abate when the yearly calendar turns. In fact, even if the economy slides in 2019 and freight demand goes with it—a scenario none of the panelists would predict—carriers will still be grappling with the secular challenge of recruiting and retaining qualified drivers, according to Thomas Connery, president of New England Motor Freight Inc. (NEMF), an Elizabeth, N.J.-based carrier and logistics provider whose core business is in less-than-truckload (LTL) shipments.
"We are not going to stop recruiting and hiring, and wages will continue to rise unless something transformative happens," Connery said at the event in Orlando. He was at a loss to state what that bolt-from-the-blue event could be.
Connery added that price pressures are coming from unconventional sources. For example, Chicago-based trailer manufacturer Great Dane has applied a 5-percent increase on NEMF's trailer purchases to offset higher raw-materials costs, Connery said. This will increase the carrier's per-trailer costs by about $1,600, he added.
Being in a business of derived demand, truckers are inherently reactive to slowing economic conditions rather than being ahead of the curve. "We're not doing much to prepare for a slowdown," said Greg G. Gantt, president and soon-to-be CEO of LTL carrier Old Dominion Freight Line Inc. (Gantt takes over as CEO on May 16 to succeed David S. Congdon.) Thomasville, N.C.-based Old Dominion will re-evaluate its cost structure to keep it in line with any fall-off in demand, Gantt said. But cutting freight rates to keep or gain market share—which Old Dominion refused to do during the 2007-09 downturn—is not in the game plan this time either, Gantt said. "You can't go against your pricing principles," he said.
Within a year after being hired, a truckload driver can expect a $10,000 bump in pay to at least $60,000 a year, according to Craig Callahan, executive vice president and chief commercial officer of Werner Enterprises Inc., an Omaha-based truckload and logistics provider. Those pay rates are just the price of admission, Callahan said. Driver pay is likely to escalate in the months and years ahead, with experienced drivers pulling down $80,000 a year or more, and salaries for qualified team drivers, who are in very short supply, topping $100,000 a year, Callahan said. Werner is hiring about 10,000 drivers a year just to keep pace with annual turnover and shipper demand, he added, but warned that even that pace of hiring will not, in and of itself, remedy all of its customer service challenges.
The biggest pain points for driver recruitment, according to the panelists and other attendees at the conference, are along the East and West coasts. In the East, the problem is compounded by inclement winter weather for three to four months, which makes it difficult to recruit drivers to run over terrible conditions in the middle of the night. Connery said NEMF has been bidding out work in the region to local pickup and delivery drivers in order to meet customer commitments while freeing up other drivers for longer-haul routes.
The federal government's mandate that virtually all trucks built after the year 2000 be equipped with electronic logging devices (ELDs) has cut fleet productivity by between 3 to 10 percent since the mandate took effect Dec. 18, according to unscientific estimates being bandied about at the conference. What's more, between 4 and 7 percent of capacity is still not ELD-compliant, even though enforcement of the mandate—and the out-of-service orders that accompany it—kicked in more than a month ago. The mandate is designed to ensure that drivers can no longer alter their paper logbooks to operate beyond the federal requirements of their hours of service, which limit drivers to 11 consecutive hours behind the wheel in a 14-hour workday, with a 30-minute rest break within the first 8 driving hours.
As expected, the biggest problem has been in 650- to 700-mile hauls, which are difficult for drivers to complete in one driving day, especially if they need to return to a home base after delivering their shipment. With driver reticence to haul those loads keeping supply tight, that segment is seeing a "significant amount of price inflation," according to Gantt. Overall, Old Dominion has experienced minimal impact from broad ELD implementation other than a slight increase in average shipment weight and shorter haul lengths, he added.
LTL carriers are not as exposed to the ELD fallout as their truckload brethren because LTL drivers run comparatively shorter distances. Because of that, carriers like NEMF are receiving overload freight that, in a normal environment, would move via truckload. Due to the diversions, Connery said, the carrier's average weight per shipment is up 7 percent from this time a year ago. This is an unsustainable situation, because NEMF's LTL network is not structured to efficiently handle large quantities of truckload-type shipments over and over again, he said.