Driver Shortage Shows Gain in U.S. Truck Cargo: Freight Markets

U.S. trucking companies may face a 30 percent surge in wage bills by 2014 as rising demand for freight shipments threatens to push the industry’s driver shortage to the longest on record.

The current shortfall will double in a year to about 300,000 full-time positions, or 10 percent of the workforce, said Noel Perry, managing director at consultant FTR Associates in Nashville, Indiana. A three-year deficiency would top the 300,000 vacancies lasting for about a year in 2004, he said.

A gap between cargo demand and the driver supply adds to evidence that the freight industry is recovering. While the stock-market slump since July weighs on truckers such as J.B. Hunt Transport Services Inc., 2011’s gains in cargo tonnage fit “with an economy that is growing very slowly,” the American Trucking Associations trade group said this week.

“The truck-driver population is growing at less than 1 percent a year,” said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York who follows truck and railroad stocks. “Freight’s growing at closer to 4 percent.”

Truckers’ shipping volume, a barometer of the broader economy, was up 11 percent in July from a year earlier, according to Cass Information Systems. Echo Global Logistics Inc. (ECHO), a Chicago-based provider of freight services, said last month it’s “very optimistic about continued growth in the second half.”

U.S. Regulations

The shortfalls seen in previous freight rebounds are getting a new twist, according to Perry. U.S. safety regulations curbing drivers’ work hours mean companies must have more employees. Also now in place are rules helping companies assess applicants’ driving histories -- weeding out bad risks while also shrinking the pool of applicants.

Rising wages would add to the cost pressures from a bigger workforce and higher prices for new trucks required by federal emissions rules.

Truckers also are paying more for diesel fuel, which averaged 30 percent more a gallon this year through Aug. 23 than the same period in 2010, putting them at a competitive disadvantage to railroads’ superior efficiency.

“Truck is more expensive than rail already,” Kauffman said in an interview. “If it was purely a decision based on price, I probably already have moved to rail. But the flip side is, there’s a service difference” favoring truckers because of their greater speed.

Index Drops

The Standard & Poor’s Midcap Trucking Index slid 11 percent in 2011 before today, and remains 53 percent below its peak in 2007, before the last U.S. recession. J.B. Hunt, the biggest trucker by market value, has dropped 4.3 percent this year. The S&P 500 Railroads Index (S5RAIL) was down 1.6 percent.

Revenue per mile driven excluding fuel surcharges for dry van shipments has advanced 13 percent to $1.55 since the low reached in 2009 as freight demand plunged in the recession, according to industry researcher Truckloadrate.com. Trucks carry about 29 percent of domestic cargo, as measured by revenue ton- miles, compared with about 39 percent for railroads, according to the U.S. Bureau of Transportation Statistics.

Drivers are in short supply even as U.S. joblessness exceeds 9 percent. They travel an average of three weeks at a time at truckload carriers, which make the longest hauls and put goods from just one customer on each trailer, said Bert Johnson, senior director of human resources and driver recruitment at the truckload unit of Ann Arbor, Michigan-based Con-way Inc. (CNW)

One-Year Tenure

Company-employed drivers, who don’t own their rigs, earn average salaries in the mid-$40,000 range, based on figures from Norita Taylor, a spokeswoman for the Owner-Operator Independent Driver Association in Grain Valley, Missouri. FTR’s Perry estimated a driver’s typical tenure at one year.

“If I get laid off, I’m not going to immediately go drive a truck,” said Bob Costello, the trucking association’s chief economist. “I’m going to try to get another job in my field, something where I’m home every night.”

Trucking-labor costs declined during the recession, so some of the projected wage increases will be “catch-up,” according to Perry, who predicted the 30 percent boost in wages by 2014. Labor costs gained 21 percent in the last recovery, he said.

“If we decide to raise rates for drivers, conversely we’re going to raise rates for customers,” said Johnson, the executive at Con-way, the largest U.S. trucker by sales.

Price Pressure?

That may affect consumers through higher prices, according to the National Industrial Transportation League, an Arlington, Virginia-based trade group for large shippers whose members include Exxon Mobil Corp. (XOM) and DuPont Co.

“If the increases are substantial, that’s always the very hard balance that has to go into making determinations on product prices,” said Peter Gatti, NIT League executive vice president.

Owens Corning (OC), which relies chiefly on trucks to move its home-insulation products, is adjusting operations to cope with the shortage.

Truckers with too-few drivers and strong demand can be choosy in giving priority to the most-lucrative, easy-to-haul cargo, said Mike Cramer, director of logistics and customer operations. So the Toledo, Ohio-based company is seeking to cut the time needed for pickups and deliveries, he said.

“We’re really trying to make our freight more attractive than others,” Cramer said.

Spending Rises

J.B. Hunt’s spending on wages, salaries and benefits rose 12 percent last quarter from a year earlier, compared with 15 percent for the trucking unit’s weekly sales per tractor. Lowell, Arkansas-based J.B. Hunt ended 2010 with 15,223 employees, about 1,100 fewer than in 2005.

Saia Inc. (SAIA) said this month it would increase wages by 2.5 percent for drivers and many other employees. The added cost will be $10 million, according to the Johns Creek, Georgia-based company. That is about 1.1 percent of 2010 operating expenses.

At Con-way’s truckload unit, some routes are being limited to only four to five states so drivers can be home once a week. A new “lifestyle” program allows drivers to alternate between two weeks of driving and time off.

“Young drivers get in and sometimes they’re not aware of what it takes to be a driver, especially if they have got kids at home,” said Miles Verhoef, an independent owner-operator from Tomah, Wisconsin, who worked as a company driver for 16 years. “It’s very hard on family life.”

Shippers and truckers also are shifting some loads to railroads to avoid long highway drives. Revenue from so-called intermodal cargos, which can move by road, rail and ship, rose last quarter at each of the four biggest publicly traded U.S. railroads.

For a permanent fix to the industry’s shortages, FTR’s Perry estimated that long-haul novices earning $40,000 annually and experienced drivers at $70,000 would need to see increases that might top his projection of a 30 percent boost by 2014.

“What does it take to make a normal person happy with being away from home two straight weeks?” Perry said. “The rule of thumb is we’ll probably have to pay these guys between $60,000 and $90,000.”

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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