In The News
How Fleets are Chasing Drivers with Better Pay and Quality of Life
In the past few months, many fleets have increased wages in an attempt to find and keep new drivers. Facing high turnover and fewer entrants to the industry, these companies are competing for a pool of talent that is only thinning out each year. But the life of a truck driver can be difficult, and improving pay is only one way to reach them. As a result, fleets are introducing innovative pay packages to help improve quality of life as well.
A little history: After the deregulation of the trucking industry in 1980, truck driver wages stagnated as inflation and other comparable jobs continued to track upwards. While the trucking industry opened up and fleets began to offer more on-demand type shipping, what used to be a solid middle class career became one of high miles, long hours, and, for fleets, low margins.
The numbers bear out this shift. According to one estimate from the U.S. Department of Labor, if trucker wages had kept up with inflation after deregulation, a driver would be earning over $100,000 a year. Instead, in 2016, the average driver only took home $53,000. At large truckload carriers, turnover was at 94% in the first quarter of this year — a virtual certainty that when some fleets hire on a new driver, they’ll be gone before the end of the year.
Prior to 1980, “drivers were paid very well,” says Gordon Klemp, founder and president of the National Transportation Institute, which tracks driver wage trends. “It was a very attractive career to go into for someone with aspirations to be a blue collar worker and make a solid wage.”
Once wages fell off pace with inflation, there were few influxes of talent into the trucking career field as wages effectively began to decrease — maybe the last group to join the trucking industry en masse were Vietnam veterans, according to Klemp. “It became a less attractive job.”
But high turnover is par for the course in the trucking industry these days. So are flat wages. That is, until partway through 2017, when the freight environment really started to take off. With a healthy economy, suddenly there was an abundance of freight to move, and trucking fleets became more active in buying new equipment and finding drivers to fill them. But a great trucking business environment has also exposed the flaws of the industry.
“It’s called all of the bad things coming together at once,” says Lana Batts, co-president of Driver IQ, a background screening and driver monitoring services company for the trucking industry. In this case, “all of the bad things” are actually some really great things — a strong economy, more people buying things and shipping them, and low unemployment.
Truck orders in the first quarter of 2018 hit a 12-year high, averaging over 45,000 new units per month, according, to ACT Research, a rate surpassed only by the prebuy in 2006 as fleets bought trucks ahead of the EPA ’07 emissions regulations changes. Trailer orders have also exploded. But all of that shiny new equipment can’t haul anything without drivers.
For years, the trucking industry has bemoaned the aging workforce, the lack of new entrants, the stagnating wages, and for years, it hasn’t really mattered that much. Until now. “You don’t have a driver shortage during a recession,” Batts notes.
Not everyone believes there is a true driver shortage, but it’s hard to argue that most fleets are finding themselves with more work than they have drivers to handle. If a company needs to dispatch 10 trucks to deliver 10 loads but can only fill four of them with drivers, there must be some sort of problem. “We’re out of drivers — that’s the only way I can express it,” Klemp says.
Money talks, more money talks louder
Nussbaum Transportation is one of many fleets that have upped per-mile pay for drivers recently. The Illinois-based company publicized two driver pay increases the past six months, totaling 5 cents per mile, which the company says has increased driver pay by 10%.
Every month sees a new crop of announcements from fleets of pay increases, bonuses, and benefits boosts. Across the industry, carriers are digging into their pockets to increase driver pay. In a recent report by Driver IQ, as many as 60% of fleets surveyed reported increasing per-mile pay for drivers and just over half increased performance bonuses.
According to NTI, half of driver pay increases so far in 2018 amounted to only 1 to 3 cents per mile. But nearly as many fleets have increased it by 4 to 6 cents. Even more indicative of the desperation for drivers is the small — but telling — percentage of fleets increasing pay by as much as 11 cents per mile.
With all of the years of driver shortage warnings and reports of high turnover, why only now is driver pay finally increasing? Simply put, carriers are finally able to charge more.
One of the worst-kept secrets in trucking is that everyone, fleets included, will tell you that drivers should be paid more. But trucking companies won’t pay more money unless they’re getting more money, and that is dependent on what the market is willing to pay. “You will not see driver pay go up unless you have rising freight rates,” Klemp says. Even with a tight driver supply, tight freight capacity, and high driver turnover, in Klemp’s estimation, wages won’t budge until fleets can charge more for their services.
But many fleets are finding in the current environment they can indeed charge more. “We have gotten some leverage on rates — some additional revenue that we can use toward this [increasing pay] — and we wanted to share that with the guys doing the work,” says Jeremy Stickling, vice president of human resources and safety at Nussbaum. “I’ve been at Nussbaum 11 years, and it’s the biggest increase we’ve done in one year in my time here. Drivers are in high demand right now.”
The quality of life equation
Another worst-kept secret is that driving as a profession is often difficult and unrewarding, with long hours on the road, multiple days away from home, and pay that is often reliant on how much productivity you can squeeze out of each hour. Between long delays at docks, running out of hours because of traffic jams, and the unevenness of pay week to week, a profession that requires a strict regimen to maximize profit is often at the mercy of uncontrollable circumstances.
Nussbaum pays its drivers door-to-door miles as a way to mitigate the losses that result from having to route around traffic. The company also pays detention pay starting after just an hour of waiting to be unloaded.
“Drivers are saying, ‘if you’re going to cause me to be away from home for long periods of time and give me irregular times that I can get home, I’m going to go someplace else’ unless you pay them a whole lot more,” says Batts. “If we were paying drivers a hundred grand, I don’t think we would be seeing the turnover problem that we have today.”
So drivers chase the money that is available, leaving one fleet for a slight pay raise, benefit boost, or sign-on bonus somewhere else. But leaving a job can be costly. The per-mile pay may be better elsewhere, but it may take a driver a while to learn the new system and maximize his or her money-making ability. And just because a driver may make a decent annual wage by the end of the year, a few lean weeks can be costly as bills pile up quickly.
More and more, fleets are actively addressing the unevenness of truck driver pay. Nussbaum, for instance, is one of several fleets offering drivers guaranteed weekly minimum pay to help smooth things out for drivers. Rest and relaxation is also key to a driver’s quality of life, and Nussbaum also offers paid time off based on that weekly minimum.
Smoothing out lumpy pay
As long as truck drivers are being paid by the mile, they must always be looking to maximize their efforts. Fleets can add on benefits, bonuses, and minimums, but the job will always be unpredictable. That’s why this year Smokey Point Distributing announced something of a novelty in the trucking industry — a guaranteed annual salary. But is it really bucking the industry trend?
“All trucking companies pay by the mile, and it’s just been an industry standard for so many years that we all follow each other,” says Dan Wirkkala, CEO of Smokey Point Distributing. “When somebody raises pay by the mile, the others follow. But nobody has really stepped out and taken operational accountability for the efficiency of how many miles they give their drivers.”
Rather than guaranteeing minimums or upping the maximum possible pay to entice talent, the Washington-based fleet is offering over-the-road drivers some stability. Solo drivers can earn a minimum of $65,000 per year through its salary program. Nothing to sneeze at, but the total-year amount is not what stands out about the open-deck carrier’s pay model. It’s the ability to tell drivers that they will be paid a consistent amount month to month, in advance, that could break the cycle of uneven pay.
It may sound simple — maybe even a matter of semantics — to say you are guaranteeing a driver’s annual salary. But to truly say a driver has an annual salary, a fleet has to loosen the ties between week-to-week output and week-to-week pay. There must be a difference between saying a driver “can” earn $65,000 in a year and saying they “will” earn that amount. But fleets are also paid based on productivity, so there can’t be any handouts. In order to provide drivers with a truly consistent income, Smokey Point had to take ownership of the productivity of a truck. To do this, Wirkkala says Smokey Point focused on developing tools that would give the fleet better visibility into driver performance and operations. It also hired people with the skills to effectively use these tools. It was critically important that the company be able to maintain profitability once the pay program was implemented.
The company uses these tools to track driver productivity in real time and see its high- and low-performing drivers. This allows it to see if a driver is contributing to a dip in performance or if it’s related to Smokey Point’s own operational efficiency.
Drivers still have to reach a monthly mileage minimum to participate in the salary program, but the system allows for leeway. If a driver falls short of his or her minimum mileage threshold, accessorial fees that are being paid to drivers on top of the base salary will be used to “buy” enough miles to meet that minimum. Even if a driver doesn’t have enough accessorials to buy back the miles, he or she can still stay in the program. The negative balance will simply carry forward each month until the driver builds up enough to make up the deficit.
A driver does have to account for his or her minimum annual mileage by the end of the year. Wirkkala says no matter what happens, Smokey Point is taking on all of the risk in this program, not its drivers, and in every case the fleet is paying more than it would have with a strictly mileage-based pay.
“We understand that some drivers are going to be unproductive in a month with time off or breakdowns or whatever. So we have to make sure that we’re tracking that performance on an annual basis,” Wirkkala says. “The company takes the risk of making sure that we overcome those [mileage deficits] by the end of the year.”
It’s still about the money
Smokey Point’s system is also set up to reward good drivers, offering thousands of dollars over the base salary through mileage bonuses. On top of earned monthly accessorials, any mile that is over the top of a driver’s minimum monthly requirement goes into an annual bonus bucket that will be paid out to them at the tenured rate per mile that they would have earned under the mileage program.
“There’s all the incentive in the world for our drivers to overachieve their base salary now, because they get paid for every mile above that minimum base, just like they would on the mileage program,” says Wirkkala. “But the base salary ensures them that they will never make any less than that base salary amount, regardless of their productivity in miles for the month.”
Not every driver at Smokey Point is being paid on the salary program. Many are still being paid by mileage. They aren’t forced to switch, and some may not be eligible for the program. All new incoming drivers can opt into the program, but for existing company drivers, Smokey Point looks at historical data to determine if an employee will be able to meet the minimum required mileage.
Wirkkala says his company has always had relatively low turnover, around 30%, and it didn’t introduce the salary program just to put more drivers into its trucks. Instead, the company’s goal was to make what it sees as a necessary change in the way drivers are being compensated. “Our big motivation was to be more efficient as a company and just to give drivers, honestly, what they’ve deserved since the beginning of trucking,” Wirkkala says. Nevertheless, since announcing the annual salary pay program, Smokey Point has seen its driver applications increase by three to four times.
At the end of the day, trucking, like any job, is about earning a living. And again, with business booming, employment options more plentiful, and fleets needing drivers more than ever, it’s hard to beat an extra dollar. So far this year, we’ve finally seen driver wages increase. So what can fleets expect with regards to driver pay for the rest of 2018? Batts says simply: “It’s gonna go up.
“I’ll take a bet on that, any bet you want — and it will probably go up in 2019, short of there being a major recession.”