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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Ontario Trucking: ĎNot Paying More ĎAint Gonna Flyí This Peak Shipping Season

Friday, August 22, 2014 > 08:45:10
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(Ontario Trucking Association)

The escalating truck driver shortage is leading to carriers scrambling to fill seats ahead of the fall peak shipping season while likely sparking sharp increases in transportation pricing for shippers.

According to a Journal of Commerce report, shippers are beginning to notice that there are plenty of trailers ready to receive their freight, but not enough trucks and drivers to pull them just as the biggest freight season is about to get underway.

Many large carriers in both the U.S. and Canada have already “signaled … to shippers to help finance a significant boost in driver pay (by) raising rates by higher percentage levels” than last year.

Sometime in this quarter, Swift Transportation – the continent’s largest carrier – will give drivers the biggest pay increase in the company’s history. “If current driver shortages continued, driver wages may continue to increase, but probably not to the extent of the increase we are giving this year to our drivers,” said Richard Stocking, president and COO in a recent conference call.

Even with driver compensation spiking ahead of the peak shipping season, carriers continue to have trouble convincing drivers to climb behind the wheel. With turnover at large truckload carriers above 90 percent, there’s a strong suspicion that most companies aren’t recruiting new drivers to the business, but luring experienced drivers from competitors, instead, reports JOC.

In April, Kevin Knight, chairman and CEO of Knight Transportation, said carriers must raise driver wages 15% to 25% over the next few years to stay competitive.

“We are very aggressively taking a large portion of what we’re able to receive in terms of rates and making sure that we give that to our driving associates,” Knight said. “Our goal is to continue beyond this path over the next two to three years to make sure that we’re competitive as far as what the job should pay and also as compared to other industries.”

Trucking wages have increased much more slowly than the average U.S. salary, and the trucking industry hasn’t kept pace with changes in workforce expectations that have made truck driving a less attractive career choice for the younger workers the industry needs. Instead, trucking stuck with a 1990s model and, in some cases, 1990s pay.

Mike Regan, chief of relationship development at TranzAct Technologies and advocacy chair for shipper group NASSTRAC, says he expects a shift in how the supply chain pays and accommodate drivers in the coming years.  “When you have a situation where your inventory gets up and walks out the door every day, that situation needs to change.”

“There’s no question, rates are going to rise,” Regan said. “The challenge for trucking companies is creating a compensation structure that allows them to retain drivers but still get the rates they need from shippers to basically justify higher wages.”

“I think it’s a good environment to be a trucking company right now, if you’re a smart trucking company,” Regan said. “That driver pool is a very important asset.”

Truckload carriers are at the point where they can cherry-pick freight, hauling loads that offer the best return and refusing others. That means shippers had to dig deeper into their book of business to find carriers who would haul their freight, and delays probably added to costs, explains JOC.

There is still some debate, however, whether the second-quarter freight surge that followed earlier harsh winter restrictions on freight movement will carry through to the fall, or whether the peak season will be as strong as some predict – especially as many companies seem to have shipped product early.

John Larkin, managing director of Stifel’s Transportation and Logistics Research Group, is one analyst who is a bit reserved in predicting a peak season surge. “With food inflation, rising local taxes, rising health care costs, and stagnant wages – the average (consumer) is cutting back on consumption,” JOC reports him as writing to investors.

Regardless, as long as freight demand in the second half exceeds year-earlier levels, shippers need to prepare for rising costs, or find ways to mitigate them by cooperating more closely with carriers and seeking different modal options, JOC notes.

At the end of the day, shippers with lean inventories may have to choose between higher upfront transportation costs and the cost of not delivering product to a customer or putting it on a shelf when needed, says Regan.

“You balance that out,” Regan said, “and not paying more ain’t gonna fly.”


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