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NTI: Truck driver pay poised to spike

Nov. 4, 2017
An aging and shrinking labor pool coupled with rising demand for capacity is going to force fleets to push up pay, bonuses, and other benefits in order to recruit and retain enough drivers.

Though trucking may be experiencing “the toughest-ever recruiting time for drivers” right now, the worst may be yet to come, according to trends being tracked by the National Transportation Institute (NTI).

In a conference call hosted by Stifel Capital Markets, Gordon Klemp, NTI’s founder, president, and CEO, and Leah Shaver, the company’s COO, highlighted a variety of demographic and wage-related trends that will significantly crimp the supply of truck drivers just as the freight industry is poised to experience a significant pickup in freight demand and rates.

That combination of factors may result in steep driver pay and benefit increases the likes of which the industry hasn’t experienced in over a decade, they argued.

“The [truck driver] job and pay package has been completely re-engineered over last decade,” noted Shaver. “It is now rare to see pay packages without ‘regionalization’ now [because] there are simply not enough drivers to sustain the long-haul model.”

She said that pay increases for truck drivers across the country are averaging one to two cents-per-mile, but there are “outliers” where pay moving up to the tune of four to seven cents-per-mile.

“Changes in pay are weighted to region and experience now; no longer one or the other,” Shaver noted.  

She added that for-hire fleets are favoring “referral bonuses” more frequently now, where drivers get $3,000 or more for referring in a new candidate and extra mileage pay for three to 12 months as well. “Carriers are realizing that these [referred] drivers can be their best recruits,” Shaver noted.

Yet she stressed that sign-on bonuses not only remain popular but are getting heftier, too, with $10,000 the “new lure.”

“We’ve seen the re-emergence of $10,000 sign-on bonuses with 40% paid out in first four months,” Shaver said, noting that “established” drivers team can command a $20,000 sign-on bonus, based on location, paid out over 12 months.

Though private fleets are in a better position in terms of pay and home time, they are finding recruiting to be getting harder as well, NTI’s Klemp explained.

“Private fleets have it a little different – they recruit from a more experienced driver pool [and] from for-hire carriers. That’s been a cake walk in the past for them,” he said. “But now they are running advertisements consistently, announcing first-year wages of around $50,000 – sometimes $70,000. That means they are having a difficult time finding the drivers they want; the pool is diminishing.”

In a separate report, Jason Seidl, an analyst with Cowen & Co. noted that salaries and benefits are typically the largest operating expense for trucking companies – usually comprising about 30% of revenue and slightly more than 30% of total operating expenses.

“Generally speaking, about 25% of [freight] rate increases are given to drivers, but in 2018's case, we think that could be near or even above 50%,” he explained in a research note. “That would mean driver pay could easily increase in the 5% to 7.5% range, taking total operating expense up 2%.”

Yet NTI’s Klemp noted on the Stifel call that not only is the average age of today’s truck drivers rising – it’s up over 52, according to NTI’s data – fewer young people even want the job, despite increasing wages.

“Millennials today are totally disinterested in truck driving as a career,” he said. “It’s physically demanding work, with higher than average injury rates, because you are doing things the human body – young and old alike – doesn’t like to do. That’s why the aging of the driver pool is important – this is a tough job to take on.”

Klemp added that the long-term trends in driver pay tend to be “irregular” especially in the for-hire sector; it occurs in “jumps and downturns” and “makes it difficult to lead a regular life.”

He also noted that driver pay in most respects hasn’t kept up with inflation. “Going from 1979, if you fast forward with the rate of inflation to 2016, pay for a union driver would average $101,600 a year,” Klemp pointed out.

Yet according to NTI’s data, average pay for truck drivers hit $52,406 in 2016. “This means pay has really been a long-term problem,” he said.

Between 2006 and 2017, Klemp noted, net growth in for-hire truck driver income totaled 6.3% – a percentage increase he described as “very low.”

By contrast, private fleet driver pay went up 16.55% during that same 11 year period, which just about mirrors the inflation rate at 18.5%, he said. But over the same time period, the minimum wage went up 45.6% and at companies like McDonald’s pay went up 94.2%.

“So that puts driver pay in perspective,” Klemp stressed. “It’s become ‘less attractive’ versus ‘more attractive’ over time. That’s put a real damper on growing the driver pool over the years.”

But now, with freight demand and rates rising, he said “we are seeing a [trucking] market that will potentially take off; we are at the edge of the cliff we’ve talked about for a long time and never reached.”

Yet truck driving remains an “undesirable career” for most job candidates, Klemp warned, so pay will keep rising until the industry can solve the balance of supply and demand equation.

“We think a lot of crazy things can happen; the next 12 to 24 months will be very interesting,” he said.

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