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How Much Will Driver Pay Cost the Transportation Industry?

The Motor Carrier Act was passed in 1980 by Congress, stripping the now defunct Interstate Commerce Commission of its regulatory authority over the trucking industry. At the same time, the trucking minimum wage exemption was never removed from the Fair Labor Standards Act. The result of these actions today is a piecework rate of pay where drivers do not get paid unless the wheels are moving.

Compounding this issue from the drivers' perspective is the new hours-of-service rule, which requires limits to the number of hours drivers can work each week. Many question whether the per-mile rate is still a fair way to compensate truck drivers.

A 2006 study by economists with the University of Michigan Center for Labor Studies found that an hourly wage for truck drivers would be $15 per hour. This was based on a 70-hour maximum work week of logged time, averaging the same as a per mile pay system. One might think that new technologies for e-logging would make this simpler for trucking companies. However, some question whether $15 per hour is enough compensation for truck drivers.

In reality, whether trucking jobs are better on a per mile system or per hour is largely up to the new drivers entering the industry. They must decide how much their labor is worth. Industry executives must decide how much pay will help them deal with driver demand. Eliminating overhead costs of labor remains an important issue, while at the same time this is a necessary cost of doing business.

Some Fleet Managers Want to Keep the Pay-by-Mile System

During the annual conference of the American Trucking Associations, a panel discussion concluded that abandoning the per mile pay system is not the best resolution to driver pay issues. The discussion also took into consideration hours-of-service, recruiting and retention, and health and wellness concerns within the industry. Fleet managers recognize that driver shortage – while confined to certain segments within the industry – has a real impact on recruiting and retaining good drivers. The focus of the discussion was to come up with initiatives to address these concerns.

Long-haul truckload carriers are mostly affected with high turnover rates each year. While many agreed that the pay per mile system is best for the industry, they also concluded that changes to driver compensation must include time not spent behind the wheel. Without congressional changes, a very high percentage of long-haul truckload carriers with current ATA memberships have already raised driver pay. Those who have not raised driver pay have plans to do so as a way to boost hiring.

Compared to 1990, truck driver pay today has 10 percent less buying power. Juxtapose this fact with a high demand job and some wonder if the industry is lagging in making a real change. The response from some is that changing to an hourly pay scale equal financial suicide for carriers.

How Industry Changes Impact Driver Pay

The difference in driver pay from 24 years ago does not mean that fleets have reduced pay rates. Rather, the demands of modern supply chain functions affect how drivers work. The average length of a haul is greatly reduced because of more efficiency. Productivity pre-recession saw an average 10,000 miles per month for long-haul truck. Today, the average is 8,100 miles each month.

Many agree that there should be some type of compensation for time spent loading and unloading trucks. Even simple drop and hooking of trailers can take an hour out of a work day. A mileage based compensation system is overdue for some changes. Still, industry executives are not anxious to disconnect the truck driver pay system from how companies are paid by customers.

For drivers, it is a weekly gamble on the amount of their paycheck waiting for a sustainable, fluid network. A schedule that lets drivers know what to expect during the work week could have a tremendous impact on turnover. However, the nature of the industry is that the shipping community determines workloads. Delays are not unusual in the trucking industry. Nevertheless, drivers are concerned with less high-mileage runs to offset any money that gets lost sitting at a dock.

Industry Leaders Acknowledge Need for Change

Industry leaders acknowledge that adjustments to the mileage-based pay system are necessary. Retaining good drivers requires compensating them for time that they are not driving. Currently, shippers dictating driver schedules makes it impossible to have planned schedules. As a result, carriers cannot pay drivers a predetermined amount that takes into consideration idle time waiting for loading and unloading.

Another potential hindrance to changing driver pay systems without negatively impacting the industry is competition from private fleets. Competition from these fleets is fierce against for-hire fleets at the mercy of shipper needs. National retailers can hire drivers and pay them $70,000 a year to make scheduled deliveries to their stores across the country.

Two-thirds of annual salaries are based on mileage. The rest is for other activities. In addition, drivers also receive a solid benefits package. Of course, the turnover rate for these drivers is significantly less than what for-hire carriers are experiencing.

The catch? Private fleets only hire a small percentage of experienced drivers from a large pool of applicants. Furthermore, the average gap between what for-hire carriers pay, and what drivers make with private fleets, is 25 percent. In most cases, for-hire truck drivers receive half the salary that private fleet drivers are paid.

One way to close this gap is for for-hire carriers to challenge private fleet shippers during rate negotiations. At the same time, many in the industry do not expect the for-hire industry to immediately change to meet OTR driver pay scales. However, they do acknowledge the need to make changes somewhere in between the pay disparities.

Reaching Consensus on Driver Pay

Although there are disparities between for-hire and private carrier pay, both sides have similar concerns about operating in the industry. Efficiency within transportation costs is a critical component, with private carriers acting as a shipper and carrier. Retail prices remain low when they are able to manage these costs. For-hire carriers are not shippers and do not share the concerns about keeping consumer costs down. However, both share the same challenge: making drivers' lives better.

The pay system adopted by private carriers does help in keeping turnover rates low. However, making changes by a couple of percentage points in mileage pay is not enough to resolve compensation issues with for-hire carriers. What will help is to have activity-based pay and targeted incentives to raise the competition posed by private fleet carriers.

The Federal Motor Carrier Safety Administration highlights an Australian study that showed drivers receiving an hourly pay wage improve safety conditions. Because of this, the agency is advocating that U.S. fleets follow the same type of pay model. Many in the industry reject having to follow a federal regulation that demands this change before the trucking industry is prepared to absorb what this change will mean.

While the industry continues to grapple with changing driver pay, it does agree that allowing the federal government to demand changes is not necessary. Giving into this compliance measure without making efforts within the industry regarding driver pay only exposes the industry to more unwanted regulations.

Chances of improving driver pay and retention may change once the entire industry adopts an electronic log system. Many believe that this type of system provides a standardized metric that will guide policy changes.