Economic Trends on the Rebound and the Driver Shortage
The driver shortage continues to challenge the transportation industry’s capacity to meet freight demand and is stifling the growth potential for many trucking companies. It’s a decades-old problem that has been worsened by the recent pandemic. To correct the situation, experienced commercial drivers need to be drawn back into the work force and new candidates need to be trained and brought into the profession.
Proper compensation for ALL of a driver’s working time with improved salaries and benefits are needed to loosen the driver shortage. With enhanced cash flow strategies, trucking companies have the ability to convert high freight demand and rates into a quick and profitable return that can be leveraged to support improved truck driver wages. Freight factoring, a mainstream financial strategy to accelerate cash flow and gain immediate access to working capital is an ideal funding solution to support operations, fuel growth and ensure bills and payroll are met on time.
State of the industry
Even though economic trends took a severe hit in 2020, a resurgence in the final quarter caused a flip in freight movement and set the pace for increased freight demand and rates for 2021 and 2022. E-commerce and online shopping surged dramatically during the pandemic. This trend is expected to continue as retailers and service providers also ramp up to meet increased consumer demand. This upward trend in consumer spending means the nation will need more commercial drivers to balance out the growing freight demand. According to FTR Transportation Intelligence predictions, truck freight demand will grow 5% in 2021, a strong growth rate when looking at year-over-year comparisons.
The trucking industry has a current driver shortage of over 60,000 commercial drivers, and if this trend continues it could be short by as much as 105,000 drivers by 2023. On an industry-wide level, the low pay and poor working conditions drivers encounter often force commercial drivers to search for new careers. Half of all commercial drivers work more than 60 hours a week, and most earn little or nothing for non-driving labor, which represents about 25% of their work time. The Federal Motor Carrier Safety Administration reports a turnover rate of more than 90% for large long-haul carriers.
The current driver shortage represents good news for experienced commercial drivers looking to improve truck driver wages and benefits, and for new drivers looking to get into the industry – for trucking companies needing to hire commercial drivers, it’s another increasing financial burden to manage.
How has the pandemic worsened the driver shortage?
The economic and social disruptions of the pandemic had a significant impact on the trucking industry. Despite proving to be one of the more resilient industries that weathered the storm well and even benefited from the crisis, job losses were significant. A number of veteran drivers retired early due to health reasons. Driver training schools were forced to cease in-person classes, and many schools that could not transition to online training were forced to discontinue operations.
Another impact on the number of active commercial drivers was the federal government’s sponsored CARES ACT I, II and III. These rescue packages provided unemployment provisions and tax benefits to individuals, businesses and independent contractors. To many truck business owners, these rescue packages produced an unwanted result – the ability for experienced drivers to stay at home rather than work to earn their weekly salary. A recent industry analysis compared the median truck driver wage to the maximum unemployment benefits – the result was less than a $5,000 difference per year in 22 states. For many drivers comparing the earnings of a hard worked job to the benefits of sitting at home doing nothing, the choice to stay unemployed is an easy one. However, CARES ACT III is scheduled to end as of September 6th, 2021. Those drivers that relied on this rescue package are now starting to return to the workforce as they realize that the better job opportunities will be taken by commercial drivers who don’t wait.
Spot market rates down, contract rates up
As economic trends roared back, increased freight demand drove up the spot market rates to record levels. This created the perfect environment for new trucking companies to startup and flourish. Prior to the pandemic, less than 4,000 new for-hire trucking companies were typically registered per month. In contrast, over 6,000 new for-hire trucking companies were registered each month during the first half of 2021. The largest influx was the month of June which registered more than 10,000 new trucking companies. This trend has removed an estimated 157,000 experienced drivers from the job market and placed them in their own venture of self-employment.
The good news for growing trucking companies is that this trend is not expected to be sustained. Spot market rates are starting to slide as contract rates begin to rise. This drop in spot market rates coincides with the rising cost of fuel and insurance costs making it more difficult for independent operators without freight contracts to make profits. This correction is expected to trigger a trend reversal in which independent owner operators who have recently started their own companies will transition back into the labor force. The increased security of working for an established fleet will outweigh the struggles of operating an independent business. Trucking companies offering fair truck driver wages and good benefits will attract the greatest number of experienced operators and new commercial drivers.
How to Retain Drivers in 2023
According to the ATRI Critical Issues in the Trucking Industry – 2020 report, the driver shortage remains at the top of the list for the fourth year in a row. Driver compensation was ranked as the number two industry issue, up one spot from its 2019 ranking. Implementing an effective strategy to bolster your driver pool will set your business apart from competition and pave the way towards growing success.
Your recruiting strategy should include the following:
Fair truck driver wages and good benefits: To compete against every other trucking company looking to hire more commercial drivers, your business needs to offer competitive salaries, good working conditions and benefit packages. This increases the need to maintain operational efficiencies, maximize equipment utilization and to manage cash flow efficiently to remain profitable. Consult with industry experts to align your company’s growth plan with a viable financial strategy to ensure not to overextend financial resources. A conversation with an accountant well versed in the needs of the transportation industry and a freight factoring consultant is a good starting point for these discussions.
Keep your promises: However you slice it, a paycheck is a promise. It may seem obvious, but making sure that your drivers are paid accurately and on time is critical to keeping them. Cash flow management can be a tough balancing act for trucking companies with slow-paying customers. Be sure that you always make good on your payroll promise – have a solid financial plan in place to ensure adequate working capital is always accessible.
Nothing beats a great place to work: You need to compete in truck driver wages and benefits to attract new commercial drivers. However, if money is the only enticement, you may attract drivers but you won’t keep them. Even more than money, nothing keeps a driver loyal to your business than making it a great place to work. As a company owner, look for ways to recognize your drivers for their work. Listen to them and make drivers feel like an important part of your business. And, ensure that they have the tools and resources they need to do their job effectively.
Trucking fuel cards: Commercial drivers need an easy-to-manage cash solution to manage over-the-road expenses. Fuel cards provide much more than discount pricing on your largest operating expense. They are a secure and simple way for commercial drivers to pay for fuel, repairs, scales, hotel rooms and other necessities, and to receive cash advances when needed. For personal safety, they’re also a better option than asking drivers to carry large amounts of cash to cover expenses.
How to broadcast your message
Of course, having an effective incentive program is only half of a solution needed to attract commercial drivers – reaching the right audience with your message of an exciting career opportunity is the other half of the equation. Print advertising used to be the norm as drivers would typically pick up trade magazines at trucking-related locations such as truck stops. This form of advertising is expensive and outdated – today, a significant proportion of new jobs are found online. Use driver job boards and social media such as Facebook, LinkedIn and Twitter to post job opportunities directed specifically at a target audience of your choosing. A marketing agency skilled in optimizing search results will easily manage the ad creation and distribution of your message to best reach the demographic and regional location of your potential candidates.
Even though the internet is the best medium for broadcasting your message, traditional strategies such as local job fairs, participating in truck show recruiting programs and good old fashioned word of mouth are still highly effective methods for spreading the word.
Freight factoring supports growth
Taking on more drivers is a significant step forward in growing your trucking business, but it is only the beginning. Additional equipment and extended dispatch services will no doubt need to be acquired as well. Overhead expenses will also increase. To best prepare your company for the growing financial obligations associated with expansion, investigate the benefits of freight factoring to deliver the cash flow you need to grow.
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