Trucking industry turnover falls, ‘solid’ peak season ends

Turnover at large truckload carriers declined 11 percentage points to 87%, and a strong peak season has ended in the transportation sector while the outlook for 2019 remains uncertain.

After two consecutive quarters of high turnover, the turnover rate in the third quarter fell to its lowest point since the first quarter of 2017 when it was 74%, according to a Thursday (Jan. 3) report by trade organization American Trucking Associations (ATA). The turnover rate was as high as 98% in the second quarter of 2018 and 10 percentage points higher than at the end of 2017.

“The drop in turnover can be potentially explained in a few ways,” said ATA Chief Economist Bob Costello. “First, large pay increases fleets have been offering appear to be working, and drivers are remaining with their current carrier. Second, we did see a softening of freight markets in the third quarter from the incredibly strong pace it had set earlier in the year. Historically, softer freight volumes lead to lower driver turnover.”

Walmart hired 1,400 new truck drivers in 2018, a more than 50% increase from 2017, according to Yahoo Finance. The Bentonville-based retailer gave credit to the rise to a shorter hiring cycle, $1,500 in referral bonuses and modern recruiting practices to hire drivers in a tight labor market. A first-year driver at Walmart can earn $86,000 annually.

Driver wages comprised carriers’ top cost for the third consecutive year in 2017, accounting for one-third of carriers’ marginal cost, according to American Transportation Research Institute, a nonprofit research organization for the ATA. Including driver benefits, driver-based compensation represented 43% of total average marginal costs. Fuel accounted for 22% of the costs.

Also in the third quarter, the turnover rate at smaller carriers, or those with less than $30 million in annual revenue, was unchanged at 72%, according to the ATA. And the rate at less-than-truckload carriers declined four percentage points to 10%.

While the fourth quarter was “solid” for the transportation sector compared to historical standards, activity was more “controlled” than it was in 2017 when the pace was “frenetic,” according to analysts Benjamin Hartford and Andrew Reed, both of Baird. The fourth quarter also was not as strong as expected three months ago.

Spot truck pricing has been slightly below historical levels and has fallen from the same time a year ago, but contract price expectations are positive, with low-single-digit price increases projected in the 2019 bid season, said Hartford and Reed. Global air freight and ocean freight were not as strong in November and were consistent with softening Purchasing Managers’ Index numbers worldwide. Uncertainty related to global trade policies and the inventory pull-forward in the second half of 2018 have led to a guarded outlook for the first quarter of 2019.

In December, dry van spot rates declined 2.4%, from the same month in 2017, according to DAT Solutions. Between Dec. 23 and 29, less freight was moved as businesses shut down for Christmas, but for the loads that needed to be transported, freight brokers and shippers struggled to find capacity to haul them. The crunch led the rates to rise 1 cent to $2.08 per mile in the week, from the previous week.

In the trucking industry, freight demand remains stable but faces tough comparisons from a year ago, putting pressure on growth rates, said Hartford and Reed. Optimism for January volumes precedes concerns over demand in February and March following the Lunar New Year holiday in early February. While contractual growth is expected to be healthy, it should slow in 2019. Contract prices in the truckload and less-than-truckload segments of the industry are expected to see low-single-digit price increases.

Intermodal traffic on U.S. railroads rose 5% to 1.096 million containers and trailers in December, from the same month in 2017, according to the Association of American Railroads.

“U.S. freight rail traffic in 2018 was positive for the most part,” said John Gray, senior vice president of policy and economics for the Association of American Railroads. “Intermodal set a new annual record for the fifth time in the past six years. What happens in 2019 will depend on how the domestic and global economies hold up and the policies — particularly monetary and trade — that come out of our legislative and executive branches.”