Trucking companies outbidding each other for drivers using salary and per-mile wage increases are leaving themselves vulnerable when the next economic downturn hits, the American Trucking Association’s chief economist warns.

Bob Costello told the Motor Carrier Safety Advisory Committee (MCSAC), part of the Federal Motor Carrier Safety Administration, that the slim margins generated in the trucking sector – 5% on average – heighten the cause for concern.

“I’m concerned about the next downturn. There are a lot of pay increases going on, but what happens then when rates go down next time?” Costello said on Tuesday. “Those [increases] are hard to take back and puts a lot of fleets under pressure. We could see fleets go out of business because of that, although I don’t see it happening for a while,” he said, adding that ATA is not forecasting the next downturn until after 2023.

Costello commented on the issue while presenting to the committee the latest ATA survey data on driver turnover. Turnover rates for large for-hire truckload carriers (at least $30 million in annual revenue) fell from 90% in 2020 to 87% in the first quarter of 2021, according to ATA, while the rate for small truckload carriers increased from 69% to 71% in the same period. Driver turnover in the less-than-truckload sector increased from 13% to 18%.

“The majority of the turnover is churn in the industry,” when drivers move between companies in pursuit of better pay and working conditions, he said. “When competition heats up for drivers, carriers aggressively go after each other’s drivers because of the desperate need out there.”

For-hire carrier power unit fleet trends (large fleets are at least $30 million annual revenue). Source: ATA

When times are good, carriers are eager to grow their fleets and attract the best drivers, which means they roll out the best perks and incentives to get the drivers to join their fleet. But ATA’s most recent survey found this largely not to be the case in the current market upturn. In the truckload sector, fleet sizes are down 6% and 4.9% for large and small carriers, respectively, so far in 2021 (see chart, above). LTL fleets are also down slightly year-to-date, by 0.9%.

Costello pointed to three potential reasons, including the inability to add drivers, companies selling parked trucks and leased-on independent contractors shifting to take advantage of soaring rates in the spot market instead of hauling contract freight.

Costello’s warning on the effect of pay increases on company stability echoed similar comments in June 2019, when he noted that the next recession could be particularly difficult on smaller carriers that had opted to boost pay for drivers. He noted that while insurance costs were a factor, wages are the carriers’ largest expense, and pay increases are extremely difficult to walk back.

Costello had predicted at that point that “a large number of trucking companies” would go out of business. By the end of 2019, nearly 800 had declared bankruptcy, according to some estimates, more than doubling the count in 2018.

Related articles:

Driver employment market may be improving amid ‘historic’ pay increases
Driver pay increases may leave spot-market fleets vulnerable (with video)
Commentary: Trucking industry observations heading into 2020

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