As Driver Shortage Worsens, Trucking Companies Shift Gears
A growing deficit of drivers is hurting transportation companies nationwide, but what are middle-market shippers and their investors doing to apply the brakes?
As recently as three years ago, PS Logistics, an operator of flat-bed trucks based in Birmingham, Alabama, hired most of its drivers through a conventional application process. Prospective employees would send in their resumes, interview with the company and try to position themselves as the best candidate for the job.
Today, that process has been flipped on its head, says Houston Vaughn, the company’s president and COO. “Now you’ve got call centers selling the company to the driver.”
The phenomenon Vaughn describes is one that has become common for trucking companies across the country as the number of unfilled positions in the transportation industry continues to climb.
In 2018, there was a shortage of more than 60,000 drivers, a 20% increase from the year before, according to the American Trucking Associations, an industry advocacy group known as the ATA. Despite leveling off slightly in 2019, the number of open driver positions is expected to increase to 160,000 by 2028, caused mainly by an aging workforce.
Stuart Smith, president and CEO of Buehler Companies, a transportation company headquartered in Aurora, Colorado, that focuses on moving, logistics and storage, estimates that his company could transport 30% to 40% more volume if only it could find more drivers. “It’s hard to run a business when you can’t hire anyone,” he says.
To thrive in the competitive labor market, middle-market transportation businesses have had to offer greater compensation and flexibility for their drivers. Many companies have offered sign-on bonuses ranging from $1,000 to $15,000. At PS Logistics, bonuses have more than doubled over the last few years, Vaughn says.
According to the Bureau of Labor Statistics, the median salary for drivers of heavy trucks and tractor-trailers is around $43,000, but Vaughn and Smith say starting wages in the industry can be between $50,000 and $70,000. Earlier this year, Wal-Mart announced it would raise salaries for new and existing drivers to nearly $90,000.
Despite the potential for high wages, many young people remain skeptical of the trucking lifestyle. The average age of a driver is 46, according to the ATA, and as older workers retire, younger drivers aren’t filling their places. A career that can require up to 11 hours a day on the road for three weeks at a time can be too demanding for many. “It’s hard to find millennials that want to do this kind of work,” Smith says.
A recent federal policy decision could make an already difficult job even harder, according to those in the industry. A rule from the Department of Transportation that went into effect in late 2017 requires commercial motor vehicles to install electronic logging devices, known as ELDs, and imposes strict rules for how long a driver can be on the road. The rule’s architects say it was designed to create a safer work environment for drivers, reduce accidents and improve reporting. But drivers say the mandated breaks keep them on the road and away from home for longer periods of time. For those paid by the mile, it could mean a lower paycheck.
Revving Up Acquisitions
The trucking industry is highly fragmented. As John Gabbert writes in Midpoints, the average trucking company owns three or fewer vehicles, leading to limited routes and, ultimately, few options for drivers. But steady acquisition activity in recent years has begun to change that.
In the second quarter of 2019, 62 deals with disclosed values above $50 million were announced in the global transportation and logistics sector, according to a report from PwC. Although deal volume was relatively flat from the previous quarter, total transaction value increased by 34%, reaching $25 billion. With $18.6 billion invested, financial buyers represented 73% of total deal value during the quarter.
PS Logistics is among the active buyers in this space. In February 2019, the company acquired its sixth transportation business in three years. Those additions have allowed the company to offer a wider variety of routes to drivers, which gives it an advantage over smaller companies when competing for drivers.
Through M&A, two trucking companies gain access to each other’s clients. Their drivers now may only have to travel between nearby shipping hubs, rather than taking on a cross-country contract—flexibility that many smaller companies lack.
Buehler’s acquisitions have expanded the company’s operations across the Southwest, so drivers don’t have to spend weeks on the road away from home. “We’re within 500 to 700 miles from each branch, and you could make it to each branch in a day or a day and a half,” Smith says.
Drivers First
For private equity firm One Equity Partners, which bought PS Logistics in March 2018, increasing company value and creating a better work environment go hand-in-hand—an attitude that Greg Belinfanti, the firm’s senior managing director, calls a “driver-first mentality.”
“THE BIGGEST WAY TO COMBAT A LABOR SHORTAGE OF ANY KIND IS TO CREATE A WORK ENVIRONMENT THAT ENABLES YOU TO RETAIN THE WORKERS THAT YOU HAVE.”
GREG BELINFANTI
Senior Managing Director, One Equity Partners
In addition to flexible routes, PS Logistics aims to generate cost savings by acquiring smaller flatbed carriers and helping them make their fleets more efficient. The savings can be passed along to drivers in the form of pay increases, he says.
One strategy PS Logistics employs is to reduce the number of hauls where a truck transports an empty trailer, referred to as “deadhead.” Coupled with other streamlining initiatives— like bringing multiple dispatch systems for different companies under one system—PS Logistics increases its fleet efficiency and is able to produce more revenue per truck, and reinvest in technology that benefits its drivers.
PS Logistics has also created a path for drivers to become owner-operators. It adopted what Belinfanti calls its “lease-purchase program,” where PS Logistics purchases trucks and after a few years leases them out to drivers. Ultimately, the company is making it possible for a driver to buy the vehicle so that he or she can become an independent hauler. “We are creating a path for drivers to control their own independent businesses,” he says.
Through these measures, PS Logistics has reduced the driver attrition rate to around 60%, according to Belinfanti. According to the ATA, driver turnover in the first quarter of 2019—the latest figures available— was 83%, which is 10% lower than in the year prior.
“If your turnover is down, that must mean you’re doing something favorable vis-à-vis your workforce,” Belinfanti says. “For PSL, our huge focus is on driver retention. The biggest way to combat a labor shortage of any kind is to create a work environment that enables you to retain the workers that you have.”
This story originally appeared in the November/December print edition of Middle Market Growth magazine. Read the full issue in the archive.
Benjamin Glick is ACG Global’s marketing and communications associate.
