Driver Surcharge - Could this be the future?

[Michael Ludwig]

We are all well aware of the driver shortage. It now seems to be taking on a life of its own, and is exponentially getting worse.
What do you suppose industry reaction will be when I, for example, say "My rate to NYC is $2.10 per mile, plus tolls and bridge fees, plus $0.46 per mile FSC, plus $0.25 per mile driver surcharge.", because that's what my driver wants extra to take a load into that area.
I'm beginning to think this might be the only way we get to keep the drivers we have, and possibly attract new ones.

 

[ShawnR]

higher rates across the board will eventually be the result, but actually breaking down a driver surcharge, not sure

 

[loaders]

It goes without saying, that rates in general should be higher than where they are presently. However, shippers are already suffering from "surcharge fatigue", so perhaps concentrating on nudging the base rates higher would be a better approach. Or perhaps our industry should start to mirror the airlines, with their myriad of various surcharges and additional fees.

 

[bubba-one]

we call it danger pay, when booking for NewYork city, I have some drivers who would quite no matter how much you paid them to go to the city, while others who enjoy receiving a pay premium

 

[lowmiler88]

We have used a carrier for about 8 years to the west (99% intermodal), we are very loyal but I always price check to make sure they are in the ball park (not the cheapest or the most expensive) and they always have been. Well they mention price increases and of course I say no (that's my job) but if they had of come in explained themselves and stuck to their guns they would have gotten it as long as it was reasonable. Instead all of a sudden we started getting a slew of new surcharges which is a price increase just by the back door. Well they went from up to 3 trailer loads a night of LTL to about 1/2 of a trailer per night. I guess what I'm saying is if you know your customer and just talk to them if they are a company worth working for it can all be worked out and don't be deterred by the first no it is their job to say no at first and negotiate it from that point.

 

[theman]

As far as the rate is concerned, when all is said and done it's about $3 a mile which isn't actually that far off from where it's been anyway. BUT I don't agree with adding all different surcharges to a base rate. It's better to keep it simple wherever one can. FSC is commonplace in the industry so that's fine, other surcharges are a problem because customers' systems have to understand them.

The only time I've ever encountered a NYC specific surcharge is where I've had customers that ask for a rate to Eastern New York state that specifically add $250 as a 'congestion surcharge' for zips in NYC and Long Island.

In the end the market will prevail, and if $3.00 a mile on a lane is what the market dictates, then so be it.

 

[Michael Ludwig]

I started this thread to provoke thought and dialogue on what I believe to be a forthcoming and serious issue in our industry. One that will not be solved overnight. Although advice is always appreciated, it is not the purpose of this thread.

I only used NYC as an example. You could have replaced NYC with any city or geographical area in the United States. The idea is that I believe driver pay rates are a commodity, and will be as volatile as fuel prices are now, and as insurance was in the past, necessitating the introduction of a driver pay surcharge.
As an added example, suppose your base driver pay is 40 cents a mile. You can get all the drivers you will ever need to travel point to point in Canada, hence no need for additional driver pay. Now, your customer, whether they are a direct customer, 3PL, or load broker, needs you to take loads to the United States. You already have a U.S. rate structure in place, however, your drivers now won't go unless they get paid more to do it. How do you break that bit of bad news to your customer?
It goes without saying that customer dialogue is indeed a necessity. You are going to have to explain this new dynamic in the freight pricing game. The long and short of it is simply supply and demand. There is a huge demand for drivers and an ever shrinking supply, and carriers have zero control over it. The problem is that savvy drivers, and there is getting to be more and more of them, know that they are a hot commodity.

Strictly my opinion, but if you truly do not believe that driver wages based on $35.00/hour or more are coming, and coming soon, then I believe you are doomed to have excessive equipment parked against the fence.

As carriers, we need to get ahead of this curve. We need to make U.S. travel for commercial drivers too attractive to turn away. How many of you get applicants, experienced or not, that only want Canada/Canada runs? When you tell them you have U.S. work, they walk away, and before you can call them back, they already have a job. We are in an era of a nationwide Fort McMurray where commercial transport drivers are concerned.

Shippers, receivers, 3PLs, and load brokers need to understand what the carrier base is facing, and be prepared to help them get what they need to carry on and supply services.

It takes money to buy whiskey boys & girls, and the price of whiskey is going up.

 

[loaders]

Michael, a very insightful post and certainly a topic that will require further discussion as the driver shortage becomes more acute. It almost seems to be a "chicken and the egg" dilemma. By that I mean, what comes first, the increase in drivers wages, or an increase in freight rates? As we have seen discussed on this forum many times, there will always be a provider who will offer lower rates as their only means to obtain business, in spite of the fact that they will not be covering their costs. What this indicates to me, is that service will become the deciding factor, not price. This is where the customer dialogue you refer to becomes critical. It is necessary to not only demonstrate good service, but to explain it as well. Be sure your customers know what differentiates you from the party offering the lower rate for the same service.

 

[ShawnR]

Differentiation in the marketplace is actually the only way to explain raise in cost to a customer, nothing else really matters. so why would someone choose you over a rate cutting carrier? Mostly service, friendly staff, decent equipment, etc as loaders stated, this is the way to bring the rates up. Obviously you can't go from $1000 rate to $1350 in one day, it's going to be a slow rise to better rates, but if you get $25 more across the board, make it so it slowly comes up and no one will say too much.

This is how I think the game will play out. We deal with low cost carriers along with higher cost carriers, it all depends on lanes, service levels, and availability. The most frustrating situation is thinking you paid more and you're using a great carrier and then he bails out or fails to deliver the agreed-to-services. So when you do increase and explain your differentiation in the marketplace, be sure to back it up with solid service!

 

[Nawk]

For years now people have said that the industry needs to take a stand to get the rates up. And EVERYONE needs to do it. The unfortunate thing is... that as an industry and as colleagues or competitors... we're broken. We do not seem to stand together. Laugh if you want at those dump-truckers a few years ago that tried to strike to get their rates up. At least they stood side by side.

Those of you who've been around as long as I have know that we made more (net) money in the 70's and 80's than we do today. Everything has gone up (insurance, fuel, equipment, tolls, wages etc.) except the rates.

Transportation has become like a big snake that's eating it's own tail and that circle is getting smaller and smaller.

Sooner or later... things have to change.

Michael is dead on with what he says. The sad thing is... that if he raises his price today... there are a half a dozen other guys that will take the work for less than his original rates. We're eating our own tails kids...

Rates have to go up. Whether it's an itemized list of what costs what or just a healthy increase... but they have to go up.

 

[Michael Ludwig]

Nawk, we made bigger margins back then because there were fewer trucking companies (trucks) than what the market required ... supply was less than demand, and that worked in the carrier's favor. This time around there are almost enough carriers (trucks), but not nearly enough drivers. It is the drivers that will make the bigger margins this time, and frankly, why shouldn't they? OPG, school teachers, and government employees make over 100K a year, and we all know how "hard" they work.

G Roch ... I get your line of thinking here, I really do, but, I believe that reasoning is already behind the 8-ball. Nothing in the entire supply chain equation makes one iota of difference if you don't have meat-in-the-seat. That low-class, no-account, POS, truck driver that everyone looked down on in disdain for years and years and years, and treated worse than the garbage he hauled, is now king of the friggin' mountain and he knows it. In fairly short order John Q. Public is going to wonder what the heck just happened to his grocery bill that seemed to have doubled overnight.

I have raised rates mid-term, and got what I was asking for by explaining why I needed them, driver pay. My current conundrum is that I'm going to have to ask for a second raise in rates before the initial term is up. Again the reason is driver pay. Hence the question ... "are we going to have to implement a driver surcharge, or more appropriately a driver pay surcharge?".

I do not believe the coming storm will be a matter of "I'm a better company than the other guys.". It will be a matter of "I have drivers, and they don't. Now, do you want your freight moved or not?".

One additional thought ... extrapolate the effects of markedly increased freight rates across the entire economy. The spin off results are mind boggling.

 

[truck05]

So your going to pay your driver according to demand? Sounds like he's a stock market commodity or " meat in the seat" as you stated. Why even call it a surcharge? You can't pay them more one week and less another because demand is up or down. Drivers are human beings treat them accordingly.

 

[Michael Ludwig]

You're absolutely correct ... they are human beings, they are people like you and I, and they should be treated accordingly. Drivers have a marketable skill set that has a value attached to it. Why should they not be able to leverage that value? As a group, drivers are beginning to realize this very notion. You see them every day ask themselves why should they command a $250,000.00 plus vehicle transporting the very fabric that makes the economy run, risk their lives amongst morons that have no business being on the road, be treated like scum by the very people that need them most, and be away from their homes, lives, and families for extended periods of time for what amounts to little more than minimum wage.

I have no intention of paying drivers according to numerical demand. However, I do have every intention of paying drivers what they ask for. The question is, how do I recoup that expense?

 

[lowmiler88]

As much as everyone fears Electronic Logs the best thing that could happen to us if they are mandated ASAP (for everyone) because then the whole system has to to change, driver miles are going to go down but they will expect the same amount of pay so rate per mile will have to go up. Electronic Logs will force us as an industry to raise rates accordingly because I can tell you my driver making $75,000 per year is not going to take a 15% cut in wages and stay in the industry, if my customers do not want a rate increase well go find someone else because we are all on the same playing field and they will have to find another carrier but that carrier is in the same boat as me so good luck getting it done any cheaper.

 

[hauling_ass]

Lowmiler88 - you are being unfair. If you want to level the playing field, make it possible for the little companies to play in the same sandbox as the big companies! We have seen it over and over - the big trucking companies gobble all the work and then either whine that they can't get enough drivers OR sell their loads at a much lower price than what they are being paid. And don't even think about saying that they have 'overhead' so they need to sell the load at a much cheaper price. Cutting between $100 and $150 for an Ontario load is not fair but they know they can do it because they have the work.
Maybe what needs to happen is for big companies to be hit with bigger taxes or be capped at how many trucks they can operate.
As for EOBRs - they are not the best thing to happen - how often do you hear the independents or the small companies advocating for them? Rarely, right? EOBRs are not going to make drivers drive better. Neither are automatic transmissions. Make it harder to get a licence - maybe make it an apprenticeship and make English mandatory.

Just my two cents.

 

[Igor Galanter]

We have used a carrier for about 8 years to the west (99% intermodal), we are very loyal but I always price check to make sure they are in the ball park (not the cheapest or the most expensive) and they always have been. Well they mention price increases and of course I say no (that's my job) but if they had of come in explained themselves and stuck to their guns they would have gotten it as long as it was reasonable. Instead all of a sudden we started getting a slew of new surcharges which is a price increase just by the back door. Well they went from up to 3 trailer loads a night of LTL to about 1/2 of a trailer per night. I guess what I'm saying is if you know your customer and just talk to them if they are a company worth working for it can all be worked out and don't be deterred by the first no it is their job to say no at first and negotiate it from that point.

They are not aware of " 3 times NO " rule...

 

[Jim L]

Back to the driver surcharge...
The FSC came about because the fuel prices were unmanageable and totally unpredictable. Nobody knew where they were going and when. Carriers needed a mechanism to pass on changes to their largest expense for a similar lane over time. I don't think that is the case with drivers. I think offering drivers more money happens infrequently (1-2 times a year) and can be calculated into your pricing models quite effectively - the same way you put equipment costs, interest, bank fees and other overhead. All expense costs go up and rarely down so price your services accordingly and take the time to make the customer understand how your pricing is affected. What would be next - an insurance surcharge, electricity surcharge? I agree with loaders, our customers don't need another tag on cost.

In regards to electronic logs, I don't think that will solve all the issues like Lowmiler88 suggests. We all thought that Qualcomm's were going to 'level the field' but that didn't happen. There will be ways to bypass those systems somehow and carriers will not act as one unit to ensure that waiting time becomes billing time.

I have to somewhat agree with hauling_ass, making it harder for drivers to get a licence may further diminish supply so that rates can come up, but won't that happen if drivers are in short supply? I beleive that it should be harder for companies to setup and for drivers to hop from place to place. We are so overburdened by regulation but need more enforcement in the industry to allow those companies abiding by the law to thrive and those not abiding by the law to perish. A lack of enforcement only hurts the honest-law abiding people.

 

[loaders]

As someone who has been in this industry since the days prior to de-regulation, I find it somewhat ironic that there seems to be a wish (by some at least) to return to the days of government oversight and control of who enters our industry. Those were the days of limited supply, controlled be the Highway Traffic Board, and rates that were dictated by the carriers, not the shippers. If you had a licence to operate in a particular lane, you had a licence to print money and the shippers could only get service from the limited number of carriers who were permitted for that lane. Sounds a bit like a monopoly doesn't it? It was not only shippers who felt constrained by this antiquated system, but also the large number of truck operators who had been carrying on in the shadows, using trip leases and other ways to circumvent the rules. So when the government of the day relented (against the cries of the OTA), the system was thrown wide open. Carriers could now offer their services freely in the marketplace and shippers could deal with whomever they wanted. Sounds like a free enterprise, capitalist heaven. So my learned friends on this forum, what happened? What system should we have, controlled, or open. For those on this site who have a dislike for freight brokers, a return to a regulated industry would make it virtually impossible for brokers to exist as shippers would have little use for them.

 

[snafu]

Michael you are absolutely correct $35/Hr driver pay rates are coming if carriers wish to keep operating.
I know personally I tell most guys looking to change jobs in this industry to go west where they are already paying that and more!
Like it or not, carriers are going to have to compete with the oil patch wages because thanks to the power of social media and forums for drivers similar to this one.. Drivers are much more aware of what their rights are and what others are paying or not paying. Such as overtime for highway mileage paid drivers..
I know many still don't want to acknowledge that and still refuse to pay it despite it being law..

A friend of mine starts company drivers off at $30 per hour, overtime paid daily after 10 hours and overtime pay after 50 hours weekly. Plus pension, plus substinance plus benefits etc.. And these drivers are operating highway units throughout the western provinces and into the east

That folks is the reality many are choosing instead of staying around working for $.42 per mile with the usual free unpaid wait times etc...

 

[Michael Ludwig]

"As for EOBRs - they are not the best thing to happen - how often do you hear the independents or the small companies advocating for them? Rarely, right? EOBRs are not going to make drivers drive better. Neither are automatic transmissions. Make it harder to get a licence - maybe make it an apprenticeship and make English mandatory."
EOBRs were never intended to make drivers better. Publicly, they exist to ensure safety. Privately, they exist to level the playing field.
Automatic transmissions do not exist make drivers better either. They exist to;
1) Make the driver's job easier.
2) Attract a source of drivers that are intimidated by the manual transmission
3) Most importantly, improve fuel economy.
A class A license in Ontario is already an apprenticeship program, and in the U.S. at least, the English language is already mandatory (it's in the regs.).
I for one, agree with lowmiler88 1000% on the EOBR issue, and this is one small company that will advocate them to the end of my days.
Typically, I find it is companies and independents that use the "optimized" or cheated side of the log book that are so vociferous against the EOBR. These are usually the same companies that do not have speed limiters on their trucks either. They use these opportunities to make up for inefficiencies in the shipper's supply chain and firmly believe this what keeps their customer loyal to them. These are the shippers that purchase their transportation requirements based on the lowest possible rate.
Shippers and supply chain managers that do not have a committed stable of carriers in place when the EOBR mandate hits will find it more and more difficult, on a daily basis, to find carriers willing to work for them.
It is commonly accepted that the EOBR will reduce production by 15%. It is also widely held that there are way more loads in the market place than there are truck to move them. OEMs have stated they will not ramp up power unit production to the max just because they can. It is widely documented there are not enough drivers to fill the seats we have.
Add it all up. It's the perfect storm this industry has been waiting decades for.
Use the railroads as an example. You don't see them putting down new track do you? Nor do you see them buying additional rail cars. If they do these things they are expanding capacity. Expanded capacity means they are competing against themselves and would have to drop rates to keep the new capacity full. Lower rates means less profit.
Anyways, I digress ... back to the original topic ...
The idea of the Driver Pay Surcharge is simply this;
My customer knows my base rate is $2.10 a mile (fictitious number), plus fuel surcharge. That rate includes my driver's wage. When I tell my customer that rate is good for Michigan, but I need more for New Jersey, he's going to ask me why. Now, I can include it in a new rate specific to New Jersey, but that causes problems for my A/R department. It is much easier (a.k.a. less costly) for them to add the additional to the invoice as an accessorial charge.