Driver Wage Increases Could Stick Shippers With Rising Bills

Rising wages due to the truck driver crunch won’t be felt by consumers, with businesses and carriers likely shouldering the burden instead, experts say.
“Consumers are so price sensitive and inflation is so low that raising prices will be hard for businesses,” Moody’s economist Ryan Sweet said.

Soy Transportation Coalition executive director Mike Steenhoek agrees. American soybean farmers compete with exports from Argentina and Brazil, meaning customers who see U.S. soybean prices rise buy them from elsewhere.

“Farmers are actually the ones who pay the cost of freight. They do it in the form of getting paid less for what they do,” Steenhoek said.

The driver shortfall could reach 50,000 positions by the end of this year and could grow to more than 174,000 by 2026, according to the American Trucking Associations. To bridge the shortfall, some in the industry are calling for higher pay for truck drivers. One estimate forecasts that a 30 to 40 percent increase is needed to close the gap.

But Sweet said that’s unlikely, given that wages have risen less than the rate of inflation over the last three to four years.

A 30 to 40 percent increase would “put a lot of strain on businesses to try to pass through labor costs. It would be somewhat inflationary, and it would put some upward pressure on consumer prices nationally,” Sweet said.

It would be difficult to pull off in the near terms because consumers and businesses “have become very price sensitive over the last several years,” he said.

Shippers should put their foot down and raise prices to levels that would allow them to better compensate drivers, said Satish Jindel, a shipping consultant.

“In no other sector of our economy do suppliers justify their pricing to their customers. You want an iPhone, pay $799 or go somewhere else,” Jindel said. “They need to raise the rates. If the customer doesn’t want to pay the rate, they will find their freight sits on the dock and it goes bad, and they will pay even more.”

Is a battle likely? Jon Gold, the National Retail Federation’s vice president of supply chain and customs policy, isn’t so sure.

“Typically, the increased costs are absorbed by the retailer, and the consumer won’t notice the impact,” Gold said.

Negotiating with parcel carriers is harder than it was a few years ago, said more than half of the shippers recently surveyed by consultancy Shipware. More than three-fourths said they would renegotiate rates in the next 12 months to keep shipping costs in check, and half said they would audit carrier invoices.

But the rates carriers are charging clients are already surging. The spot rate for a conventional semi-tractor and van delivery reached $1.74 a mile in October, a 22 percent increase from the same month a year earlier, according to DAT Solutions, which tracks rates. Longer-term contract rates also are starting to increase.

DAT van graph

(Source: Dat Solutions)

Motor carriers are starting to give truckers raises, but much of the increase in shipping rates is a result of freight services demand outstripping the number of trucks on the road.

“Transportation represents less than 3.5 percent of the cost of goods that companies are selling,” Jindel said. “It shouldn’t affect anyone’s ability to put food on the table.”

Energy prices have a bigger impact on transport costs because businesses can control wages but not fuel prices. Sweet said.

“The trucking industry will have a harder time passing through higher wages onto their consumers than passing on higher transportation costs,” Sweet said.

Ultimately, the bearer of the burden of any increased driver pay could wind up in an ongoing negotiation between carriers and businesses.

“Retailers will continue to work with their transportation providers to support the industry and try to mitigate any increases in costs,” Gold said. Consumers “should not see an increase in prices since there are so many factors that go into the cost of a good.”

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