Am I being detained?

The ATRI recently released its research on detention in trucking. Impacts are clearly widespread yet the hands often go down when considering who covers the invoice. It is one of the few charges submitted by the hour versus a flat fee or by the mile. The analysis, coupled with news about the campaign promise to eliminate taxes on overtime brought me to consider the question seriously.

What if the industry changed to paying more by hour?

For those in larger outfits or more local distribution, pay is often listed by hourly wages plus a list of benefits. Home time and consistent work are highlighted among them.

The BLS shows median and mean (average) wages close together which means the buck shot of pay across the industry is close, high or low, from the $27-28/hour range listed under general trucking in 2023. A good rule of thumb is to multiply said rate by 2 to get the year end number. In this case, around $58K. All occupations under the Transportation and Materials Moving umbrella was at $19/hr (or $40K) while the overall median for all hourly workers was $23/hr (or $49K).

The TL:DR of this equation is that by the government numbers, the general truck driving role had a median pay $9-18K higher per year than all occupations, including its own industry segment. There’s good reason for this higher level considering the skill needed and conditions endured to drive a truck. What makes this number difficult to digest is that the role does not consider a normal 40-hour-workweek. It’s not a normal job. It’s a damn hard one.

Many of these roles post and expect hours into the allowable 60. At face this means increased earning potential. The $58k gross number climbs to $86K if another 20 hours are tacked on each week at the same hourly rate. If those 20 extra hours received time-and-a-half instead, the figure goes up to $101K. A stark difference from the starting point if running like a steam engine all year long as the figure below highlights.

Then, if you consider the open market, dictated by flat numbers and per mileages, the revenue equivalent looks much more alluring. The below takes recently displayed public RPM data and finds a rate-per-hour equivalent for the average 600 mile run. Some I eyeballed. The difference between the hourly figures in this table consider paying on drive time only, or if we include the standard four hours free between pick and drop. In either case, the figure is much higher than the median $28/hr.

Of course $100/hr in revenue is not the same as driver or take home pay, but $28/hr doesn’t seem like enough to go to the driver of that share just looking at it. $2000 a week sounds much more attractive in revenue terms than outlining what’s possible after expenses. And this is what sets a lure atop whatever the G-Face’s of the world promise close to the top.

A recent figure has made rounds that break down operational costs for newer equipment taken from ATRI’s Operational Cost Update. It’s not worth going into how every operation is different from this graphic. That shouldn’t deter from using as a framework to understand changes in compensation/equity over time. I added an adjusted column that assumes more conservative maintenance numbers independent operators may face but reflects an updated fuel surcharge for the $3.60/gal average right now.

Nothing new here really if you’ve already read their June report this year. The JBF team cleverly added an empty miles component that gels with the reality of higher dependence on transactional volume. I took another step to illustrate that it effectively costs $100 or more an hour to operate a truck fully. Essentially flat to the current spot revenue-per-hour averages. If the driver takes $0, it’s still over $60 an hour to run it or $100K a year.

On the flipside, when the market cycle hits the upper limits, someone could feasibly make 50-75% higher take home than an hourly role with a larger outfit. The table below takes the information from the ATRI and makes further assumptions to cost increases for fuel and admin while the market heats up. The cost of deadheading, however, should decrease given more optionality.

The 18 month or longer high between 2020 and 2022 was too hard to ignore. The average hourly wage in 2019 was $21/hr. By early 2021 spot per mile revenues allowed compensation at and above $30/hr -or where they are today.

No one needs a reminder of what transpired in terms of formations during this time, but it looks more evident in Jason Miller’s analysis of average firm size against number of establishments.

Unfortunately, the rollercoaster took a nosedive and has sat in the dumps for over 27 months. Taking the same breakouts as above for the high side of the cycle, I added what the average all-in spot rate looks like today in the low side. The net effect is a pay rate 50% below the median pay for the industry. For the fully independent, this is closer to what’s left over. For the smaller to medium sized business, they have to pay out closer to the national average wage while bringing in half that in revenue back. Effectively losing over $15/hr as the truck runs. Add cost of capital and credit, and the mid size carrier is actually hardest hit.

The point is not to rub salt. It is to educate market mechanics. What’s interesting is that increased fragmentation has escalated pay for the industry more broadly. As digital matchmaking increased in the 2010s, so did the authorities. The 2017 cycle is where things began to take off, only fueled further by the pandemic period. In the years from 2014-2017 the hourly rate for nonsupervisory roles in transportation and warehousing grew 3.9%. From 2017 to 2020 it was 13%, then 22% between 2020 and the first of this year. ATRI has driver wages going from $18.50/hr in 2014 to $21 by 2017, then $23 a year later into the ‘18 boom, and then blasted to $29 by their 2022 results. Real U.S. weekly wages outpaced transportation hourly rates between 2014-2017 but fell behind ever since.

The net effect is an increased price level as well. It is why the current floor has been so resistant to make it back to pre-pandemic levels all-in. Jason Miller once again helps show this in his tracking of revenues and other government sources.

Labor is the largest cost of operation. Increases to it are what pushes the current floor above the pre-pandemic period versus returning to it. Counterintuitively, If we’ve moved down the ladder from above $3/mi spot rates at the height in 2022 to now, a sliver under $2, we should expect current average wages to be as low as they are currently for some. But that hasn’t happened. Instead, looking at this as I put back in a sequence, a midpoint of $2.50/mi between these numbers projects a take home of $29/hr if using our costing framework. Right about where wages have been the last year. Neat right?

If anything, there should be some solace in the idea that it will only take a 25% increase in the average spot rate to create 100% lift on take home pay from the low end territory. Getting to a 50% spot increase moves the needle to a 300% gain from the lows. Thus, fanning excitement of high returns when prices rip. Once upward momentum is sustained, we begin again as take home available in the open market climbs 10-20% beyond the going hourly average. It then has to catch up itself, and so it goes on.

Understanding the allure during these increasingly liquid market movements, it makes good sense to evaluate competitive wages by monitoring these rates. As soon as able, it also makes sense to offer overtime. This allows a variable rate when overloaded with work, compensate timely, without having to make big stair steps in base pay. When work slows the base can rise comfortably for retention but hem the OT.

But how does this work in the open market? I don’t think it does well.

The easy part is creating new calculators that translate and display a RPH (rate-per-hour) versus an RPM (rate-per-mile). Most have to translate these into flat rates or turn the currency anyhow.

Those calculators need a new variable, however, in estimated transit hours. And this is where things start to break. First, all posted loads today use some mileage estimator. They’re never exact to miles traveled. Hours would have to work similarly. A 50 mile run is .9 drive hours at 55mph estimate. A 50 mile run could take two hours in traffic.

This would have to be listed at $385 per drive hour which would confuse and anger some when paid $350. Worse is trying to invoice over $750 in that instance of unforeseen delay. To alleviate this, drive plus dwell time can combine in the equation as I did earlier. 50/55 = .9 + 2 hours pick + 2 hours drop = 4.9 billable hours. This gets us down to $71/hr for the haul. This is more manageable but gets influenced up and down as easily as a flat rate. No one likes rpm when super short anyway, so it wouldn’t all be bad. The Paramus, NJ to Bethpage, NY is for sure moving at a premium over Baltimore, MD to Oxford, PA though.

CA to PA and PA to CA probably fluctuate between $75/hr and $150.

This too is manageable and rather easily incorporated. It also draws us back to the start. Detention.

The receiver is a grocer. $100 and $110/hr seem a stone’s throw a part between options until you know there’s an average 5 hour unload. If that rate is to carry into detention an ugly game plays out to hedge a haul rate with possible hold pay. Let alone max daily rates. A savvy local can offer $50 knowing they’ll end up getting paid $395 for letting their trailer sit near home.

These are not insurmountable if it is the direction desired. The appetite for it in the industry feels absent. Unless there’s separation of terms between haul and hold hourly rates. This would add some friction in the offer process but allow more flexibility for participants to preempt their own terms. It also has better chance to hold if done at the time of negotiation.

Standardization would be optimal, but impractical to enforce everywhere. Still, setting a yearly tariff based on prior year average hourly rate * 1.5 could help the industry benchmark better while keeping up with cost of living. At $29/hr today that would be $44/hr detention standard for 2024. Effectively an overtime charge. Seems reasonable?

Otherwise, any idea of overtime in an open market environment would be a nonstarter. There would be outright discrimination of use if anywhere close to moving a full or partial charge to time and a half with a caught driver near 40. This doesn’t seem optimal for anyone.

What is practical, no matter how opportunity is displayed, is to know the costs and have all parties be as transparent as possible. Ideally, relationships cultivate from here.

Ethically, we need to find as little friction and grief when a driver’s time is wasted to reimburse them. To build process and tools for facilitation and fairness. It won’t solve the industry, but a lot of budgets have been saved, commissions paid, all while the one who sat looks at an empty wallet. It needs more attention.