Posted on 05/02/2021 7:52:43 PM PDT by SeekAndFind
David Parker is the CEO of Covenant Logistics and he was blunt with analysts who follow the company on its earnings call Tuesday.
“How do we get enough drivers?” he said in response to a question from Stephens analyst Jack Atkins. “I don’t know.”
Parker then gave an overview of the situation facing Covenant, and by extension other companies, in trying to recruit drivers. One problem: With rates so high, companies are encountering the fact that a driver doesn’t need to work a full schedule to pull in a decent salary.
“We’re finding out that just to get a driver, let’s say the numbers are $85,000 (per year),” Parker said, according to a transcript of the earnings call supplied by SeekingAlpha. “But a lot of these drivers are happy at $70,000. Now they’re not coming to work for me, unless it’s in the ($80,000s), because they’re happy making $70,000.”
Seasonally adjusted long distance truck drivers. Source: BLS To learn more about FreightWaves SONAR, please go here.
What’s happening, he said, is that drivers are looking at the fact that they can make $70,000 “and stay home a little more.”
The result is a tightening of capacity. Parker said utilization in the first quarter at Covenant was three or four percentage points less than it would have as a result of that development. “It’s an interesting dynamic that none of us have calculated,” he said.
To put the numbers in perspective, Todd Amen, the president of ATBS, which prepares taxes for mostly independent owner-operators, said in a recent interview with the FreightWaves Drilling Deep podcast that the average tax return his company prepared for drivers’ 2020 pay was $67,500. He also said his company prepared numerous 2020 returns with pay in excess of $100,000.
Parker was firm that this was not a situation likely to change soon. “There’s nothing out there that tells me that drivers are going to readily be available over the medium [term in] one to two years,” he said. “And that’s where I’m at.”
Paul Bunn, the company’s COO and senior executive vice president, echoed what other executives have said recently: Additional stimulus benefits are making the situation tighter. He said that while offering some hope that as the benefits roll off, “that might help a bit.”
But what the government giveth the government can sometimes taketh away. Bunn expressed another familiar sentiment in the industry today, that an infrastructure bill adding to demand for workers would create more difficulty to put drivers behind the wheel. Construction, Bunn said, is “a monster competitor of our industry” and if the bill is approved, “that’s going to be a big pull.”
Labor is going to be a “capacity constraint” through the economy, Bunn said, while conceding that trucking is not unique in that. And because of that labor squeeze, capacity in many fields is going to be limited. “The OEMs, the manufacturers are limited capacity,” Bunn said. “They’re not ramping up in a major, major way because of labor, because of commodity pricing, because of the costs.”
All that means is that capacity growth is going to be “reasonable,” Bunn said. “It’s not going to be crazy, people growing fleets [by] significant amounts.”
“It’s all you can do just to hold serve,” he added.
While the driver situation is tough, it didn’t notably hurt the first-quarter performance of Covenant. To open the call, Joey Hogan, Covenant’s co-president, highlighted some of the company’s first-quarter numbers: a 6% growth in operating revenue on a strategic reduction in the number of company tractors and the best first-quarter net income figure in its history.
Beyond the market for drivers, Parker said the freight market is “hot” and likely to stay that way.
“We are at 7%, 8% GDP growth, that goes to 5%, well, probably, or it could stay 7% or 8%,” he said. “But it’s still going to be numbers that you and I have never sensed or felt from a freight standpoint. And so I don’t see that letting up, I see that a solid couple of years of being in that kind of environment.”
Given that, Parker and other Covenant managers used the occasion of the earnings call to drive home with more detail a point the company made in its earnings statement a day earlier: It intends to get higher rates out of some of its Dedicated customers. While the company’s Expedited division saw its operating ratio improve to 91% from 102.3% a year earlier, the Dedicated division saw its OR remain above 100%.
The Dedicated division, Bunn said, has two types of customers. One is a group with high returns, “and we want more of those,” he said. “We’re going to go to the customers [where] we have that and say, ‘Can we have more of your business?’”
The other are customers that Bunn referred to as “commoditized.” Those customers are going to need to “value” the Dedicated service provides “or we’re going to give those trucks to somebody who’s in the first bucket.”
Trucks won’t just get “yanked” out, Bunn said. But “we’re not going to run Dedicated with a 98, 99 or 100 OR,” he added.
But even though Covenant, like other carriers, has leverage in negotiations given the tight market for capacity, it does need to be handled with a certain degree of aplomb, Hogan said. Hogan was talking about the company’s Expedited division when he said that in price negotiations, a company needs to be “respectful” as prices get up to “that line where they say, ‘Well, I’m going to grow my own [transportation].’”
Another possibility: rail. “When does the price push them to the rail?” he asked.
However, the Expedited division is “in a good spot for at least a couple of years,” Hogan said. That’s aided by the fact that inventories are “stupid low” across the supply chain, he added.
I’d love to have been a trucker, if I had been younger. Throw on some podcasts and hit the open road.
Although, methinks this guy is just making excuses to justify the eventuality of AI in trucking.
Just as the tech industry did to justify HR1’s.
I thought about it as a kid, too, as my grandad was one.
I would think getting regular exercise and a good diet would be very important. I don’t know how you’d get that if you spend your days on the road as a long-haul driver.
This is a manifestation of inflation. We don’t see it happening at first in a broad rising of all prices. It happens piecemeal until it really gets ramped up. We are headed for real hyperinflation and the Democrats keep adding gasoline to the fire. Right now the only hope we have of this Republic squeezing out another decade of existence is the Arizona audit. I believed it will be stopped, perhaps by the USSC as it becomes apparent that the totals are so skewed ̃& screwed that the whole election was a fraud.
I just got an email the other day from my state’s DMV encouraging me to be a truck driver. god only knows why they’d think that *I* wanted to drive a truck. maybe they sent it to everyone who has a license.
“I’d love to have been a trucker, if I had been younger.”
If? You were once younger!
I know of one cabbie who trained for the marathon by making a point of jogging when his car was parked in between calls. You have to make that kind of commitment.
The fortunate thing is that exercise technology has improved that, for somebody sufficiently committed, they can buy rubber exercise bands and keep one’s strength up.
You can fit a whole fitness regiment in a small dufflebag these days.
One word. Blacks. oung one’s. get them out of the hood. Drug testing will keep them straight. So will, seeing the rest of the country.
Semi related, The other day I saw a sign at a KFC offering $15/hr. and $500 signing bonus. They are hurting for workers.
Been trying to tell folks that...
I think that I would have loved life as a trucker. I’m basically a loner and I love driving the open road listening to music, podcasts, and books on tape. Trouble is, I don’t think I could ever be a good enough big rig driver. The way those guys and gals pull into and back into those tiny spaces fills me with awe. Besides, trucking is hard on family life.
The link is about Owner/Operators. They pay for their own fuel, tires, lumpers,state road taxes, 10k maintenance, insurance and Bear Fees.
Not much left of that $80k per year.
“is that drivers are looking at the fact that they can make $70,000 “and stay home a little more.”
Ya, instead of once every 5 weeks at home, you’ll get to be home once every 4 and a half weeks.
AND..you just have to take out that load from the west coast and get it to the east coast two days before Christmas eve.
I can find bacon for $1.00/pound anywhere. So there must be a bacon shortage.
“I’d love to have been a trucker, if I had been younger. Throw on some podcasts and hit the open road.”
Well, how old is too old to be a truck driver? It’s not rocket surgery.
I had the class “A” cdl since I drove my logging trucks that I owned for my business. I hauled up to 164,000 pounds gross-Michigan doubles.
When i quit and came to AZ I had to go for my AZ drivers license. They ask if I wanted to keep that CDL and I said in no way in hell. They ran it through the shredder.
I would in no way drive big rig anymore with the clowns out on the road now. Case in point..just watch the video of the crash on I 35 in TX during that Ice storm.
Undocumented Community Organizers. Just Across the Border.
Please apply immediately.
You generally won’t be hired if you’re over 60, which I’m not. However, they won’t hire a 50 year old with no experience.
Secondly, it’s not so much driving that is difficult, but the hours. You might drive for ten hours and then have to wait a couple of hours at the loading dock before you are unloaded, so you have a lot of 2 hour periods of naps and that’s pretty much how you have to sleep through the years.
Not many old people can handle mini-naps as a sleep schedule.
It looks to me like the future for trucking will be:
Driver drives from one terminal to the next. Drops his trailer at that terminal, hooks to another trailer and pulls it back to the original terminal. Driver in that town hooks to the original trailer and takes it to the next terminal.
That way he is home every night. UPS works that way and I think Southeastern does.
I see quite a few container trucks at a truck stop I visit, same trucks every morning at exactly the same time.
Obviously that will not be the case for loads that are destined for cities far away from the ports, but still a relay system would be a way to keep drivers.
Of course riggers, specialty truck services will never be able to operate that way and will be paid big bucks for doing their specialty.
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