Driver expenses and shortages permeated a significant amount of the presentation three executives from JB Hunt Transport Services made Thursday at the J.P. Morgan Aviation, Transportation and Industrials conference in New York.
Asked if the ELD mandate has had an impact on pricing, Shelley Simpson, the company’s chief commercial officer and president of its Highway Services segment, said that rule has had an impact. “But driver markets are the biggest piece of what is happening inside costs,” she said. “The increases that have happened and are planned will continue to come until we find that sweep spot where we have enough drivers.” Until that point, costs will continue to escalate, “because customers do want the freight moved.”
And shippers know what they’re up against, Simpson said. “I do think our shippers understand what is happening on the driver side,” she said. But “it is important that we have a job that is fair in wages, and that we treat them right.”
Those higher costs are playing into a rising bid season market. Simpson said late last year, the first report on the activities of bid season was sent to JB Hunt shippers, and it noted that the data in it was probably already behind. Since then, the company has provided four updates.
External reports indicate that bid season numbers, where shippers and carriers commit for a certain amount of business in 2018, have been “hovering north of 10%” in year-on-year growth, Simpson said. Internally, JB Hunt figures see it as more like 6% to 10%.
Shippers that committed early in the process secured the lowest prices, Simpson said. Since then, prices have continued to move up in an unspecified “second part,” and “maybe in the third part prices could escalate even more.” (JP Morgan transportation analyst Brian Ossenbeck referred to any bid season business getting done after the April 1 enforcement of the ELD mandate to be the second season of bidding).
As far as a solution to the driver squeeze, Simpson rolled out solutions that have been implemented or widely discussed. Signing bonuses that were once used instead of higher starting pay are no longer adequate and base pay is rising. “We’re trying to smooth their pay checks,” she said. At JB Hunt, turnover is better than a year ago through keeping existing drivers. “But at some point, we have to attract new people into the market, and that is what we’re doing with pay,” she said.
Problems on the tracks
Another problem squeezing trucker performance has been the logistical problems of the railroads that connect with JB Hunt and others in their intermodal services. David Mee, executive vice president and CFO, said there was “no single bandit” in the rail problems, which a day earlier had been discussed by executives from Canadian National. “Nor are we saying that anybody is not paying attention at the railroads to the service issue,” Mee said. “They’re working to improve their system. The timing is up to them and we won’t speak about their timing.” He added that the discussions JB Hunt has had with railroads leaves them confident that the railroads’ plans are “realistic, and we will manage around them.”
A significant “headwind” discussed by Mee is the drayage market. Mee said about 85% of JB Hunt’s drayage is done by their own drivers. But the remaining 15% is a problem. Drayage capacity is “very tight, and has been ever since the winter peak of last year,” he said. “Our ability to supplement the pickup and delivery side is becoming more and more challenging. We are doing more cost-benefit analysis every time we go to pick up an empty or delivered load if one of our own fleet drivers is not available.”
Mee said the company is “totally agnostic” whether growth comes from increased volume or increased prices. But since volume is possibly squeezed by things such as drayage, driver and rail squeezes, Mee said for now, growth “probably comes more from price than loads this year. But it’s too early to say.”
JB Hunt would not be looking to go to 100% employee drayage drivers, Mee said. Its strategy is to build out a business with established lane configurations, “create density and then we will place people in assets.” For now on drayage, Mee said, “there just not any bodies out there and the ones who are working have a lot to choose from.”
Simpson spoke about the company’s new 360 platform, which has helped give it a better aggregation and transparency to the data its truckers gather.
Simpson said one of the initiatives 360 has allowed is to build a data base on detention, which can then be distributed to shippers whose practices might be leading to long wait times. “The data we have can be shown to shippers that what is happening on price to shipping locations that are not friendly,” she said. A driver with multiple choices on routes presumably might skip an end destination if he knows that operations at the terminal are disorganized and a lengthy detention is in store, or seek a higher price. “We want to create that transparency for drivers about what they are going into,” she said, noting that JB Hunt is also talking to shippers about the best way to display that data.