Equipment and driver expenses are moving LTL rates up, says A. Duie Pyle’s O’Kane

With the recent news of rate increases being implemented by large less-than-truckload companies come various reasons behind these increases. At the top of the list for many carriers are equipment expenses and the costs related to hiring and training drivers. LM Group News Editor Jeff Berman recently had the opportunity to chat with A. Duie Pyle President of Steve O’Kane about these factors. A transcript of the conversation is below.

LM: Now that we are seeing some recent rate increases by publicly-traded LTL players, can you shed some light on what is influencing pricing from your company’s perspective?
O’Kane: I think what is going on and entering into our decision-making now is that we are relatively at capacity and at some terminals overcapacity, but we are in a situation where we are buying tractors and trailers and hiring drivers so our cost point has shifted between variable and fixed costs pretty radically as a result. With a couple of those dynamics in buying tractors, for example, where we have 140 tractors on order that cost about 16 percent more than similar tractors did in 2006. For trailer prices, we are finding that with steel prices and tire prices, we are going to pay 25 percent-to-30 percent more but don’t have an exact comparison [to previous prices for trailers] because our spec has changed with some additional value items.

LM: What about the costs related to filling trucks with drivers?
O’Kane: The biggest driver is the cost of labor which is difficult. On a regular basis, we are running our own driver academy in which we train dock and warehouse staff to become professional truck drivers. Each driver that we produce out of that school, almost without exception, is a great employee, but it is cost of north of $20,000 per trained driver that we experience in that process. And at the same time wages have been tightening and drifting in an upward direction. We never reduced driver wages in 2008 or 2009 when many other carriers did. We granted an increase in 2010 and again this month. There is going to be continual pressure on driver wages, because during the deepest of the recession, the labor pool left the LTL sector and our sense is there are a lot of people that don’t care to come back into it so our sense is that wages will continue to play a very big role going forward, with driver wages putting continued pressure on rates going forward.

LM: What are some of the related impacts of that trend?
O’Kane: Some of the truckload guys are kind of curtailing capacity, because they are chasing drivers. We at least have the opportunity of providing preferable employment in many ways for many of their drivers, with things like regularly-scheduled on-home time.

LM: Is another benefit of this on the LTL side the ability to more easily flex up or down your network as demand indicates?
O’Kane: Yes. Drivers are the limiting factor right now. It used to be that we would talk about terminal doors being the limiting factor. Going forward, the limiting factor, when it comes to rates, is going to be the ability to recruit or develop and retain quality drivers.