Driver Pay Must Rise, says Hebe

Portland, Oregon — Trucking is an “under-rated industry,” says Freightliner Corp. president and CEO Jim Hebe, meaning carriers can’t get paid what they’re worth – and thus can’t pay drivers what they deserve. That’s the stark reality, he says, and it’s casting an ominous cloud over the industry’s future.

Despite that, he still predicts growth for North American trucking over the next several years – 4.3% through 2008, after a dip in the next two years – assuming the continental economy stays strong.

That growth could be higher still, he implied, if the driver pay issue could be solved. The solution, however, is not just two or three cents a mile but a lot more.

“That won’t make any difference. You’d better start thinking about doubling drivers’ pay if you’re going to improve this industry’s long-term viability,” Hebe told journalists during what has become his annual ‘state-of-the-union’ address at company headquarters in Portland, Or. last week.

Three other key issues, he says, threaten trucking’s immediate and long-term future as well: fuel prices, interest rates, and truck resale/residual values.

The cost of fuel began rising in mid-1999 but carriers “ate” the first 20% of that hike before they could pass it on to shippers, he says, and even then many of them couldn’t make it stick. And though the increase in interest rates has been relatively slight, Hebe figures it’s been enough that “a substantial number of carriers are in trouble today.”

The sliding value of used trucks – but also the slim spread between that and the price of new trucks — is in fact an “industry crisis,” according to Hebe. It could change the face of trucking if manufacturers don’t “take charge of their own used trucks,” he said, to protect their value. Among the implications: truckload carriers could lose their ability to trade every three or four years. And some carriers, he suggests, could in fact end up in bankruptcy.

“Let me tell you,” Hebe told journalists, “fuel prices and driver pay are nothing compared to this issue.”

One of the key reasons for the glut of used trucks, and their low value, is the ease with which drivers have been able to become owner-operators over the last decade or so. Manufacturers, dealers, and fleets themselves are to blame, Hebe says, for offering no-money-down deals and other incentives to people who were “marginal” in terms of their ability to run a business.

“We have put far too many people in new trucks who should have been in used,” he says. “The marginal buyer getting a new truck on no money down has got to stop.”

There’s nothing wrong, he adds – though perhaps in perfect hindsight – with the business model that has an owner-operator buying two used trucks before building up sufficient equity to finance a new one comfortably.

Overall, as a result of this and all the other challenges of trucking today, Hebe is forecasting a drop in truck sales in the short term – including “a fairly substantial adjustment in 2000.”

For Canada, that means class-8 retail sales of 28,500 this year, down from 30,973 in 1999 and 29,152 in 1998. Interestingly, he says demand existed in Canada for 35,000 sales last year but manufacturers didn’t have the capacity to deliver that many trucks. For 2001, he’s forecasting 27,000 class-8 sales, rising again to 28,000 in 2002.

The “adjustment” will be somewhat sharper in the U.S., Hebe figures, dropping from 262,316 in 1999 to 216,000 this year, 208,000 next year, and then up to 225,000 in 2002. – R.L.