The new trucking freight futures market could help companies better manage their budgets - and secure better pay for truck drivers
- America's 1.8 million truck drivers have seen their pay drop by as much as 50% since the 1980s.
- A new freight futures market may actually help trucker salaries catch back up to its previous standards, surprisingly.
- That's because the futures market can help trucking companies understand when their businesses will grow and contract in the years ahead and will be able to make investments into their employees accordingly.
A futures market is opening for the $726 billion trucking industry.That might not sound like it would benefit anyone outside of the industry's corporate leadership, but Craig Fuller, CEO of FreightWaves, recently told Business Insider that's not the case.
The freight futures market, which is opening on March 29, will help retailers, manufacturers, and trucking companies lock in service rates for the coming years. That would eventually benefit America's 1.8 million long-haul truck drivers.
Trucking is a notoriously cyclical industry, and the cycles change so much that even massive companies like Amazon can be shocked by sudden jumps in costs. Freight rates last year jumped so much that major corporations had to jack up the prices of their goods. According to FreightWaves, 40% of Fortune 500 companies reported in late 2017 and in 2018 that transportation costs were harming their bottom lines.
Fuller said that wild fluctuation has prevented companies from raising truck driver salaries.
"Once you raise salaries for drivers, you can't pull them back," Fuller said. "If the market rates don't hold up and you've gone out and raised your drivers' salaries by 15% and rates don't hold out, chances are you'll end up losing a lot of money on that. You've got a significant issue you can't really address."But when those trucking companies know how much contract and spot markets rates will total, it allows them to understand how much they can invest in, say, new equipment or raising truck driver salaries.
Removing trucking's cyclical nature would boost trucker salaries
Trucking has been an enormously volatile and even "destructively competitive" industry since it was deregulated by The Motor Carrier Act of 1980. In the decades following the passage of that law, trucking salaries have fallen by as much as 50% in some markets.
In 1977, the mean earnings of a unionized truck driver stood at $96,552 in 2018 dollars. At least 80% of drivers were unionized at this time. Truck drivers now annually earn a median of $42,480.
"To be able to be a truck driver used to be quite a good blue-collar, middle-class job, but over the past 40 years, it has kind of dwindled away," Gordon Klemp, principal of the National Transportation Institute, previously told Business Insider.
One reason these salaries have failed to budge is that trucking is so unpredictable that companies can't be sure that a bump in salaries wouldn't put them out of business down the line, Fuller said.
He explained:Trucking companies in a shortage are always afraid to take driver salaries up too fast, out of fear that the economy, being very cyclical, will end up turning down at some point. So, that's one of the reasons that driver salaries have just not kept up with broader inflation. It's very difficult for companies to make these long term sort of investments. We think by having a futures contract they can derisk it.