Source: Walmart
Will Walmart be able to pay truckers more and keep shipping costs under control?
Facing a shortage of truck drivers nationwide, Walmart last week hiked the annual pay for its truck drivers to nearly $90,000 a year and said it is looking to hire 900 more this year.
Drivers’ pay will increase in February by one cent per mile, along with additional pay for every arrival, bringing the total to an average of $87,500 per year. The median salary for a truck driver on a national, irregular route is over $53,000, according to a study last year by the American Trucking Associations.
Walmart also simplified its orientation process to cut the interview and qualifications process by more than half. Lori Furnell, Walmart’s director of driver talent acquisition, said in a statement, “We’re leaning heavily on the expertise of our Walmart road team and our certified driver trainers to grow our skilled fleet of professional drivers.”
Walmart’s growth is driving increased demand for drivers, but higher transportation costs dragged down its profit margin in the third quarter. Walmart currently employs about 8,000 drivers, including 1,400 hired in 2018, to support one of the largest private fleets in the country.
The moves come as an aging trucking population, low wages and new federal safety regulations restricting hours on the road have contributed to driver shortages and high turnover. Long hours away from home also make long-distance truck driving less appealing in today’s competitive job market. The American Trucking Associations has projected the industry could be short 175,000 drivers by 2026.
Major third-party carriers like J.B. Hunt are likewise increasing driver pay and benefits, consequently increasing freight costs across retail. In general, freight costs started rising in 2017. Beyond driver shortages, increasing demand for a limited number of available trucks, requests by retailers for more frequent deliveries, Amazon.com’s efforts to recruit drivers and bad weather are also behind the increases.
Postage hikes from the U.S. Postal Service that went into effect on Jan. 27 are also expected to weight on shipping costs in 2019.
A new study from Capgemini Research Institute, “Last-Mile Delivery Challenge,” further found that retailers are currently charging customers only 80 percent of the overall cost of online delivery and deliveries are now the most expensive part of the supply chain.
- Reinvented Truck Driver Orientation Helps Add New Hires to Walmart’s Fleet – Walmart
- Walmart hiring hundreds more truck drivers – and it’s paying nearly $90,000 – USA Today
- Truck driver shortage is raising prices, delaying deliveries – USA Today
- New Survey Data Reveals Increases in Driver Compensation – Trucking.org
- ATA’s Costello projects out the driver shortage, and it’s a big number – Freight Waves
- Zappos, Sorel And Other Big Retail Names Are Lobbying Against USPS Price Increases – Footwear News
- Freight Costs Weighing on Earnings at Consumer-Goods Makers – The Wall Street Journal
- Retailers face delivery disconnect – Supermarket News
- Capgemini global study: Retailers must ‘go the extra mile’ to overcome inefficient and unprofitable delivery models – Capgemini Research Institute
- The Last-Mile Delivery Challenge – Capgemini Research Institute
Discussion Questions
DISCUSSION QUESTIONS: Do you see trucker shortages or rising freight costs as a bigger problem for retailers? Do you see a short-term solution for rising freight costs or is it a long-term problem?
Poll
BrainTrust
Neil Saunders
Managing Director, GlobalData
Steve Montgomery
President, b2b Solutions, LLC
Trucker shortages are more problematic for retailers, simply because they have more strategies to address freight costs than a lack of interested drivers. Cost management is always a problem and it won’t go away any time soon, but retailers need to decide where they want to increase margins and where it’s acceptable to reduce them. It may be smarter to identify other areas of the business to cut costs outside the supply chain in order to keep freight moving.
As this is a case of supply and demand, Walmart has little choice but to increase pay rates for truckers. Given that technologies such as autonomous vehicles are quite some way off, this is an issue that will not abate any time soon. It will undoubtedly have an impact on Walmart’s costs, however, I expect Walmart will look to balance the books by making savings and efficiencies elsewhere.
As I have said previously, we are now entering a period of margin compression for retailers. There are quite a few cost pressures on the horizon which are not matched by overall sales growth.
I have an in-law who was a long-haul trucker and who retired because he simply wasn’t making enough money to continue. Walmart is smart to bite the bullet and address this issue in a straightforward way.
The new battleground for the retail and e-commerce giants is the fulfillment zone. The rising freight costs and trucker shortages are critical operating costs that need to be accounted for. Customers appreciate choice, and if they have multiple options to choose from then the slight retail prices would not be an issue.
As Walmart and other retailers provide their own version of the Amazon Prime two-day shipping value proposition, we should the expect the competition to heat up. Key to keeping the loyal Amazon Prime members engaged, entertained and satisfied will be a long term, personalized diversification strategy.
As two-day shipping becomes more common, Amazon has enticed Prime customers through other benefits like same-day and one-day delivery, as well as unrelated perks like Prime Video streaming and discounts at Whole Foods.
“.. pay truckers more and keep shipping costs under control?” The focus of all costs and their impact on maintained margin must and will be primary at Walmart. Anything that increases cost will be a major focus. The brilliance of Walmart is their expertise of sourcing to find best the products that create margins to meet maintained margin goals in times of increasing costs. There will also be more intense pressures on current vendors at line review time! I would also suspect that we will see larger volume trailers (or doubles) soon that will be carrying the Walmart tagline down the highways.
The shortage of truck drivers is not new, but it is getting worse. Our “I want it now” culture has added significantly to the need to move items from point A to point B in far less time than was historically required. That cultural change is not going to go away.
Walmart just raised the need-to-play compensation rate and others will rapidly follow. Will this attract more people to become drivers? That depends on the alternatives they have.
Bottom-line there is currently a direct link between driver shortages and rising freight costs, however solving the current driver shortage issue will not reduce today’s freight cost. The higher cost will simply become the new normal.