The Effect of Truckload Driver Turnover on Truckload Freight Pricing
| Author | Stanley E. Griffis,Yemisi Bolumole,Jason W. Miller,William A. Muir |
| DOI | http://doi.org/10.1111/jbl.12252 |
| Published date | 01 December 2020 |
| Date | 01 December 2020 |
The Effect of Truckload Driver Turnover on Truckload Freight
Pricing
Jason W. Miller
1
, William A. Muir
2
, Yemisi Bolumole
1
, and Stanley E. Griffis
1
1
Michigan State University
2
Naval Postgraduate School
High rates of truck driver turnover have long plagued the full truckload (TL) sector. While greater driver turnover raises TL carriers’costs,
no research has examined how changes in industry-wide TL driver turnover rates affect industry-wide prices shippers pay for TL trans-
portation. Drawing on economic theory regarding firms’asymmetric adjustment of prices in response to changing costs, we explain why
increases in driver turnover are expected to increase the prices carriers charge for their services, whereas decreases in driver turnover are
expected to have limited effect on the prices carriers charge for their services. We further explain why the positive impact of increases in indus-
try-wide TL driver turnover rates on prices will be more pronounced when industry employment is rising more rapidly. To test our theory, we
assemble a time series data set combining proprietary driver turnover data with publicly available data regarding TL pricing, trucking employ-
ment, diesel prices, and aggregate industry activity. Results from fitting a set of time series econometric models corroborate our theorized pre-
dictions. We explain the implications of these findings for theory and practice.
Keywords: driver turnover; pricing; truckload motor carrier; transportation
INTRODUCTION
The persistently high rate of driver turnover experienced by for-
hire, irregular route full truckload (TL) motor carriers has been a
long-noted issue for firms operating in this sector (Beilock and
Capelle 1990; Southern et al. 1989; Stephenson and Fox 1996;
Suzuki 2007; Suzuki et al. 2009). Indeed, the industry website
Commercial Carrier Journal published a three-part series regard-
ing how carriers can better retain drivers (Longton 2018), an
issue of utmost importance given robust TL freight demand at
that time (Smith 2018a) coupled with long lead times necessary
for carriers to add drivers and equipment (Miller et al. 2018;
Phillips 2018; Viscelli 2016). The attention garnered by TL dri-
ver turnover is warranted since higher turnover rates increase car-
riers’recruitment and training costs (Min and Lambert 2002),
reduce carrier safety (Corsi and Fanara 1988; Miller et al. 2017;
Shaw et al. 2005), and negatively impact operational perfor-
mance (Saldanha et al. 2014). However, what is less understood
is how changes in industry-level driver turnover rates affect the
industry-level prices shippers pay for TL services. Industry ana-
lysts suggest there is a relationship between these variables, with
Smith (2018b) stating, “Many carriers report trouble recruiting
and retaining drivers, which has contributed to the spike in
freight rates,”[emphasis added]. Thus, examining this issue pro-
vides a means to extend existing theory and inform practice.
In this manuscript, we focus on how changes in industry-wide
TL driver turnover rates affect industry-wide TL prices. Drawing
on economic theory regarding asymmetric price transmission
(APT; Meyer and von Cramon-Taubadel 2004; Peltzman 2000)
—specifically the margin maintenance explanation advanced by
McShane et al. (2016)—we predict industry-wide TL prices will
rise when industry-wide driver turnover rates increase. Since 90
to 95 percent of TL freight moves under contract prices (Caplice
2007; Harding 2017; Zoroya 2018) that are set on a cost-plus
basis (Collins and Quinlan 2010; Kafarski and Caruso 2012),
industry-wide prices will increase when industry-level turnover
rises because carriers must make enough profit to survive. In
contrast, we predict decreases in driver turnover rates will have
minimal effect on TL prices. We expect this for two reasons.
First, due to the TL sector’s slim profit margins (Guntuka et al.
2019), carriers are unlikely to lower prices (and thus reduce mar-
gins) for contract freight unless market conditions (i.e., the bal-
ance of supply and demand) necessitate such reductions
(Strickland 2019d). Second, given constant returns to scale in the
TL sector (Grimm et al. 1989; Muir et al. 2019; Miller and Muir
2020), carriers have little incentive to reduce prices solely to
increase volume, as non-strategic growth can actually raise costs
(Harding 2005; Plummer 2003). We also hypothesize that the
positive effect of increases in drive turnover on TL prices will be
positively moderated by changes in industry-level employment
such that the marginal effect of an increase in turnover on prices
will be greater when employment is rapidly rising. This predic-
tion stems from the fact that costs associated with driver turnover
will be greater when carriers are expanding payrolls because the
costs to recruit replacement drivers are higher (Smith 2018b).
To test our theory, we assemble a unique time series data set
containing quarterly observations on industry-level pricing and
labor market conditions for a 12-year (inclusive) period, from
January 2006 through December 2017. These data are collected
from both private and governmental sources including the
Bureau of Labor Statistics (BLS), American Trucking Associa-
tions (ATA), the Federal Reserve’s FRED database, the Energy
Information Administration, and Cass Freight Systems. We test
our theorized hypotheses by fitting a set of time series regression
models (Enders 2015) with two-piece spline effects (Cudeck and
Corresponding author:
Department of Supply Chain Management, Eli Broad College of
Business, Michigan State University; E-mail: mill2831@msu.edu
Disclaimer: The views presented are those of the authors and do not
necessarily represent the views of the U.S. Department of Defense
or its components.
Journal of Business Logistics, 2020, 41(4): 294–309 doi: 10.1111/jbl.12252
© 2020 Council of Supply Chain Management Professionals
Klebe 2002; Flora 2008). Results from these models corroborate
the theory we advance.
Our study contributes to theory and practice in several ways.
We extend the literature that has examined how carrier-level driver
turnover affects carriers’external relations with shippers (Keller
2002), operational performance (Saldanha et al. 2014), and safety
(Corsi and Fanara 1988; Miller et al. 2017; Shaw et al. 2005) by
examining how changes in industry-level turnover affect industry-
level TL prices. Second, we demonstrate that increases in industry-
wide TL turnover have a greater impact on TL prices when
employment experiences rapid growth, suggesting a boundary con-
dition for this effect (Goldsby et al. 2013). We also contribute to
the APT literature. In particular, the majority of APT studies focus
on how firms in a focal tier of the supply chain (e.g., retailers)
change their prices for a commodity (e.g., the retail price of pork)
when firms in an upstream tier of that supply chain (e.g., whole-
salers) change the price of a commodity (e.g., the wholesale price
of pork) (McShane et al. 2016; Peltzman 2000). Our study, in con-
trast, focuses on how changes in the focal tier’s costs due to
changes in worker turnover—for which precise dollar figures can-
not be calculated (Kingston 2018; Suzuki 2007)—affect their
prices. Also, whereas prior studies have explored factors that affect
the magnitude of APT across industries (Gwin 2009; Peltzman
2000), we examine factors that moderate within-industry APT.
The remainder of this paper is structured in five sections. The
next section details the literature. This is followed by hypothesis
development. The research design is then presented. The results
and robustness tests follow. The final section contains theoretical
contributions, implications for practice, limitations, and directions
for future inquiry.:
LITERATURE REVIEW
We organize our literature review into two subsections regarding
(i) truck driver turnover (Cantor et al. 2011; Shaw et al. 1998)
and (ii) APT (Peltzman 2000). Each subsection summarizes the
literature and describes how our work contributes to these
respective streams.
Truck driver turnover
As noted by Suzuki et al. (2009), truck driver turnover has been
an active area of research in the logistics literature (see their
table 1 on p. 540 for a summary of earlier work). The majority
of studies have sought to identify covariates that predict either
drivers’turnover intentions or actual driver exit (Miller et al.
2017). Relevant factors include pay factors (e.g., average pay
and pay equity at the same carrier) (Min and Lambert 2002;
Suzuki et al. 2009), working conditions (Stephenson and Fox
1996), average haul length (Lemay et al. 1993), dispatcher char-
acteristics (Keller and Ozment 1999), job strain (de Croon et al.
2004), workplace justice perceptions (Cantor et al. 2011), job
satisfaction (Prockl et al. 2017), and psychological capital
(Schulz et al. 2014), among others. Scholars have further noted
that drivers vary regarding the factors that influence their turn-
over decisions (Garver et al. 2008; Williams et al. 2011). Suzuki
(2007) suggests the emphasis on understanding factors that affect
drivers’turnover intentions and/or behaviors arises from an
underlying assumption that turnover creates costs for carriers,
both in the form of increased recruitment and training costs as
well as internal and external failure costs stemming from dis-
rupted operations (Kingston 2018).
However, fewer studies have investigated the consequences of
driver turnover. Keller (2002) examined how driver turnover
affects external relations with shippers and carrier performance
(e.g., on-time delivery, driver productivity) and found high driver
turnover negatively affect these outcomes. Saldanha et al. (2014)
found higher levels of driver turnover negatively affect carriers’
self-reported operational performance. Three studies—Corsi and
Fanara (1988), Shaw et al. (2005), and Miller et al. (2017)—
found higher rates of carrier-level driver turnover negatively
affect safety performance, with Shaw et al. (2005) and Miller
et al. (2017) finding evidence for a negative attenuated relation-
ship, as was theorized by Price (1977). Suzuki (2007) developed
an analytical model for determining a carriers’optimal level of
driver turnover which balances costs stemming from higher turn-
over with costs carriers incur in their attempts to lower turnover
(e.g., providing drivers with more flexible time at home).
Our research extends this literature stream in three ways. First,
we examine how changes in TL driver turnover affect TL prices,
a topic of utmost importance to shippers. Second, we find this
relationship is asymmetric, which extends prior work suggesting
that turnover has nonlinear effects on operational performance
(Saldanha et al. 2014) and safety compliance (Miller et al. 2017).
Third, we offer evidence that change in industry employment
moderates the turnover and price relationship, providing evidence
of an important boundary condition (Goldsby et al. 2013).
Asymmetric price transmission
Much literature exists in economics and marketing regarding
asymmetric price transmission (APT) across different echelons of
the supply chain
1
(see Meyer and von Cramon-Taubadel (2004)
and Frey and Manera (2007) for reviews). The form of APT we
are concerned about refers to the magnitude of price transmis-
sion, which focuses on scenarios where firms pass on a greater
share of cost increases to their buyers than they pass on cost
decreases
2
(Karrenbrock 1991). As an example, this form of
APT exists if a retailer passes on a greater share of a wholesale
price increase to consumers in the form of higher retail prices
than it passes on a wholesale price decrease in the form of lower
retail prices. Scholars have found evidence for APT with regard
to magnitude of price adjustments in both industrial and
1
A separate but related literature deals with spatial APT,
which concerns transmission of prices across geographic bound-
aries (Meyer and von Cramon-Taubadel 2004). As our work con-
cerns vertical APT—focusing on how a change in firms’costs
are passed on to buyers—we do not describe these studies.
2
The second primary form of APT concerns timing of price
transmissions in that firms raise prices soon after their costs
increase but delay lowering prices after their costs decrease
(Meyer and von Cramon-Taubadel 2004). A third, hybrid, form
of APT is a combination of both magnitude and timing as
explained by Karrenbrock (1991, p. 22).
Driver Turnover and Freight Price 295
To continue reading
Request your trial