Con-way Freight plans $60 million LTL driver pay hike

William B. Cassidy
The Journal of Commerce
October 01, 2014
View the original piece
Con-way Freight today said it will boost truck driver pay by $60 million in 2015, restructuring pay rates for more than 14,000 line-haul and pickup-and-delivery drivers nationwide. The second-largest U.S. less-than-truckload carrier said it will raise pay, align rates with geographic markets and reduce the time it takes for drivers to reach the top pay scale.
 
The new pay plan at Con-way Freight comes as trucking companies of all types are pulling out all the stops to recruit truck drivers, including the promise substantial pay increases.
 
“Our LTL company, along with Con-way Truckload, is facing the most pronounced driver shortage we’ve ever seen,” Douglas W. Stotlar, president and CEO of parent company Con-way, said in a statement. Con-way Truckload increased driver compensation last month.
 
“The overall amount and timing of the increase are designed to improve Con-way Freight’s ability to attract and retain professional drivers in the context of a critical industrywide driver shortage,” Con-way Freight said in a U.S. Securities and Exchange Commission filing.
 
Starting Jan. 4, all locations will be aligned to a common schedule in which drivers will reach top scale at three years from their date of hire, the Ann Arbor, Michigan, company said.
 
Con-way Freight estimated the wage increase would cost the company $60 million in 2015. “In recent years, the comparable year-over-year impact of an annual driver wage increase has been about half of this amount,” the company said in its SEC filing. The shortage of experienced truck drivers is one factor behind the increased costs, Con-way said.
 
The LTL pay increase has been in the works for years, the company said, as Con-way Freight implemented “phased changes” to its compensation program to reflect evolving market conditions and ensure the non-union carrier remained competitive in driver pay.
 
The additional $60 million in compensation equates to about a 6 percent pay increase for Con-way Freight drivers, according to SJ Consulting Group.  
 
The new pay structure is the last step in a transition away from multiple legacy pay plans left over from the days before the national LTL carrier was created by the merger of three separate regional carriers, Greg Lehmkuhl, president of Con-way Freight, said in a statement.
 
“Our simplified pay structure enables us to more effectively align driver pay with the market-based cost of labor, and provides increased flexibility to react to market conditions over time so we can ensure our drivers’ compensation remains competitive,” he said.
 
Con-way Freight also is facing an organizing campaign led by the Teamsters union. On Sept. 12, 113 Con-way Freight drivers and dockworkers in Laredo, Texas, voted to join the Teamsters — making Laredo the only unionized facility among Con-way’s 300 terminals. The Teamsters are calling for elections at three Southern California terminals as well.
 
Other LTL carriers won’t necessarily change lanes and raise pay in reaction to Con-way’s announcement. For one, YRC Freight, UPS Freight and ABF Freight are union carriers, with contracts in place covering wage increases. “Old Dominion and Saia are already planning on giving normal annual wage increases and do not seem to have any ‘catch-up’ increases to make,” David G. Ross, a managing director at Stifel, said in a Sept. 30 note to investors.
 
“Truckload carriers should continue to see much more significant driver pay pressure, in our opinion, than the LTL market, as absolute wage levels are significantly lower,” Ross said.
 
Con-way Freight is far from the bottom pay rank in the LTL industry. The company ranks third in terms of hourly pickup and delivery driver pay, following Old Dominion Freight Line and industry pay leader UPS Freight, according to SJ Consulting Group data. 
 
Following Con-way Freight with lower hourly wages are FedEx Freight, the largest U.S. LTL carrier, ABF Freight System, Saia and YRC Freight, SJ Consulting Group said. The gap SJ Consulting shows between UPS Freight and YRC Freight pay is nearly 21 percent.
 
Con-way Freight still expects “margin expansion” — improved profitability — next year, despite higher driver costs. In the second quarter, the LTL division’s operating profit jumped 51.8 percent to $83 million on a 5.4 percent increase in revenue to $940.5 million.
 
“If the LTL tonnage remains as strong as it is presently, we believe any driver wage increases should be covered by higher rates in 2015, including at Con-way Freight,” Ross said.

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