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Going to Market

by Jim Park

Why is that Tom Hanks can command $20 million or more to star in a film with no guarantee that it'll be a success at the box office? He'll get that kind of dough because that's what the market is prepared to pay. For him. Even if the movie is mediocre, they'll still sell tickets to a Hanks film, and they'll make money with his name on the marquee. That's why he can get away with asking for that kind of money.

The law of supply and the law of demand are the cornerstones of any free-market economic model. Economists can show how the balance between supply and demand keeps available quantities and prices in check, creating a balance where the price is fair, demand is reasonable, and supply is adequate. If one of the three goes out of kilter, the difference will be reflected in the other two.

For example, Picasso paintings are expensive because demand is high and supply is low. There is great demand for Picasso's work, and buyers are prepared to pay a small fortune to own one. The market will bear a high price for a Picasso.

On the other hand, laundry soap, arguably more useful than a Picasso, is available anywhere at reasonable prices because there is abundant supply. Should the supply of laundry soap dry up for some reason, the price would rise as demand rose, and if a stash of Picassos was discovered in a vault somewhere in France, they'd sell at a lower price than other Picassos because of the availability of a newly discovered quantity of work.

The price of a product or service is more often determined by demand than it is based on cost inputs. This is especially true when you talk about commodities like a ton of coal, a barrel of oil, or a mile of trucking service. And sadly, trucking has become a commodity rather than a specialty, which has altered the pricing structure irrevocably.

Trucking is bought largely on price today, and because there's a surplus of carriers out there bidding on the freight, the shipper knows that he's in the driver's seat as far as price is concerned. A shipper might put out a call to move 50 loads. He then sits back and waits for the bidding war to begin. For a number of reasons that often have little to do with the actual cost of providing the service, carriers will start driving the prices down as they bid on the work. Lowest price usually wins the lot. The best way to illustrate this point is to watch the load boards on any Friday afternoon.

The load brokers all know that drivers don't want to sit over a weekend, so Friday becomes rate-slashing day. Carriers, and more particularly the independents that book their own freight, will take anything to get out of Dodge on a Friday, even if it just covers the fuel. How many times have you heard that expression? That of course keeps the rates down, or affects the availability of outbound loads during the rest of the week. Why pay a high price to ship on Wednesday, if someone will do it for next to nothing on a Friday?

You can see an illustration of the opposite effect during the early days of a particular produce season, like the strawberry season in California. Before the veggie haulers converge on the area in serious numbers, the first few loads will ship at a premium dollar because it does the grower no good to have the load rot on the dock. If trucks are scarce, the price goes up, but as in our previous illustration, when trucks are plentiful, the price drops. That's simple economics.

So, what does all this have to do with the price of tomatoes? Or perhaps we should say, the price of truck drivers? In simple terms, the price of truck drivers is too low because there are too many of them out there with no way to differentiate the mediocre from the good.

A Driver Shortage?

This phenomenon called the driver shortage makes for some interesting debate. Is there in fact a shortage of warm bums to fill the empty seats, or are there simply more seats out there than the market needs?

If you asked 10 carriers, each with 100 trucks if they were experiencing a shortage of truck drivers, each might say they could use an additional 10 drivers. They may not have 10 trucks parked against the fence, but they might be able to slip those 10 drivers into the system to cover vacationing or absentee drivers. So, if each of the carriers reported a shortage of 10 drivers, we'd have a perceived shortage of 100 drivers, with none of the fleets experiencing a shortage of help so acute that it might cause them to take some dramatic action to alleviate the problem, such as raising pay rates.

In fairness, there clearly are carriers suffering a lack of pilots, some of them acutely. But the market at large is not presently behaving as if the shortage were a desperate matter. We've seen no real upswing in wages, especially not for owner-operators, and many other aspects of the truck driving job have stayed the same or worsened over the past few years (stricter enforcement, more time away, longer waiting periods at shipper's facilities, higher U.S. exchange rates, etc.) suggesting there's no real pressure on the industry to do something to entice drivers to stay in the business, or to attract more drivers into the business.

In other words, the costs associated with being a truck driver have increased, while the value accrued from the job has declined. The need to change the way the industry does business apparently hasn't yet become desperate enough to drive a significant shift away from current custom and practice. Carriers, of course, aren't the only agent of change here, and in many cases are hamstrung by governments and especially by shippers, neither of which seems to understand the situation. Or be willing to understand it?

Regardless, we may well have a self-fulfilling prophecy on our hands. If the job doesn't change, become more attractive, the demand for drivers will increase, which should result in a corresponding increase in cost as supply tightens. In theory.

And here's where current drivers and owner-ops have an opportunity to begin the process of changing all that, without rioting or storming the Bastille, using nothing more than good old supply and demand.

We can best illustrate this point by referring to the story in Roundup about the changing security requirements for American HAZMAT drivers (see U.S. Act to Change Canadian TDG Laws?, Roundup, p.10). If the U.S. does implement the stringent security checks they're suggesting, it will drive a number of drivers out of that sector for a variety of reasons. Other drivers who fit the HAZMAT driver profile might elect not to get involved because of the perceived hassles they'd experience in the course of their duties. That'll create a genuine shortage of HAZMAT drivers.

So how might the industry succeed in bringing more drivers into that fold? They'll likely have to pay them more.

The same will apply here sooner or later, but there's already a mechanism in place whereby drivers might drive up their worth a bit, if they only recognized the value of having a clean driving and criminal record.

The Canada Customs Self-Assessment (CSA) plan requires participating drivers to be screened in order to qualify, and carriers must use qualified drivers before they can avail themselves of all the advantages of participating in the program. So, if carriers see a value in qualifying for CSA, maybe drivers should as well?

To drive this forward, we'll need to start marketing our skills and qualification to carriers who will pay an appropriate premium. To put it bluntly, if you've got what carriers want, and can profit from, shouldn't you be able to profit from your position as well?

Tom Hanks doesn't earn $20 million per film because he deserves it; he earns it because his name sells movie tickets. Any film producer can buy Hanks' time if the money is there, and that association will likely increase the producer's chances for profit. It's a calculated risk that pays off more often than not.

So here we have truck drivers who, in the past decade or so, have had to comply with drug and alcohol testing, high exchange rates, weeks at a time away from home, and now the prospect of having to undergo some kind of criminal background check just to get across the border. The list of qualifications keeps getting longer, yet the pay stays the same. Either there is no driver shortage, or drivers don't understand the value of the qualifications they possess and the experience they bring to the job.

There are hundreds of would-be drivers out there that the industry deems to be unqualified. If you're a qualified driver, then, you're apparently in strong demand right now. This might be a good time to begin profiting from the value of your good name and reputation. We don't mean just asking for more money, but ensuring that prospective employers know who and what you are. We mean marketing yourself.

If you're HAZMAT-qualified and can withstand the scrutiny of a background check, don't mind running the U.S., have a clean driving record and a few years of experience, you're golden. You're a Tom Hanks. Maybe it's time to consider that the next time someone offers you Joe Blow pay for a Tom Hanks role.

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