U.S. Trucking

If your business is like most, you depend upon the trucking industry to obtain your supplies and to deliver your products reliably at a reasonable cost. Francine Lafontaine and Scott Masten argue that a key concern in freight transportation, particularly trucking, is the logistical problem of assigning a wide variety of drivers and trucks to these hauls. The quality of shipping service depends upon the actions and decisions of drivers, they say, so keeping drivers happy by giving them appropriate compensation is an important step in solving that problem. Lafontaine and Masten have presented their research findings in Contracting in the Absence of Specific Investments and Moral Hazard: Understanding Carrier-Driver Relations in U.S. Trucking.

To gauge the importance of driver compensation in the trucking industry, the authors looked at how driver fees are set and how those fees relate to haul characteristics. They reasoned that drivers who repeatedly are assigned to "driver unfriendly" hauls-that is, hauls that raise costs through time delays and other complications -are likely to be less cooperative, to reject hauls or to quit. This is a serious problem in the trucking industry, which has a labor turnover rate exceeding 60 percent.

In order to get drivers to accept such hauls, trucking firms find ways to tie driver compensation to the attractiveness of hauls. Using a survey of truck drivers conducted by the University of Michigan Trucking Industry Program, the authors examined driver compensation and found that fee arrangements are indeed related to types of hauls. They reported that carriers tend to base driver compensation on mileage in the dry-van segment of the industry, where unattractive haul characteristics vary the least and mileage is a fairly good predictor of drivers’ costs. By contrast, the authors found driver compensation is more often set as a percentage of the shipper’s freight bill for flatbed, refrigerated and tanker hauls, which their data indicate have higher levels of "driver unfriendly" characteristics and costs that are less closely related to mileage.

Read their working paper at http://eres.bus.umich.edu/docs/workpap/wp01-016.pdf or contact Francine Lafontaine at laf@bus.umich.edu.