The lease-purchase trap is a problem large carriers won’t fix
August 26, 2020
Every once in a while, national media takes looks at our diseased industry, but they usually fail to recognize the symptoms.
Writers and producers like sexy topics like self-driving trucks or how digital and wireless technologies are changing drivers’ lives. They start with a call to the ATA and so miss the big story – the widespread, longstanding labor abuse in the truckload sector. If they do notice outrageous turnover or the implications of mileage-only pay, they don’t understand the personal, sometimes dire impact on hundreds of thousands of real people.
Well, NPR’s “Planet Money” recently peeked under truckload’s tidy dust ruffle and noticed at least one element of ongoing abuse – the lease-purchase trap.
I know, I know. It isn’t “60 Minutes” or The New York Times. But “Planet Money” is a popular radio show about economics heard by influential people, from congressional aides to CEOs who listen in the limo on their way to their private jetport. Recently, “Planet Money” spoke with Kimberley Sikorski, a driver who stepped into – and out of – the lease-purchase swamp with Prime, North America’s biggest refrigerated carrier and the 17th largest for-hire carrier of any kind, according to Transport Topics. On its website, Prime claims to have 8,500 drivers.
Kimberley told a familiar story. Prime trained her, then offered a choice between working as a company driver or as an owner-operator. Prime would finance a pretty, new Freightliner and Kimberley would pay them back along with insurance and other costs deducted from her settlements. Kimberley signed on.
“I had no idea what I was signing,” she said.
She should have. Companies far less reputable than Prime make as much money from lease-purchases as from actual trucking. Still, it ended badly for Kimberley. She couldn’t make money, so she dropped the pretty Freightliner at the Prime yard in Salt Lake City and walked away. Maybe she was incompetent, maybe not. Either way, “Planet Money” told a cautionary tale.
Besides Kimberley, the producers spoke with trucking researcher and author Steve Viscelli at the University of Pennsylvania. Steve, who once drove truckload, has a broad understanding of our industry. “When you look at the big-box supply chain, it’s all about cheap trucking,” he said.
Naturally, a successful carrier delivers the freight reliably, more-or-less. More importantly, it does so for less money than others. Low rates win the business. But low rates for shippers mean high pressure on carrier costs, including the largest one – driver pay and the expense of massive turnover.
Steve told “Planet Money” something else worth thinking about: “I would not try to … vilify the companies that are engaged in this. This is a failure of policy.”
Steve is oh-so right.
The people who trained and supervised Kimberley at Prime weren’t trying to take advantage of her. They had nothing to gain by her failure – quite the opposite. What about upper management? The well-paid folks at Prime’s Springfield, Mo., headquarters are different, yes. They’re not saints, but did they make money on the lease-purchase payments deducted from Kimberley’s pay and the freight she delivered? Maybe.
But they would have made more had she succeeded.
Are they evil people? Big trucking executives I’ve met have been smart and charming. Most care about their employees and contractors. But they are primarily concerned with running carriers, many on thin profit margins (after their compensation packages, of course).
As individuals, trucking executives are not out to abuse the people who work for them. Yes, they are out to squeeze every ounce of productivity from them. That’s their job. Most would like to pay their people better, but competition prevents them from raising rates to pay for it. They probably recognize the absurdity of outrageous driver turnover. How can they not? Doing something about it is another matter.
Big carriers like Prime built large organizations within the structure of the industry as it is. Big changes would mean big challenges. They would have to adapt, solve resulting problems, and possibly end up less successful than they are now. Even if basic changes – getting rid of mileage pay, for example – applied to all carriers across the board, some would adapt better than others. Quite aside from being a pain in the ass, change is risky.
Most big trucking execs fully understand how this appallingly evolved system affects thousands of people. More than a few must know how it should change in the long term. Maybe some even acknowledge that among themselves. But if the status quo satisfies stockholders and shippers, they’re not about to upset it. As CEOs, they can’t take the short-term risks.
Dr. Steve did not say so, nor did “Planet Money,” but beyond any doubt this industry cannot reform itself. The government rules already in place to keep business fair and competitive, rules we already live by, need to change.