Trucking Companies Try New Approach at Congested California Ports
Trucking companies at ports in Southern California are buying trucks and hiring drivers as employees, in an attempt to shake up the short-haul “drayage” market
Trucks wait in line at the Port of Los Angeles in February. Congestion at the nation’s ports is spurring some companies to hire truck drivers as employees. PHOTO: BLOOMBERG NEWS
LOS ANGELES—A handful of companies are betting the days of truck drivers owning their own vehicles is coming to an end.
Operating primarily in Southern California, the firms are buying trucks and employing drivers full time to haul goods the short distance between ports and nearby rail yards and warehouses, a key link in the national supply chain known as drayage trucking.
The new outfits include a startup backed by private equity firm Saybrook Capital LLC and others that converted from independent contractor models, where drivers own or lease their own trucks. While all-employee drayage companies account for less than 5% of the more than 10,000 drivers at Southern California ports, that’s double their share a year ago, according to the International Brotherhood of Teamsters, which is working to organize the employee drivers.
Some trucking experts see the domestic drayage market, estimated by research firm FTR Transportation Intelligence as generating $12 billion in annual revenue, as ripe for a shakeup. Large ports from Long Beach to Newark are growing more congested amid a general trucker shortage, creating an opening for companies that promise to use reliable labor and equipment to operate more efficiently.
TOP LOGISTICS NEWS
- Get the latest logistics and supply chain news and analysis via an email newsletter. Sign up here.
The independent contractor model, where drivers own or lease their trucks, is also under attack. Earlier this year, the California state labor commissioner ruled that drivers for Uber Technologies Inc. are employees, rather than independent contractors as the company claimed. And FedEx recently settled a long-running misclassification lawsuit in federal court for $228 million.
“If the port continues to have labor problems and congestion problems… there will be a permanent and perhaps continuing shift to new models,” said Noel Perry, an economist with FTR.
Retailers and other cargo owners have long preferred to work with companies using independent drivers because they tend to charge lower rates to move their freight, a result of fierce competition and low overhead costs. A company that owns a large fleet of trucks would face higher labor and maintenance expenses, and would need to generate steady business to cover the purchase cost of its vehicles, which can top $150,000 each.
Worsening congestion hasn’t changed the underlying fact that independent contractors are cheaper to hire, critics of the employee model say.
“Nobody out there is willing to pay more for better service,” said Ted Prince, chief operating officer at transportation company Tiger Cool Express LLC.
Saybrook and others backing the new companies believe they can keep prices low by operating more efficiently. In some cases, they plan to charge higher rates in exchange for guaranteed service at highly congested times.
Saybrook Capital launched Eco Flow Transportation LLC this year with 80 drivers and more than 50 leased trucks. The company aims to make a profit by running its trucks day and night with different drivers at the wheel.
The Southern California ports are serving as a “test bed for the transformation of the industry,” said Jonathan Rosenthal, co-managing partner of Saybrook Capital. He said he’d like to employ 1,000 drivers in the next few years.
The new companies have the Teamsters’ backing. In addition to Eco Flow, the union pointed to Toll Group, Sea-Logix LLC, Shippers Transport Express and Green Fleet Systems as companies that employ their drivers.
Critics say the rise of employee-model drayage companies is a product of one-off events, like the congestion that plagued West Coast ports during labor negotiations with dockworkers earlier this year. That drove cargo owners to temporarily seek out trucking companies that could provide more reliable service regardless of the cost.
Others see more-permanent change coming to drayage trucking. In recent years California implemented tougher emissions standards, requiring independent drivers to purchase new, cleaner trucks—an expense many of them could not afford. That has forced some drivers out of the drayage labor force entirely at a time when a nationwide trucker shortage is plaguing the industry.
Meanwhile, many port truckers have won wage claims against their employers before the California Labor Commissioner, arguing that they were misclassified as independent owner-operators. Saybrook said it has paid “millions of dollars in legal fees” to resolve such claims with Total Transportation Services Inc., a trucking company it owns that works with independent contractors.
While the number of full-time drivers remains small, union organizers are hopeful.
“It’s not quite an avalanche, but there are the first markers for this becoming a trend,” said Nick Weiner, the port campaign director for the Teamsters.
