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Dump-truck owners say shortsighted competition undermining industry

A dump truck passes connector ramps while removing excavated materials from the Zoo Interchange project on Oct. 18 in Milwaukee. Dump-truck company owners say their business is subject to competitive pressures that go beyond those that are commonly found in the construction industry. (Staff photo by Kevin Harnack)

A dump truck passes connector ramps while removing excavated materials from the Zoo Interchange project on Oct. 18 in Milwaukee. Dump-truck company owners say their business is subject to competitive pressures that go beyond those that are commonly found in the construction industry. (Staff photo by Kevin Harnack)

To hear the head of the United Dump Truck Association of Wisconsin tell it, owners and operators of dump-truck companies have it particularly bad in the construction industry.

For starters, there are the pressures that almost all contractors are subject to. Dump-truck drivers can’t win work without submitting low bids. They have to obey safety rules and regulations.

When they’re working on government contracts — which is almost every road-building job — they have to pay prevailing wages to workers. And because of Wisconsin’s harsh winters, they have to make a years’ worth of income in nine months’ time.

Dump-truck companies’ troubles go beyond that, though. Ron Lingford, president of the United Dump Truck Association of Wisconsin, says one weak point is the industry’s low barrier to entry.

Anyone with an entrepreneurial bent need have little more than a commercial driver’s license and a serviceable truck to set out as the owner-operator of a trucking company. This has meant that long-established firms often find themselves bidding against newcomers who might have little knowledge of what it costs to stay on the right side of the law.

In a business in which low bids almost always win, firms that cut expenses by breaking the rules — either unwittingly or on purpose — invariably gain an advantage over their more-scrupulous rivals. In many parts of the construction industry, it’s unions that help keep everyone honest by policing companies and making sure authorities know when the rules are violated.

The dump-truck industry, though, has proved particularly resistant to organization. Lingford said part of the blame again lies with the low barrier to entry. When workers have spent little time and money on training, they have less incentive than, say, electricians, to protect their investments.

Also, drivers with little to no preparation may simply not know that they are entitled to prevailing wages and certain safety protections. Whistleblowers are thus a rarity.

Even when awareness of the rules is widespread, it’s hard to get drivers to insist on them when they know that cheating is often the surest way to win work.

“Basically, with this business, we can’t do it unless we choose to break the law,” Lingford said. “We are forced to make that choice in the industry. Don’t do it or do it illegally.”

Lingford said the owners of trucking companies bear much of the blame for the sorry state of affairs. Too often, he said, they are willing to accept rates that they know won’t cover the costs of paying prevailing wages to workers and maintaining and insuring trucks and other equipment.

With enough experience, most owner-operators will come to recognize that accepting low rates will eventually drive them out of business. But then another company is almost always waiting in the wings to swoop up work from owner-operators who have decided to raise rates.

For some, these troubles are precisely of the sort that the free market can be expected to right on its own. Dan Zignego, secretary treasurer of Waukesha-based paving firm Zignego Co., said that despite owner-operators’ complaints, he has actually seen truck rental rates climb over the past five years.

He said most owner-operators learn that they cannot charge below a certain amount without falling behind on maintenance and other responsibilities. Those who choose not to raise their rates eventually go out of business, which makes it easier for the ones that remain to insist on higher pay.

Zignego said one troubling development is the likelihood that the state’s next transportation budget will be much smaller than previous ones. Acting at the direction of Gov. Scott Walker, the Wisconsin Department of Transportation has put forward a budget that holds the line on the state’s gas tax and road borrowing at the cost of delays to various long-planned projects.

Without government work creating demand for dump trucks, Zignego said, rental rates will no doubt fall again.

“The supply of trucks is still up there,” Zignego said. “But now your demand is going down.”

Lingford, for his part, disputes the notion that truck rental rates are high enough. He said owner-operators employed on the Zoo Interchange project get $110 for every hour one of their trucks work.

That amount might seem more than enough to cover the $46 an hour in prevailing wages plus fringe benefits that drivers receive. But it begins to look meager once you consider that it also has to cover payroll taxes, insurance, fuel and general upkeep.

George Schroeder, owner of Burlington-based George Schroeder Trucking, said he has calculated that the rate should be closer to $130 an hour.

Lingford said the one thing saving the industry is the currently low price of diesel fuel.

“Otherwise, if those prices were up, these trucks would be gone,” he said.

In part because of the peculiar pressures the dump-truck industry is subject to, government officials had once thought it wise to provide special protections. For decades, the number of companies that could be in the industry had been tightly controlled by federal officials.

That all changed with the Motor Carrier Act of 1980. The law opened the door to independent owner-operators, who came into the industry in droves.

Still, in Wisconsin at least, the competition did not immediately become cutthroat. A restraining influence was exercised by a state law that set the rates that general contractors had to pay owner-operators for truck rentals.

Nobody was getting rich, Lingford said. But the rates were high enough that owner-operators were able to pay prevailing wages and keep up with maintenance expenses while still making a slight profit.

That last backstop eventually went away, too. Free-market advocates in the Wisconsin state Legislature voted in 1995 to get rid of the truck-rental rate.

The state lawmakers who approved the change may have partly got what they wanted. The resulting competition has no doubt resulted in lower prices on some highway projects.

Lingford said the costs have been great, as well. He said scarcely a year goes by now without a slew of dump-truck accidents, many of which might have been prevented with better maintenance. Then there are the companies that get disbarred from bidding on state projects after being found in violation of prevailing-wage laws and other requirements.

For some, the dump-truck industry’s troubles offer a preview of what is in store for the rest of the construction industry if the Republicans who now control the state Legislature persist on their present path of deregulation. Robb Kahl, executive director of the Construction Business Group and a Democrat who recently represented part of Dane County in the state Assembly, likened owner-operators to “canaries in the coal mine.”

Kahl, whose organization polices contractors for violations of labor and safety rules, said Wisconsin’s remaining prevailing-wage laws are one of the few things preventing the rest of the state’s construction industry from suffering the fate of dump-truck companies. Those requirements were dealt a blow in 2015 when Republican lawmakers approved a budget provision eliminating prevailing-wage requirements for most local projects.

That change did not go far enough for some lawmakers, though, and some of the same ones have now set their sights on the remaining prevailing-wage requirements for state-commissioned projects. Kahl said these officials may think they are simply sticking by their free-market principles.

In fact, he said, the unfettered competition they are inviting will ultimately benefit no one: not contractors, not workers and not taxpayers, who will ultimately have to put up with buildings put up by the sorts of less-trained and experienced workers who will be the only ones willing to accept lower pay.

Within the dump-truck industry, opinions about prevailing wages vary greatly. Some think elimination would be beneficial. With the pay requirements gone, owner-operators would no longer have to worry if they are charging high enough rates to cover prevailing wages.

Lingford is skeptical. Eliminating prevailing wages, he said, would only bring about more of the sort of unintended consequences that have followed previous rounds of deregulation.

Without the promise of receiving prevailing wages, the best trained and most experienced drivers would leave the industry. The ones left over would do little to make job sites safer.

Even without a return to a government-set truck-rental rate, Lingford still sees a few opportunities for improvement — including greater cooperation among various players in the industry.

Lingford and like-minded owner-operators took a step in that direction in 2014 when they founded the United Dump Truck Association of Wisconsin. Still, the incentives to go it alone and undercut rivals remain strong in the industry, even if this means accepting rates that will not keep a business running for the long haul. In other words, solidarity remains a distant goal.

Lingford said he should also like to see lawmakers do something about a contracting system that too often makes owner-operators dependent on middlemen who have little interest in keeping rental rates reasonably high. These middlemen — known in the industry as brokers — tend to be enlisted by contractors who need to assemble a large truck fleet for a project but want to avoid the hassle of having to call on owner-operators one by one.

Although brokers are required to have at least one truck of their own, they can end up leasing much of the equipment needed for a particular job from owner-operators. Since these trucks belong to other people, and will be driven by employees from other companies, brokers at times have little reason to make sure that they secure a rate that will cover maintenance costs and prevailing wages.

Their primary incentive, Lingford said, is instead to maximize their profits while keeping their bids low enough to beat their rivals. The easiest way to do this is to reduce the rates paid to owner-operators.

Lingford said he and his colleagues can of course walk away from particularly poor-paying jobs. Too often, though, they take whatever they can get, knowing that the widespread use of the broker system makes it unlikely they would get a better deal elsewhere.

Beyond their ability to quickly assembly a large fleet of trucks, brokers are often brought onto projects to help contractors meet goals related to contracting with minority- and women-owned businesses. Lingford said these disadvantaged-business-enterprise requirements have only helped to entrench the broker system.

Brokers themselves beg to differ. Theresa Tremmel-Anderson, owner of Sussex-based Tremmel-Anderson Trucking, said her company exists primarily because contractors both want to avoid the need to maintain their own vehicle fleets and to deal with individual owner-operators when they need to assembly a large number of trucks.

Her status as a female business owner is merely a bonus. She said she should not be blamed for others’ misdeeds.

“There are always going to people who are going to be cutthroat and who cheat,” she said. “And those are the people who drive the rate to a lower standard.”

About Dan Shaw, dan.shaw@dailyreporter.com

Dan Shaw is the associate editor at The Daily Reporter. He can be reached at dan.shaw@dailyreporter.com or at 414-225-1807.

One comment

  1. Over the last few years trucking industry was in the golden years, with high profits, not so much regulation, steady fuel cost. Because of this positive income, many trucking companies were opened. But unfortunately, the hard conditions and requirements over the past years brought low profit and led many of these companies to close their business.

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