Some very disconcerting data was offered during the Sylectus sponsored seminar that I attended at the Expediters Expo this year. The data defies the law of supply and demand. The data in a nutshell:
Why are rates not going up, as one would expect in this most basic of economic models? If there were fewer posted loads one would expect rates to drop due to extreme competition. But here, we have the opposite - excess loads with people bidding very low. Why? Who is getting the higher paying loads?
Anytime an aberation appears within economics, the causes can be explained by departures from the norm. Some examples come to mind:
The solution is to revitalize the 3 legged stool, where each leg is assigned functions of relationship, responsibility, and rationality. The objective is to be able to sit on the stool. Now, if you're from a farming background, you already know why a 3 legged stool is always better that a four legged chair. You will always have 3 legs touching the ground at the same time. Yet, all legs don't necessarily need to be exactly the same length in order to sit reasonable comfortable, they just need to work together.
In the transportation industry, the concepts of relationship, responsibility, and rationality need to work together. Relationships with carriers (work load), responsibility to our carriers (executed work) and to ourselves (profitability), and rationality (why am I loosing money just to stay busy, or better yet, why is mega carrier charging their client $6 per mile and thanking you at $1.35 per mile?)
The answer is for everyone to emphasize the profitability of their business. Profit results when revenues exceeds expenses, and wages (to you or your driver) are an expense! If your expenses are reasonable and want more profit, then increase you revenues. How do you increase revenue without impacting your variable expenses? Increase your rates.
Unfortunately, this will never happen across the board. Just remember though, the next time you win a low bid and are unhappy about it immediately - you are not part of the solution. A revival in thought process needs to occur and it needs to start immediately in this year 2 of the current 8 year economic cycle.
- The supply for transportation commodity (posted loads) is increasing at a faster rate the the demand of fullfillment (available transportation equipment).
- Fullfillment rates are dropping.
Why are rates not going up, as one would expect in this most basic of economic models? If there were fewer posted loads one would expect rates to drop due to extreme competition. But here, we have the opposite - excess loads with people bidding very low. Why? Who is getting the higher paying loads?
Anytime an aberation appears within economics, the causes can be explained by departures from the norm. Some examples come to mind:
- Post recession reflex. Those who managed to survive the recession by bidding down rates to the point of making no profit (just wages). Afraid to start bidding up rates.
- I'm not going to let you have it at any cost. The emotional auction. A college professor announced in class one day he was going to auction a $50 bill. The winning bid? $55.
- Follow the herd mentality. The big non-owned equipment carriers are making the profit, leaving the owner operators only the crumbs and slaves to the system.
The solution is to revitalize the 3 legged stool, where each leg is assigned functions of relationship, responsibility, and rationality. The objective is to be able to sit on the stool. Now, if you're from a farming background, you already know why a 3 legged stool is always better that a four legged chair. You will always have 3 legs touching the ground at the same time. Yet, all legs don't necessarily need to be exactly the same length in order to sit reasonable comfortable, they just need to work together.
In the transportation industry, the concepts of relationship, responsibility, and rationality need to work together. Relationships with carriers (work load), responsibility to our carriers (executed work) and to ourselves (profitability), and rationality (why am I loosing money just to stay busy, or better yet, why is mega carrier charging their client $6 per mile and thanking you at $1.35 per mile?)
The answer is for everyone to emphasize the profitability of their business. Profit results when revenues exceeds expenses, and wages (to you or your driver) are an expense! If your expenses are reasonable and want more profit, then increase you revenues. How do you increase revenue without impacting your variable expenses? Increase your rates.
Unfortunately, this will never happen across the board. Just remember though, the next time you win a low bid and are unhappy about it immediately - you are not part of the solution. A revival in thought process needs to occur and it needs to start immediately in this year 2 of the current 8 year economic cycle.
