Dollars & Sense
An Industry Analysis
Stuart Sutton is the President and founder of Windsor, Ontario-based GPSNet Technologies, Inc. and has been developing advanced transportation software and process solutions for the expedited and truckload transportation market since 1995. Sutton has a University degree in Computer Science and a Masters of Business Administration in Finance.
Founded in 2001, GPSNet boasts a customer roster of over 370 clients from various trucking carriers (primarily expedited), both large and small across North America. From his vantage point, Sutton is uniquely qualified to serve as an expedited freight industry analyst and he shares his observations here.
Sutton begins, “I don’t believe the economy has bottomed out just yet. This crisis is of a global nature; in the last few days, Russia has suffered a 20% loss, Asian markets are down 10% and so on. When you see foreign governments stepping in like in the UK and Europe to purchase portions of banks to keep them afloat, it’s become serious.”
“The US continues to realize job losses. Indications are that this job-loss statistic is not going to reverse any time soon. The US housing market has yet to hit bottom. Analysts are predicting the bottom is months away. This has had a huge impact on shipment of housing materials (often done by flat bed trucks).”
Sutton remarks that job losses have a direct impact on consumer spending, and demand for durable goods (cars, washing machines, etc.) continues to lag.
“Just the other day here in Windsor, there was an announcement of another plant closing,” says Sutton. “It seems like every couple of weeks there is yet another company closing its doors with more jobs lost.”
“The Ambassador Bridge between Ontario and Detroit (the busiest international border crossing in North America) announced that truck traffic is down 16% year over year.”
He adds, “Companies continue to close their doors as freight dries up and costs escalate. This trend will continue until the supply of available trucks reaches a reasonable equilibrium.”
Sutton tells us, “This economic situation is serious; companies (expedited carriers) have to take a look at their expenses and if they haven’t already done it, pare back their fleet. They have to look at their fleet and determine who are the best drivers and keep them moving. Those drivers who haven’t been taking the loads and pulling their weight have to go.”
“The smart companied also re-examine their customer base and they look for those accounts that are not paying on time or that have a low margin. By the same token however, it’s tough to put back the discounted rates that the carriers have offered their customers because there are so many trucking companies looking for business.”
“The REALLY smart companies align themselves with trusted transportation business partners to help them move their trucks and satisfy their customer’s demands. Rather than saying ”˜Sorry, we don’t have a truck available’ to their customer, they put their best customer’s freight on their partners’ trucks. This keeps their best customer calling them back (repeat business). Also, their transportation partners will reciprocate with loads (keeps their trucks moving). By working together, with a trusted set of transportation business partners, companies can soften the impact of the economic slowdown.”
“Some companies, if they have sufficient funds, will invest in technology (like ours) to automate and improve productivity. Many Transportation Management Systems (TMS) provide a large number of automation opportunities that can help reduce costs and increase revenues/profits. Sadly, some companies may not have the financial resources to take this directive.”
“If there is a silver lining in this picture, it would be the decreasing fuel rates. It’s still not back to where it was, but it’s not as bad as it was several months ago. The carriers might be able to hang on to a little higher fuel surcharge for a time to help cover some of the fuel costs.”
Sutton adds a cautionary note: “The problem with a gloom-and-doom scenario is that it becomes self-fulfilling. People believe that things are bad, so they stop buying and stop spending, then manufacturers stop producing and begin closing plants.”
“That’s when the politicians go on the air and tell us that things are stable and everything is under control. They tell us we should all head to the retail stores and buy our new clothes, computers, or a new car.”
“In our dispatch software system we are able to take a trip count for a subset of our customers over the last two years,” says Sutton. “For example, we took an average count from April to May of 2007 and “normalized” it by dividing every day by a certain number. Through some further calculations we can arrive at an index number that tells us if the business is up or down on a daily basis.”
“We have discovered that by using our formula, recent (October) numbers are down by almost 30% from last year in terms of loads through our system and for some of our key accounts. These accounts include a cross-section of long-established US carriers from Georgia to Wisconsin and into Ohio – areas that normally experience strong expedited freight traffic - especially at this time of year.”
Some Expedited Freight Numbers
On a monthly basis, GPSNet runs a combined load and revenue summary for all companies on its flagship TMS dispatch software called AlliancePro. This “combined” summary gives a picture of the “State of the Expedite Economy”.
Sutton explains, “September 2008 numbers are coming in below expectations but above August 2008. At first glance, the numbers for September 2008 vs. 2007 are moderately weak, which indicates that we are not out of the economic slump yet.
“September 2008 had 21 working days whereas September 2007 had 19 working days. So September 2008 had 10% MORE working days compared to 2007. Yet September 2008 came in only 4% below 2007. So the numbers are really worse than they appear.”
“In August 2007, the auto manufacturers were preparing for a potential strike, so the load counts were higher as they stockpiled inventories. As we all know, the strikes never occurred in September 2007, and the resulting September through November of 2007 was flat as dealers tried to clear out this excess inventory.”
September 2008 vs. August 2008
“When we look at the September 2008 over August 2008 numbers, the total revenue numbers are up 4.8% and the trip count numbers are up 4.6%. Both September and August had 21 working days... so the months are very comparable. However, September is usually one of the better months of the year for expedited carriers.”
“Of the trucking companies in the sample, 40 companies did better while 24 companies did worse (based on revenues). The trip count increased roughly 5% month over month. The average “length of haul” increased (359 miles/load to 368 miles/load).”
“However, in terms of dollars going through the trucking company cash register, total revenue is up 5%. This can be broken down into linehaul (up 5%) accessorial (up 12%) and fuel (down 2%).”
September 2008 vs. September 2007
“When we look at the September 2008 over September 2007 numbers, the total revenue numbers are up about 8% (remember, we only measure same company revenue).”
Says Sutton, “The trip count decreased roughly 4% month over month. The average “length of haul” rose 6% (360 miles/load to 383 miles/load). This is good news.”
"However, in terms of dollars going through the trucking company cash register, total revenue rose 8%. This can be broken down into linehaul (up 4%) accessorial (down 16%) and fuel (up 75%). In terms of the extreme September 2008 over September 2007 growths/losses within our customer base... even though the overall average was up.”
“Of the 50 companies in the sample, 30 companies did better while 20 companies did worse (based on revenues).”
“The highest three September 2008 over September 2007 revenue growth were 92%, 89%, and 58%, respectively."
"The highest three September 2008 over September 2007 revenue LOSSES were -87%, -86%, and -74% respectively. "
First Nine Months 2008 vs. First Nine Months 2007
"When we look at the First Nine Months 2008 over First Nine Months 2007 numbers, the total revenue numbers are up about 10% (remember we only measure same company revenue).
The trip count dropped roughly 7% year over year. The average “length of haul” rose 9% (349 miles/load to 380 miles/load.)"
“However, in terms of dollars going through the Trucking Company cash register, total revenue rose 8%. This can be broken down into linehaul (up 5%) accessorial (down 6%) and fuel (up 81%). What this shows is that the total number of TRIPS has dropped, but the quality of the revenue is better since revenue rose. However, we must realize that over HALF of the revenue increase (year over year) is FUEL SURCHARGE related.”
What does this mean?
Sutton says the good news is that the “length of haul” and “revenue per load” has increased and fuel costs are going down.
He continues, “The bad news is that we continue to feel the effects of the current economic slowdown. Job losses and plant closures result in more trucking capacity on the road and less freight to haul. However, for the most part, many companies in our monthly study, on a whole, continue to outperform their peers in the rest of the trucking industry.”
How can this be? “Well,” says Sutton, “the trucking companies in our program work with each other to move each others’ trucks and cover each others’ freight. They respect each other’s customer base (no back selling) so they can safely broker loads to each other. During these troubling times, they can say “YES” to their customers more often – which keeps their customers calling back. They also keep their drivers moving freight from both their own customers and their partners’ customers. If done properly, it is a win-win scenario for everyone and helps all the participants survive, or even thrive, in a down economy. They act as a community of caring carriers rather than trying to survive like someone stranded in a storm.”
So, when is it going to turn around?
“That’s the big question,” Sutton relates, “and I wish I had a crystal ball. I was hoping that we would start to see things leveling off at this point in time, but it’s actually going the other way and it’s getting worse. We have to get people buying again, but if people don’t have any money, it’s going to be a while before it all turns around.”
“I was in expediting before we founded GPSNet Technologies and the last couple of weeks have been the worst I’ve seen. We’re seeing business volumes at the present time that are comparable to the traditionally slowest time of the year, the first few days in January. We should be rockin’ right now yet our index shows very slow movement.”
“The economy is pulling everyone down and unfortunately, there is very little that a trucking company can do. All of the carriers are looking to diversify and find new business but there is less business to be had.”
Sutton has one solution: “What could possibly save the trucking industry as a whole would be the exit from the industry of some big players. If some major carriers found they had to close their doors, the freight would then be split among the remaining carriers.”
He continues, “One figure that I can cite just off the top of my head: In November 2007, our customers had a total fleet count of 5700 trucks in our program. One year later we still have a fleet count of 5700 trucks despite growing the number of companies in our program. Carriers are not “hiring” and they are not retaining a certain percentage of trucks.”
For the individual expedited owner-operator, Sutton can only offer this advice: “Protect your position.”
“Ensure that the owner and his drivers are doing the job and give the carrier no reason to eliminate them. Again, the trucking companies will look at their fleet and ask what owners and/or drivers are in the bottom ten percent and pare them back and keep the best. I would do whatever is asked of me and keep the company happy to avoid being caught up in a housecleaning.”
“From the driver’s perspective, I would look at the financial stability of the company he’s contracted to. If the carrier has only one or two major accounts, that’s a risky scenario. Diversification is key.”
“At the risk of being accused of plugging GPSNet, I would also suggest that the small fleet operation of, say, two or three trucks would be well-served in signing with a carrier that is using our system. Because of the way in which our customers share their loads and share their fleets, this results in more load opportunities and helps them survive. It’s simply another way of diversification.”