Dollars & Sense
The Recession is Real. Now That We Know That, What's Next?
2009 was a pretty bad year for most folks in the Expedite industry; a cursory glance at the EO
forums will tell you this. Carriers went out of business,
Owner/Operators and drivers left the business, miles and rates were
down. All told, it seems like most folks were driving in circles, so
It's a new year, however, and after the traditionally slow months of December and January are behind us (hang in there), economists seem to be indicating that we'll see a definite end to the recession in 2010. This is, of course, a good thing, provided they're correct.
But what does it mean for the Expediting industry?
More Loads, Probably...
When the market crashed in late 2008, a number of trucking carriers (in the larger shipping community, that is) exited the market. This trend continued through the first half of 2009 and even extended to expedited carriers. What this meant for those carriers, Owner/Operators and drivers who managed to stay in the market was that if they managed to position themselves the right way was that they'd eventually be able to haul just as much product as they had in years past. To be sure, most folks had to wait for this volume to pick up. All told, we're probably looking at a situation where those who stayed in the business benefited from a reduction in competition.
In a recent question I posted at the EO forum, davekc writes, "I think the freight levels came back a little, but [there were] a whole lot less trucks available to run that same freight. A lot of o/o's and fleet owners tanked last year leaving some great opportunities for the ones that could capitalize on them."
Building on that, TeamCafee says, "Last year was an interesting year that started out very slow and continued on that way. The one thing you learn out here is when freight is good run like heck and put money away for a rainy day. As the year progressed the loads just kept getting better and so far this year we have been pleased."
So, with freight coming back around, everything's fixed, right? Yeah, not so fast.
What About Rates?
The apparent impending upswing of the shipping economy, as evidenced by 2009's load increases, hasn't been coupled with an increase in rates. This strips whatever comfort there might have been in increases in freight away--especially given that it doesn't seem to have moved much over the past several months. The reasons for this? Your guess is as good as mine (well, your guess is definitely way better than mine).
Speaking of what drivers and owner/operators have to say about rates, it's certainly not optimistic. In answering this question asked by Bruno at theEO forum, aristotle says he expects "A continuation of cheap rates." Eggd1ver adds, "The reason for cheap freight is that someone is willing to run that freight at low rates. We also have to realize that in the last year people and companies were running for their lives in this economy. I think things will stabilize level off some will not like the rates but if we have more work it will all work out if you're willing to do the work."
BigRed32771 isn't quite so certain: "Things are balanced on the razor's edge, and could go either way. The media is quick to proclaim any good news in the economy while staying mum about some of the more serious challenges still lurking about. I fear this gives a false impression that "We've turned the corner" and "Recovery is beginning" when there is good reason to doubt. Few are talking about the very serious possibility of another major [lag] in the real estate and financial markets, this time due to the commercial real estate situation. The resulting credit crunch could really hurt things."
In sum, it looks as though things are difficult to predict when it comes to rates, and that drivers and owner/operators are, and will continue to be, in a sort of "wait and see" mode. While it doesn't look as though there's going to be too much change to this end in the foreseeable future, one would expect this to normalize when the rest of the economy has actually recovered in a way that's a little more stable and predictable. Right now, we're not particularly close to that kind of predictability. Even though things seem like they're starting to turn around, and freight has begun to recover, owner/operators and drivers seem at this point to be at the mercy of carriers, which are clearly uncomfortable with bringing rates back up to levels competitive with the rates of a few years ago.
So, What's Next?
The short answer is "Nobody really knows." The other short answer: "It depends." At this juncture, it seems to me that many eyes are on the standard shipping industry, as that seems to be where a somewhat significant portion of the freight increase has come from. If those companies continue to struggle as they have over the last several months, the chances that the freight increase will continue to persist, or at least stay at the levels they've been. Couple this with a cold, nasty winter, and things don't so terrible. Of course, the problem with this is that things are likely to be, well, unpredictable to say the least. So, strap in tight, guys. Things are going to continue to be interesting.