Dollars & Sense
Will You Survive?
As you sit in your truck for days waiting for the next shipment, you have probably wondered about the economy and what factors cause you to be sitting. The reasons you are sitting more often and longer than ever before are too numerous to list; however there is one basic economic rule that will answer your questions. Supply and demand, the age old basis of capitalism, is directly at the heart of the matter.
As I read an article in Transport Topics Online dated 4.27.09, I was amazed at the optimistic spin in article:
Fleet Bankruptcy Pace Slows
Lower fuel prices, along with the assistance of some forgiving financiers, limited the number of first-quarter trucking bankruptcies to 480, slightly more than in the last three months of 2008, but far below the 935 firms that failed in the corresponding period a year ago.
It is my understanding that over 3000 trucking companies failed in 2008, and that the 480 bankruptcies in 2009 account for only approximately 1% of our nation’s fleet. Our glutinous economy has reached its sated peak. We have too many unsold cars, too many articles of clothing, appliances, houses, sports equipment and general merchandise that are sitting on shelves and gathering dust. Unemployment is nearing depression-era highs and fuel prices are about as stable as nitro-glycerin.
It has been said that we either need to cut fleet numbers by another 5% (2400 more trucking companies need to file bankruptcy) or dramatically increase our demands.
I personally am somewhat uncertain how to increase our demands for goods, given the present enormity of the supplies awaiting our interests, and am equally concerned about trimming another 5% of trucks off the road. Remember that figure of 480 bankruptcies this year? Those bankruptcies took 88,000 trucks off the road. The economists are saying that we have another 440,000 trucks too many for the present demand.
So what’s going to happen with our industry? How do the larger TL and LTL companies affect our industry? What are these larger companies doing to combat their losses? And finally, how does all of this impact you, the independent owner operator in the expedited trucking industry?
The expedited trucking industry is in a serious crisis. One of the publicly owned giants of our industry has cut 1400 jobs and announced 5 percent pay cuts for 36,000 salaried, exempt employees nationwide, while reducing their benefits. How does this affect you?
The giants of the transportation industry are now competing against one another with rate reductions, and passing the loss of revenue off to their remaining employees and owner operators. This means less freight for the smaller companies and pressure to compete with the overall reduction in rates being offered by the giants. This in turn reduces the number of opportunities for each expedited truck on the road.
We are seeing 3PL’s allowing multiple loads on trucks. Giants in the industry are bidding these loads for pennies on the mile, sending vans and straight trucks into pickup points and immediately transferring this freight onto tractor trailers for the long haul, sometimes breaking the freight for delivery onto smaller trucks and other times delivering direct. So while you sit in the heat in El Paso or Laredo wondering where and when your next load will appear, remember that your company is competing with these guys who are bidding freight as low as forty cents a mile and consolidating.
It takes more than strength to compete in this marketplace. It takes basic and sound business sense. You need to be keenly aware of your expenses. You need to know exactly how much your truck costs to own and operate. You need to know these things so you do not join the hundreds of truckers who are losing their trucks and livelihood each day.
Take the time to compute your costs. Determine the overall costs of your vehicle. Do this by adding your down payment and the monthly payments you will make until your truck is paid off. Figure your insurance costs on an annual basis. Determine your average mpg’s and figure you cost per mile for fuel. Remember that fuel costs is variable based on the ever changing “present cost”. Don’t forget to factor in maintenance and repair costs, estimated by past history or by a percentage of annual revenue. Finally, quit dropping serious bucks into fast food, video gaming machines and other such frivolities. What is more important, your immediate entertainment and pleasure, or your truck payment?
Once you truly understand your cost per mile you must consider your time and effort and determine what that is worth. Logic then determines exactly what loads are beneficial and which are not. You may have to sit longer than you want, but why would you operate your business at a loss? Believe it or not, many in our industry do exactly that.
The Expedited Industry will survive.
The giants will probably survive.
Will you survive?
This recession will eventually end, and those who weather the storm will then get to be much more selective about the freight they handle, the direction they want to travel, and the time they wish to take off. Until then, drive intelligently and profitably.