In The News

No silver lining: even the good news is a little lackluster

Everybody’s tired of reading about bad news in trucking, and I’m tired of writing it. Even though I don’t think the hard times are my fault, I have started looking for even the slightest hint of good news to pass along.

And then I see that trucking bankruptcies had slowed somewhat, so I call around for an explanation.

(I say all this up front because even what seems to be good news actually isn’t these days. Doh!)

I called Lana Batts of Transport Capital Partners. A former president of the Truckload Carriers Association, she knows the trucking business.

I asked if the steady fall in fuel prices is the key to few truckers going broke and, somewhat ironically, she explained that the bankruptcy rate has slowed because creditors also have a lot to lose now.

“Given the low price of used  trucks today, if the finance companies pull the plug on trucking companies that can’t pay off their debts, they will have to write off the difference of what they’re worth and what they’re on the books for.”

In other words — or in words many of us are all too familiar with — the lenders are upside-down on their trucks, too.

“That’s why we haven’t seen a lot of bankruptcies.”

Bankruptcies will pick up again, unfortunately. The government tends to expect cash when it’s time to renew plates, which we know. What some of us may not know is that there could be surprises with insurance rates.

“Insurance companies make money off the stock market, not off risk management,” Batts said.

And apparently, insurance companies like to see letters of credit when rates are rising. Guess what: letters of credit are as rare as parking places lately.

Those lenders need to see some accounts receivables, some cash flow, before they’ll spot truckers some operating funds. Remember the old days when the only people who could get loans were the ones who didn’t them? Those fiscally cautious days are back.

And when I say cash flow, I mean positive cash flow — a concept many truckers seem not to fully appreciate.

Believe me, though: shippers have no problem letting carriers go broke, so long as the service is close enough to good enough … right to the very end. And guess what? Shippers can usually get another carrier hungry for loads to back right up to that same loading dock. And some carriers are more than willing to haul for less, Batts explained.

“Even though a carrier may have won the bid package a year ago, even if it was a three-year contract, a large number of them are being renegotiated,” she said. “And they’re not being renegotiated for a higher rate.”

Egad! What crazy carrier would go for such a deal? It certainly isn’t going to the incumbent carrier — that’s the business buzz word for the carrier who already has the job — Batts explained. A lot of times it’s going to go to the trucker who can least afford to haul so cheap.

“It’s the guy who is already behind on his truck payment. So then the incumbent carrier who is current on his payment loses the bid to a guy who’s not current,” she said. “It’s a downward spiral. It’s a race to the bottom.”

(I know what some of you are thinking: Not so fast, Bizz Buzz. It’s the big guys who are driving pricing down. They can afford to run cheap for a while — so either they get the bid or trap some sap into bidding less and then going broke, meaning less competition next time. We’ll talk later on that one.)

But hasn’t it always been this way in trucking? You buy your truck and you take your chances. Let the best carrier win.

What’s different now? There have always been freight cycles and truck capacity adjustments.

“But you didn’t have the credit crisis with it. You didn’t have the dramatic plunge in freight,” Batts said, noting that truckload capacity has plunged also, split between big carriers who have downsized and about the same amount taken out through bankruptcies.

Complicating matters, shippers are going bankrupt as well. A survey Batts took at a recent TCA conference said almost half of the carriers had a major customer who was in bankruptcy — meaning they are protected against creditors. And guess who’s left holding the bag full of fuel bills?

A tip, courtesy of Batts: if a customer files for bankruptcy, carriers need to get “critical vendor status” to have any chance at getting a reasonable piece of what they’re owed. It gets worse: shippers in bankruptcy could well coerce carriers to continue service in order to have a chance to collect for past loads.

The bottom line: historically, carriers’ receivables have been “good as gold,” so even a trucker who was struggling financially had something of value to present to lenders or creditors. But the “massive bankruptcies” among shippers means “people start to wonder about the value of those receivables,” Batts explained.

And even shippers who aren’t going broke are asking for extended terms. Batts noted that Anheuser-Busch InBev is asking for 120 days to pay.

“It’s very audacious,” she said. “But they can do it when there’s excess capacity. I hope you’ve got a nice stash of beer, however, when capacity gets tight. Because nobody’s going to haul and then get paid 120 days later.”

And in the case of GM, which is asking for extra time from all its suppliers, the slow pay trickles down through the system — and the well being of GM is in the best interest of many.

“It’s such a tangled web. Somebody says, ‘let ‘em go bankrupt’ — but don’t they understand what all this means? It’s not quite as simple as people think,” she said.

Batts was cautious about my asking her to help make sense of all this for drivers concerned about the financial health of the companies they haul for. Her concern was that a driver who feared for the life of his company has so few options: carriers are cutting jobs, not hiring.

Still, she offered some basics to keep an eye on:

Carriers that have been squeaking by when times were better are now are falling behind. The problem, however, is that most privately owned companies aren’t going to provide their operating ratio to employees or even other business associates.

“What drivers have to do is do your job. Make sure you’re where you’re supposed to be — because motor carriers, when they’re looking to cut, are always going to cut the least productive people. Are you on time? Are you a high maintenance driver?” she said.

She also noted that the most important measure for a driver is simple enough. “Are you getting your miles?”

As for outside factors to watch, truckers actually have an advantage when it comes to tracking the economy.

“When the economy turns, and it will, tonnage usually is up about six months before you see a pick-up in the gross domestic product. So drivers are going to see a firming up of tonnage long before anyone on the national news is going to see it.”

Another six months later or so, rates will finally start to rise.

And if the economists are right in predicting a year-end turnaround in the economy, truckers will find out by early summer.

Here’s another thing: if the big carriers have gotten rid of equipment and drivers, there will be nice opportunities for owner-operators.

“Motor carriers have no interest in adding owned assets before they absolutely become whole again first,” she said.

All this isn’t exactly the good news I was hoping for, but it’s all I’ve got. Maybe next time.       

Kevin Jones of The Trucker staff can be reached for comment at [email protected] .