Don’t waste a good recession
This is a tense time for our industry. It seems we’re stuck in a prolonged in-between phase with the recession technically over (the economy is growing again) but with the recovery nowhere near as robust as would have been hoped. Many of the motor carrier executives I spoke to in January and February were telling me they’ve seen little in terms of growth in freight volumes.
March seems to have been better but although there is hope for the coming months there is also a great deal of uncertainty. And, as a result, there is a great deal of anxiety. While everyone I’ve spoken to at recent industry events is very optimistic about 2011, no one seems to have figured out yet what 2010 will bring.
For the many carriers hanging on by their fingernails, just looking to make payroll from week to week, the anxiety is obvious. But even established carriers are feeling anxious these days. Their anxiety may not be about making it through the next week but they have real concerns about how long it will take them to repair the damage to their companies the last couple of years have wreaked. For example, rates in the truckload market over the past 24 months have dropped between 15% and 25%, exclusive of surcharges. (And our own research clearly shows that surcharges, such as detention, have also taken a distinct hit during the recession.) And, to make matters worse, many shippers are trying to stretch out payment terms.
During the best years the industry has seen, trucking companies made about 8 to 10 cents on the dollar. In other words, profit margins were tight at the best of times and carriers clearly didn’t have much to play with. As Mark Seymour, president of Kriska Transportation, candidly told me, in a stable year you get a 5% rate increase in TL. So even healthy five percent increases compounded over the next three years are only going to take the industry back to where it was prior to the recession.
Yet such increases are far from guaranteed. They’re certainly not coming this year. Our research shows the majority of both carriers and shippers expect rates to remain about the same this year as last. As Seymour and many other trucking executives have pointed out repeatedly over the past year, there is a lot of desperation in the market right now amongst carriers for volume, and shippers are taking advantage of that. They are bidding the business every time they think they can take another rate reduction. That’s going to prove a hard habit to break as long as the industry remains in over capacity.
What it all boils down to is a very difficult atmosphere in which to operate a trucking business with a long term vision and continued investment. If there is anything positive in all this it’s that motor carriers have learned some very tough lessons over the past 24 months; lessons I hope they won’t forget when we finally do return to better times.
That truly would be a waste of a good recession.
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