A slowing economy and deteriorating freight conditions are already “baked in the cake,” according to Mullen Group senior executive officer Murray Mullen. But it’s small operators who’ll face the greatest challenges as deteriorating conditions are met with rising costs.

Speaking at the Truckload Carriers Association’s Bridging Border Barriers event in Mississauga, Ont., Mullen said rising interest rates are the biggest concern – especially for owner-operators.

“We are in uncharted waters,” he said. “Most people in this room would not know or be accustomed to higher interest rates. We’ve had two decades of low interest rates that fueled growth. Now, money costs something. I don’t know how that’s going to play out. High interest rates are really going to hurt some people.”

Michel Robert, president and CEO of Groupe Robert, said his company is already seeing softening freight demand coupled with the rising costs of new equipment, fuel, insurance and interest rates. “I’m nervous we are going to lose good owner-operators in the coming year. Financing is going to be a killer.”

Mullen added: “I think what most will do is not go buy a new truck. Particularly the old-timers will call it a day. Maybe the hardworking independent operators may migrate back towards bigger carriers.”

Focusing on strengths

Fleets are coming off some of the best years in their histories. Freight demand has been booming and capacity has been tight as supply chain constraints and labor shortages have kept fleets from adding equipment and drivers. As conditions worsen, Robert said his company will focus on its strengths and be selective of the lanes and customers it serves, as it was during the recent boom.

“We stopped being an irregular carrier and went to regular routes and we’ll stick with that,” he said. “It has been serving us well.”

Mullen said rising fuel costs and soaring fuel surcharges boosted trucking revenues, but load counts were fairly steady. “The load count was not up but revenue stayed up because of the fuel surcharge and pricing increases,” he said. “The economy is stuck and everybody knows it, so it’s tough to increase load count.”

The same was true at Robert, where mileage actually decreased while revenue continued to be impressive. Industry-wide margin improvements were a product of inflation-driven rate increases and not productivity improvements, Mullen noted.

“We were so busy we actually lost some productivity,” he admitted.

Employee turnover

The slowdown, however, will bring some welcomed steadiness to the labor situation, both agreed. Robert said its warehousing division was seeing employee turnover of nearly 50%.

“How can you build your business on 50% turnover?” he asked. “It’s a wage war and brutal out there.”

Mullen said the labor shortage helped drive up trucking rates. “If there were no vacancies and we could get drivers, we wouldn’t be able to raise prices,” he reasoned. “Be careful what we wish for.”

He said Mullen Group is currently fully staffed. Both companies increased compensation during the last couple years. The key to keeping drivers, however, is to be an employer of choice, Mullen said.

“You’ve got to be a great employer or else you’re not going to get great people,” he said. “You’ve got to be good to your people. Pay is part of that and we all had to adjust.”

Mullen is focused now on making the job more attractive by reducing longhaul work in favor of shorthaul driving positions. “We changed the business model to do more regional, a little more warehousing, local delivery. Not as much longhaul.”

Trucks are being spec’d for increased comfort, too. Mullen said there’s no “secret sauce” when it comes to attracting and keeping talent. “You don’t have to go to Harvard to figure it out,” he said. “It’s how you treat people.”

Fuel prices and clean energy

When it comes to fuel prices, however, Mullen doesn’t expect to see any relief.

“Crude oil and diesel prices are going to stay higher for longer,” he warned, noting new refineries aren’t being built and crude supplies are being tightly controlled. In the case of Russia, the supplies are restricted.

“There have been no new refineries built in a decade and nobody is going to build a refinery today,” he said. “We’re going to have to be prepared for diesel prices to stay stubbornly high.”

The transition to cleaner energy sources is underway and unstoppable, Mullen said, but it’s not practical for fleets to switch to zero-emissions vehicles before fueling infrastructure is built.

At Robert, electric shunt trucks are being deployed as well as electric vehicles for specific customers who are serious about slashing their emissions and willing to invest to do so. But he said it’s not possible for the company to install even 10 or 15 chargers at its facilities, because the grid won’t support them.

Robert was an early adopter of liquefied natural gas (LNG) engines when a 15-liter option was available from Westport. But that offering has been discontinued and now those trucks “are near the cemetery.”

For publicly traded Mullen Group, shareholders are also demanding it reduce its environmental impact. It’s deploying electric shunt trucks and smaller delivery vehicles where possible.

“I think that trend is irreversible and it’s going to happen, but I don’t think it’s going to happen quickly,” he said of the transition to zero-emissions vehicles. “You still have to have a subsidy to justify it and that’s not sustainable.”

Supply chain challenges

In the meantime, the fleets would be happy getting the diesel trucks they need today. Both have had to extend trade cycles due to OEM production limitations.

“Like everybody else, we struggled a lot the last year, year-and-a-half, with downtime and the cost of getting parts,” said Robert. “We had trucks sitting idle for weeks in the yards because we were not getting parts. That’s something we’ve never experienced in the past.”

Mullen added that, as truck availability improves, truck prices are rising. So are borrowing costs due to higher interest rates. “The prices of units have definitely gone up much faster than our rates,” he added.

While the headwinds have increased and the industry cycle has peaked, Mullen was unfazed. “It’s going to be a tough market but we’ll suck it up,” he vowed.