Everybody remembers too well what trucking companies went through lately, specifically in 2008-2009. How many new enemies would I make by saying I feel strongly that the next wave of the economic slowdown is coming, and soon?
I have no scientific reasoning, just a strong gut feeling, prompted by the appearance of a lot of familiar trends. I’ve heard nothing but optimism from politicians. The housing market in the US is, apparently, ready to explode. Strange. Our company, and several others we deal with, haul mostly building materials, and none of us have noticed a residential housing-related upswing.
Any increases have been government-funded institutional or municipal buildings. Our company survived the recession by studying our own operation, carefully monitoring customer trends, and adjusting our own business accordingly. We didn’t follow the pack mentality of some other companies, and made our own decisions, predictions, and evasive measures. What the market analysts were saying was often completely different than the reality we were witnessing.
At the beginning of the recession, I chose not to replace a departing owner/operator, and sold two trailers. I was initially branded a pessimist. A few months later, I didn’t have as many critics. I really didn’t care either way. I usually consider pessimism to be more realistic than any other attitude. Something told me that what was happening was not going to be over quickly. Appropriate caution won the day. At the time, a lot of carriers combatted the reduction of southbound freight by greatly reducing rates, then increasing rates for northbound freight, sometimes to extremes.
I warned anybody who would listen that this was doomed behaviour. Canadian manufacturers and distributors had not budgeted for huge freight increases. The effects of these behaviours are starting to come home. Since March, northbound freight has quickly slowed down and rates have slipped, because Canadian manufacturers have either slowed down production because of the increased freight costs, or sourced their raw materials domestically. Higher freight may be all it took to equalize costs.
This puts some carriers in the unenviable and unsustainable situation of travelling both directions too cheaply. How long can you survive in that situation, assuming you have even recovered from the initial shock of the recession? If you are still, as many are, just barely hanging on and waiting for the long-promised economic upturn, you’re in deep trouble. There is a lot of old, tired equipment still running, waiting for economic improvement to pay for its replacement. How much longer can you coax your tired iron if rather than improving, circumstances get worse?
Lets add another bug in the ointment. Soon after this magazine hits the stands, the new US hours-of-service rules will become law. It has little or no effect on us 500-mile carriers, but how many older, experienced, dare I say unreplaceable drivers will consider it to be the final legislative straw on the proverbial camel’s back? What happens to your cost of operation if your safe, qualified staff is replaced by lesser-quality drivers, if you can even find anybody at all to hire? The only hope small carriers have to replace staff is if, like five years ago, a rapid decrease in freight volumes sinks a number of large carriers, leaving some unemployed drivers.
Remember the start of the recession, when it became obvious that many large carriers relied on volumes, because of micro-thin profit margins? Volumes disappeared, and so did the less secure large carriers. Unfortunately, with an aging workforce, more drivers seem to take the demise of their employer as an opportunity to change not just jobs, but the line of work they do, or they just retire.
Smaller shippers rarely have carriers under contract, because their requirements and destinations are not consistent.
However, prior to the recession, they would use the same carriers all the time. The higher level of service and product familiarity was worth the added expense. At the beginning of the recession, some shippers utilized huge, multi-national load brokers in an effort to trim freight costs. These working relationships were rarely successful, so after the initial recessionary panic subsided, the brokers were often dumped, and the carriers had their jobs back. I’ve seen this trend toward the use of brokers emerge again lately. It is usually unsuccessful, and is therefore short-lived, but the fact that it is even being attempted again tells me that Canadian manufacturers are still not seeing the proper economic signs to encourage confidence.
So, am I crazy, or psychic? This is the one column I’ve written that would please me more than you can imagine, if a year from now I’m flooded with e-mails reminding me how wrong I was. Right now though, my gut is telling me it’s gonna get ugly.
If you think I may be onto something here, tread lightly. Caution is rarely a bad business strategy. But if you think I’m just paranoid and dead wrong, you better hope you are right.
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