As I write this, it is the 40th anniversary of the day man first landed on the moon. For those of us who were alive at the time, crowded around the old black and white TV set, it was hard to believe o...
As I write this, it is the 40th anniversary of the day man first landed on the moon. For those of us who were alive at the time, crowded around the old black and white TV set, it was hard to believe our eyes that it was actually happening. This was an amazing feat and ushered in the dawn of a new era. Growing up in the ’60s, most of us recall watching and listening to Walter Cronkite as he described the risks of what they called “moon shots,” especially if the spacecraft overshot the moon. I’m not a rocket scientist, but you didn’t need to be one to know that overshooting the moon was a real bad thing and that mission control had to get it right or they’d have a disaster on their hands. There were a few tragedies and close shaves along the way, but we all know that things ultimately worked out.
What does any of this have to do with trucking? Well, in terms of our industry and current rates, most would say we’ve overshot the moon by a mile (or whatever the space equivalent of a heck of a long way is).We can blame shippers for being greedy and taking advantage of the desperation that some carriers are feeling. We can blame them for using load brokers who have no accountability to the actual cost of hauling a load.
We can also blame ourselves. The kinds of rates that carriers seem willing to haul freight for begs the question: What planet are we from? Who can realistically afford to give up 15%, 25%, 35% or more in revenue and expect to break even?
But, that is what is happening. No sector or region is immune. If you really stop and think about it, how could anyone reduce their price that much and survive?
The margins in trucking can’t support those sorts of rate decreases. Surely, it is insane to think that after 20 years of economic deregulation carriers can cut their costs by the same order of magnitude in order to preserve margin.
But, that’s not all. The rules of the game have changed. Shippers are setting new terms of payment (often 45 days plus); new mileage platforms (short miles vs hub miles); and new fuel surcharge formulae. Income from accessorial charges like waiting time or border clearance has dried up; rates are being set for extended periods (a year or more).
Shippers are tendering freight as often as they want. Sure, shippers’ businesses are also under pressure; many significantly so. Carriers know that. Still, some will say that shipper greed is as responsible for the current situation as carrier desperation.
They argue that the tender process is designed to hammer the rates of incumbent carriers -who have proven they can provide the service -down beyond reason by comparing them to at what are best suggested (if not illusory) rates quoted by unproven carriers who may or may not be willing and able to provide the service.
They feel they are being backed into a corner.
But, the fact is that right now, there is little point in blaming anyone. Shippers are making these demands and getting the rates they are, because they can. It is the way things are.
Clearly, the decline in volume that has occurred so far during this recession is still outpacing the speed at which carriers are shedding capacity. Many carriers will say that business is off 20% to 30%. Bankruptcies in the trucking industry have hit new records in each of the past two years.
While trucking job losses have in some recent months been the worst of any industry, employment is still less than 4% below where it was a year ago, which is mild compared to some other industries.
But, the industry has always been lean on employment. Moreover, this number does not include, for example, the many owner/operators who have packed it in.
There are other factors also at play. With the glut of equipment in the marketplace some lenders/lessors are loathe to recall the equipment from carriers who are failing to make their loan/lease payments.
At some point those carriers will have to pay the piper.
There are probably a number of carriers who want out of the business and are taking a short-term view by attempting to get as many customers as they can today in the hope that it makes their company more attractive to potential buyers. Investment in the industry’s human capital as well as its trucks, trailers and other technologies has been put on hold. But it can’t stay that way forever.
The major reckoning in terms of capacity is yet to come in order to bring some semblance of equilibrium to the supply/demand equation. But, it will and when it does – maybe even before the recession is over -whatever the surviving carriers have given up in rates will have to be restored.
As fast as rates went down, they can go back up again. The question now should be when the correction takes place, not if.
Impossible? We put a man on the moon didn’t we? •
-David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.
Truck News is Canada's leading trucking newspaper - news and information for trucking companies, owner/operators, truck drivers and logistics professionals working in the Canadian trucking industry. All posts by Truck News