It’s All About Rates: Carriers Hint at An Increase
We’ve been hearing a lot of encouraging talk lately from carriers about the need for an increase in freight rates.
The industry’s capacity to absorb further costs has been reached.
There’s no more flexibility available at a moment’s notice. Mergers and “strategic alliances” have been milked, there’s no more excess among owner/operators for carriers to exploit, and the driver shortage is having a major impact by determining which carriers will have the service capacity to back up their sales promises.
Rates for owner/operators have not only been stagnant for many years but have been falling relative to steadily rising costs. Repossessions of late-model equipment are at an all-time high.
Precarious financial situations continue to be the norm for one-truck operators.
So it’s no surprise that the need for a rate increase is resurfacing with a vengeance now: higher insurance premiums, increased security measures, the extremely high cost of equipment with emission-compliant engines (consuming up to 12 per cent more in increasingly expensive diesel fuel!), to name but a few – where’s the profit in a dismal picture like this?
We can talk all we want about “innovative business strategies,” “sophisticated tax planning” or “deferred profit schemes,” but financial success demands more than a tweaking of business plans if there isn’t sufficient raw capital there to begin with.
If carriers are serious about demanding rate increases from their customers, then owner/operators have to make a compelling case to back up their own rate requirements.
And they have to do so before carriers make contract commitments to their customers.
Start with knowing your cost of operation (per mile or per hour) and having it briefly itemized before you can expect to get the attention of the carrier.
Being able to point to specific areas where costs have risen beyond endurance is the only way to establish credibility.
This must include compensation for one of trucking’s biggest problems, unpaid waiting time for circumstances beyond the driver’s control. Unpaid waiting time is an expensive concession that truck drivers have been making for many years, and it needs to be addressed.
The former hours of service regulations allowed all sorts of time to be hidden, but that didn’t mean that someone wasn’t doing the work.
Sometimes the driver and carrier could work something out but that’s not the usual rule – often the driver just ate the loss because it was “built into the rate.”
As many have pointed out, the new hours of service regulations won’t make this as easy any longer.
But more importantly, it’s in the best interest of all drivers not to have that mindset entrenched any further.
If owner/operators are ever going to make any progress in this industry they’re going to have to get more proactive about making their minimum requirements apparent to those with whom they do business.
Working for an insufficient rate of return will only compromise chances for long term success. At the very least it will severely cripple a driver’s personal time at home – personal time off has already become an indulgence that very few operators can afford – what they’ve lost by not hiring on for a decent rate can only be made up with longer hours.
The numbers aren’t complicated. In fact they’re so transparent that only the most foolhardy would ignore the warning signs attached to signing on the bottom line of a poor contract. When owner/operators agree to work for a less than sufficient rate, they’re announcing to the carrier that they’re satisfied with the arrangement.
How else should a carrier interpret an owner/operator’s signing of a contract? And why would a carrier be willing to increase the rate if the owner/operator isn’t complaining?
Besides, the only real test of resolve is to switch carriers. There’s such a scarcity of owner/operators now that a determined individual with an impeccable resume can expect to be given an excellent opportunity to state their case during preliminary talks with a new carrier.
The expanding economy is demanding more trucking capacity, so what’s the worst that can happen if owner/operators refuse to accept the paltry rates advertised? Carriers will be forced to make the investment in employees and rolling stock themselves if they can’t find qualified subcontractors to handle the increase in freight. The only reason that they don’t make those kinds of investments as a first choice is to maintain adequate flexibility and maximum use of their own resources, and that includes passing financial risk on to others if possible.
Unfortunately it’s become a depressing truth about this business that there’s always someone willing to accept that liability without making the necessary investigation of the risks and rewards. Acceptance of risk should always come with an equal expectation of adequate profit. Without that incentive though there’s really no financial reason to continue as an owner/operator.
– A long time O/O, Mike Smith is a member of OBAC’s board-of-directors. He can be reached at firstname.lastname@example.org.
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