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Why small carriers will soon become extinct

Most optimists really don’t like me. I’m at the other pole compared to them. For the last couple decades I’ve been of the belief that a healthy dose of
pessimism is usually really close to  reality. 

With that in mind, I have a prediction for a lot of small trucking companies – my definition of ‘small’  is 10 power units or fewer – that they may not like. 

I think, unless the North American economy improves – a lot – and the method of operation of a typical larger trucking company changes drastically, then most of us small operators will, within the next decade, go the way of the dodo bird. 

Since the mid-point of the recession, I’ve noticed an escalation in the number of small carriers losing longstanding customers – sometimes the types of customers that used most of the carrier’s equipment. 

The reason is almost always rate-related. The longest economic slowdown in recent memory has driven even longstanding shippers and receivers to stray from loyal carriers to the cheapest trucks, sometimes even without comparable equipment. 

I’ve seen van carriers lose business over price, just to have the new carrier show up with reefers and require the load weight to be reduced. I’ve watched flatbed carriers lose freight over price, when the freight was previously delivered direct to job sites, only to find it was later showing up on site whenever the new carrier got around to it. 

Good service, sadly, seems not to matter anymore. I believe that trucking companies are, in many cases, the final display of the manufacturer/distributor’s commitment of service to its customers. Is the damage to their reputation for customer service really worth the savings? 

Many small carriers have seen a large chunk of their business disappear with little warning. How successful do you think most are at replacing so much work in this economic climate, at rates that are comparable? 

Let’s not get into the utter ridiculousness of carriers that still stay busy by cutting rates. That argument is getting old, and still not changing. If you don’t have some sort of specialty – skills, equipment, or geographical location – you are at risk of being shoved aside by another company with a sharper pencil. 

I get tired of the same trucking company owners, large and small, who complain about revenue and profits, then have their sales staff undercut existing rates to stay busy. The hypocrisy never seems to end.

Some of you who agree with what I’ve written so far, may think there’s a light at the end of the tunnel. In the last several months, this magazine has provided extensive coverage on mergers and acquisitions; not only on the many trucking marriages, but how to prepare for the potential sale of your own business. 

I think it’s been exceptional and thorough coverage, and very educational. Unfortunately, for most small carriers, none of it applies to us. Bluntly put, larger carriers will not buy you out, no matter the price, unless you have some sort of significant specialty with relatively new equipment. Why would they bother? They may have as many salespeople as you have drivers. 

If your workload is worth coveting (not likely, by their standards) you’ll likely just be underbid, or they can wait you out until you give up and then send their salespeople to your old

Think I’m over-reacting? In 2010, at the peak of the recession, with another significant trucking company closing almost monthly, I was hit by a mystery illness.

 We had several regular customers who collectively kept our trucks running both directions. We were very busy, and couldn’t hire enough good driving staff to keep me out of a truck. 

Since I couldn’t drive more than a couple hours at a time without severe pain, selling out seemed like a sensible option. I sent messages to the managers of several larger trucking companies, wrongly assuming that a profitable, busy company with a clean CVOR would be in high demand. 

Of the lot, only one returned the call, eventually making me an offer – sort of. 

Although I had stressed the reasons for selling were not financial, so this was no fire sale, they made an offer that was to include authorities, customers, and all equipment for less than the value of the equipment itself. 

Luckily, the mystery illness left a couple months later. Honestly, only someone in financial duress would
accept those conditions, leaving someone in my position with no sensible exit options. That experience reinforced my paranoia about the future. 

I think asking the questions we asked ourselves at that time are a good exercise for any small operator. Does too much of your revenue depend on too few customers? Is your debt load such that a complete liquidation would still leave you deep in the red? Would one misfortune (accident, injury, or even a big repair bill), be enough to sink you, or at least place you in dire financial straits?

 Decades ago, I was advised to not put too many eggs in one basket. Unlike rate slashing, that advice never gets old.

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