Experts discuss how truckers can survive freight recession

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Many freight experts have seen a slower ride this year as a weakening economy has forced home builders, retailers and other businesses to cut back on shipments during what is traditionally the peak holiday season for trucking companies.

After two years of surging freight markets caused by COVID-related disruptions, spot rates have softened over the past several quarters. Previous freight recessions — such as 2008 and 2019 when carrier after carrier of all sizes shut their doors — haunts the memories of many freight professionals. 

David Owen, founder and president of the National Association of Small Trucking Companies (NASTC), said small carriers are like “canaries in the coal mine” that often demonstrate what lies ahead for the U.S. economy.

“The freight community in trucking, particularly small trucking companies, are about six months ahead of predictions in the marketplace,” Owen told FreightWaves. “So freight has been depressed for probably most of this year.”

NASTC was founded in 1989 and is based in Gallatin, Tennessee. The association represents about 15,000 trucking companies by helping them control costs through managed purchasing, consultation and advocacy. 

“Almost all of our 15,000-plus members are small businesses in the full-truckload long-haul market,” Owen said. “Being small operators in the marketplace, typically, they have to deal with spot market freight and on contract freight, dealing with a lot more sensitivity in the marketplace. A good solid small trucking company can go from doing very well to being broke in about three weeks or a month if a perfect storm comes along, which we seem to be riding through a series of right now.” 

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Most who have been around the freight business long enough have felt the industry’s ups and downs. As small and medium-sized motor carriers and owner-operators try to steer through another downturn, Owen and other freight industry professionals share some anecdotes and tips about surviving another recession.

Take care of your drivers and other assets

Randy LaValley started his company, Lavalle Transportation (LTI), with one truck in 1995. Today the Potsdam, New York-based firm has about 440 trucks and 422 drivers, according to the Federal Motor Carrier Safety Administration.

Like most trucking companies, LTI was challenged by the economic downturn of 2008-09. There was still freight that needed hauling, but it often came at much lower bids than previously. 

In 2008, LTI was an owner-operator-driven carrier, and LaValley said he made a choice to pay “just about everything we were getting paid for the load” to the drivers. 

“We wanted to keep the owner-operators healthy, because at that time there were a lot of trucking companies that were dying off, dropping every quarter in big numbers,” LaValley told FreightWaves. “We took care of them and made sure that they made it to the other side of the recession, not quit and or leave the industry entirely.” 

LaValley said for most of 2008-09 they were extremely cautious about spending any money. He figured that when the recession was over and demand returned, somebody needed to be ready to supply transportation.

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“We were just keeping enough for the company to barely keep our heads above ground and keep going,” LaValley said. “As soon as I saw the light at the end of the tunnel, I doubled down and did a bunch of stuff and picked up more business and bought more trucks and trailers. We came out of the last quarter or six months of that recession, and we were ramping up with a full head of steam.”

Another lesson LaValley learned from his years in the industry is to find a niche and stick with it.

“… [One that’s] not being serviced [well] and then get in there and do a hell of a job and stay in your lane,” he said. 

Texas Trucking Association (TXTA) President and CEO John Esparza said he has been through several freight recessions and slowdowns and agrees with LaValley that taking care of your employees while saving money are some of the most important things any company can do when times are tough.

TXTA, founded in 1932 in Austin, boasts 1,000 companies ranging from small businesses to Fortune 500 companies and serves as a legislative advocate for its members and the transportation industry.

Esparza said the companies that often survive freight recessions are the ones that continue to employ individuals, even at great risk and debt to themselves.

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“I know companies that have taken loans out to continue to make payroll because they know that this is temporary and that the person that has staff aboard when things do come out of a recession are going to be the quickest to rebound,” Esparza said.

Esparza also said most trucking industry veterans know to avoid panicking when freight starts to slow down.

“If TXTA members have taught me anything during these times — I can easily point to the most successful and say they all have this common thread — it’s that they don’t get too excited when things are going really bad, but they also don’t get too excited when things are going really good,” he said. 

Assets such as trailers that a company already owns are also something that can be reinvested in during slower freight periods, Esparza said.

“I recommend they start turning trailers over also because this is the time to repair and shore up the safety side of things,” he said. “A lot of folks may have some trailers that they’re really not utilizing, or specialized haulers they are not utilizing, when things slow down a bit. That’s when they have their technicians turning over trailers and ensuring they’re roadworthy.” 

Control fuel and other operating costs 

Owen said the majority of NASTC members are companies that own 10 trucks or less, working on thin profit margins. When a recession hits, these carriers have to control their biggest expense: fuel.

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“They have to attack fuel … [and] control it in a way that it doesn’t break you,” Owen said. “The first line of defense is to negotiate what we call a fuel surcharge. Hopefully, NASTC members have already signed on to a program that allows them to buy fuel over the road at a discounted rate, [either] same or close to what the larger carriers are paying.”

Ed Stockman, founder of Newtrul, mentioned other things smaller and medium-sized trucking companies should consider when times are slow is adopting new technologies, such as using new platforms or adding software to automate load sourcing, pricing, invoicing and other highly manual workflows.

Chicago-based startup Newtrul is a digital freight matching platform that integrates with freight brokers to share available loads with carriers digitally in real time.

“We’ve done research on how recessions have impacted other industries, and the one that really stands out is the oil industry. Over the course of the 20th century, there have been three massive downturns,” Stockman said. “There are very few industries that are as manual as oil and transportation. When you have these super manual paper and pencil industries, these downturns are typically what separates those who last and those that don’t. The common denominator of those who survived was innovation and adaptability.”

Stockman said whether it’s adopting technology to find more available loads or using software to digitize and automate workflows, like payments, those who adapt quickest have a better chance of surviving.

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“Carriers are going to see a lot of hardships over the course of the next 12-18 months. We’ve already seen our average searches per month increase by over 40x in the last 7 months. This is highly indicative of the market. Being nimble, open minded, and willing to pilot multiple different technologies will be key to long term success ” Stockman said.

Average 3,000 miles a week

To survive, ultimately small and medium-sized trucking companies have to find a way to do 3,000 miles a week, Owen said.

“The only asset they have is drivers, so in order to keep your drivers and keep your trucks running, you have to run out every week, 3,000 miles a week in our scenario for long haul full truckload. That’s about the magic number,” Owen said. “You have to be able to do it every week, 48 weeks out of the year, while getting your driver rested at home every weekend.”

Owen also said there’s really no magic formula for small trucking companies to make it through a recession, except by taking care of their drivers, monitoring fuel costs and moving any freight they can.

“It’s just good business principles down here where we live,” he said. “We just have to fight off the dragons every day.”

Watch: Advise for owner-operators and small fleets during a freight recession.

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The post Experts discuss how truckers can survive freight recession appeared first on FreightWaves.

Source: freightwaves - Experts discuss how truckers can survive freight recession
Editor: Noi Mahoney

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