As 2008 comes to a close, the thought that comes to mind is: ‘I think I left my wallet back there, somewhere around the end of April.’ Whereas in previous years, the trucking business was like riding a roller coaster; 2008 was more like bungee jumping, only without the bungee cord. But like any terrifying experience, if you survive the fall, it becomes a learning experience.
In January, fuel was in the $3.25/gal. range nationwide, rising to a high of $4.76/gal. the second week of July. If this wasn't enough, the housing market bubble began to pop in March. In June, due to the skyrocketing rise in the cost of energy and fuel, Americans started parking their automobiles, trucking was experiencing a major freight slump, and we all drove 15 billion mi. less than we did in June 2007. This caused a major reduction in fuel tax revenues, bankrupting the Federal Highway Trust Fund and requiring Congress to take $8 billion from the general fund to shore it up.
By the middle of September, the trucking industry had lost 4.5% of its hauling capacity — or about 88,000 trucks — due to company failures and closings. Predictions of an additional loss of capacity equal to this in the fourth quarter of 2008 and first two quarters of 2009 have followed.
The big blow to the nation's economy was next, as investment banks and insurance companies began to fail from the fallout caused by the subprime mortgage and housing market failure. To say this was a tough year is putting it lightly.
But enough of the doom and gloom. If you're still operating today, you obviously are doing something right. What are the lessons learned from this rough and tumble year? The best way to answer this question is to go to the source, the small motor carrier. Two carriers offer their insight on the situation. The first is a specialty hauler operating in the Midwest; the second is a diversified East Coast hauler with local delivery, long-distance relocation/rigging, household goods, and commercial moving operations.
What has been the effect of the combination of all these economic upheavals on your business overall?
Carrier #1: I feel it has challenged us to follow through on our value-driven services more than ever before. Customers expect fair price and great service and sometimes get one but not the other. Following through is the ultimate challenge for every trucking company. This has always been a challenge, but it's even more important when capacity is tight, like it's been for the last year. Today, a company cannot rely on volume alone to carry the torch. It must have profitable pricing and create a value for the customer.
Carrier #2: When carriers create artificially low hauling rates, it hurts everyone. The companies operating under these synthetic rate structures will eventually fail, but the collateral damage will be other carriers that try and compete with these synthetic rate carriers on price alone. Companies like ours, which have been around for 80 years, know our operating costs; we know we can't operate below them no matter how competitive the market is, so we concentrate on providing value to our customers. That's not a lesson we just learned, that's how we've been in business for 80 years.
Of all the economic hits the industry took this year, which one created the biggest challenge? And how did you handle it?
Carrier #1: The biggest challenge for us is a Catch-22. Our customers feel they are being overcharged for the fuel surcharge, and many of our lease operators say they are being shortchanged in the area of fuel cost. We have tried very hard to integrate the fuel cost into our hauling rates for the customer's benefit, but separate out the cost in communicating with our drivers. It's not a perfect method, but it has at least appeased both shippers and drivers while we figure out a better method.
Carrier #2: We are a company that really focuses on the bottom line. The largest challenge was that the fuel surcharge never quite kept up with the rising cost of fuel. Many times, we as a company had to bite the bullet to be sure our lease drivers, those who could least afford to continue taking these fuel cost increase hits, were as minimally affected as possible. I'm not saying they didn't feel the pain, but we tried to do our best to be sure it didn't cause any of them to go under. Our challenge and responsibility is to take care of our customers, but we also need to take care of our drivers, because without our top quality drivers, taking care of our customers becomes a moot point.
Any words of wisdom going into 2009?
Carrier #1: Be patient and prepared. The second half of 2009 will provide opportunity. It will be challenging emotionally and financially, but those who cut costs, purchase wisely and prepare for the opportunities on the horizon will be the ones who will thrive coming out of the gate when things start improving.
Carrier #2: Be diversified or specialized enough in your business to withstand any long-range threat to your core business. Keep your financial statements tidy and ready for review by “strange eyes” if you rely on credit lines for funding ongoing operations. Be sure you are controlling and cutting the right costs; be sure you don't diminish your value. If anything, you need to increase the quality of your services in difficult times to become more valuable to your customers.
Opportunity will rebound in the hauling market. Being ready is the secret to growing once we've made it through this slump. Carriers need to be developing relationships with potential customers; they need to be nurturing their current relationships, and they need to be positioning themselves to be the hauler of choice as the lanes and niche in which they specialize open up.
Was it a tough year, or a great learning opportunity? The answer? Both.
Contact Timothy D. Brady at [email protected]