The views
expressed here are solely those of the author and do not necessarily reflect
the views of FreightWaves or its affiliates.
At the end of
the last century, when I owned and operated trucking companies, we used to daydream
about how great it would be if some sort of capacity constraining event
occurred and there were fewer trucking companies, and thereby trucks (capacity),
available to the shipping public. We would finally find common ground with the shippers
who held our rates down for so many years, pay the drivers what they were
worth, and see big financial results. We could never have imagined – or wished
for – the current circumstances we are experiencing with the COVID-19 pandemic.
Although the
world is reeling, trucking has been recognized as an essential business and is
on the front lines of delivering much needed medical supplies, food, and other necessities.
There is little traffic, so transit times are compressed and, as a result,
velocity has increased. Many trucking companies are running at or near capacity.
It is necessary
for carriers to recognize that volume generates revenue and thereby cash; not
necessarily margin and profit. The current rate environment is depressed as
shippers have spent most of the last 18 months reducing rates. Reputable
shippers are compensating carriers for operational costs such as deadhead pay
and trailer rental for increased direct operating costs in an inefficient and
disrupted supply chain. Carriers need not be shy in communicating with their
shippers.
Truck drivers are
showing up to work with a common sentiment that it is their patriotic duty to
keep the goods flowing. Consequently, drivers are getting the praise and press
they deserve for putting themselves at risk so the population as a whole can
better manage these tough times. Carriers need to over communicate with drivers
using all available platforms (including personal calls) to celebrate wins,
address issues, and provide support.
Our belief is
that carriers need to do the tried and true: prepare for the worst and hope for
the best. In the current environment, carriers must adjust from “revenue is
vanity and profit is sanity” to “profit is vanity and cash is sanity.” Our firm has partnered with the Truckload Carriers Association (TCA) and
the Truckload
Profitability Program (TPP) to provide actionable advice to carriers during
the COVID-19 crisis. Regular updates on important COVID-19-related information
are posted daily on our website.
One of the biggest
questions facing our economy is when will the COVID-19 bump end? When will the
supply chains be full and the millions of people who are out of work be able to
return to the workforce? Will the economy suffer a major hit or bounce back
quickly based on the trillions of dollars in stimulus money being awarded by
the government? The predictions are fluid and change weekly, daily, hourly. The
bottom line is nobody knows, but one thing is almost certain: the carriers with
strong balance sheets will have more opportunities than ever to gain market
share and improve margins.
Before
discussing the opportunities for financially stable carriers, let’s discuss the
carriers that have been on the margin for years, or at least since the break of
the 2018 freight bubble. Our view is that there will be a number of carriers in
this category that will exit the industry; however, there will not be a
wholesale exodus of this group. Many will fight to stay in business as
financing, vendor, and government grants and loans help these carriers build
cash reserves or stave off creditors. The world is in flux and the commotion
and uncertainty provides a “fog of COVID-19” that protects these carriers. This
being said, these carriers will struggle to survive, crisis or no crisis.
What might a
post COVID-19 crisis world look like for financially viable carriers that have
managed through the uncertainty? Nobody knows for sure, as the shape and speed
of the recovery are unknown. However, here are a few possible scenarios:
- Scenario
1: The market is capacity-constrained but shippers need consistent and reliable
capacity as a platform for their recovery buildout. The shippers turn to the
strong carriers to fuel the buildout and provide rates and terms that are
profitable for participating carriers. These carriers enjoy margins, operating
efficiencies, and stability for the near and, hopefully, long term.
- Scenario
2: Drivers reward the carriers that supported them during the crisis and those
carriers have waiting lists, as drivers understand the benefit of working for
strong carriers. This carrier-driven capacity surge then can be turned into a
strategic advantage, as fleets grow based on actual drivers and shipper demand.
- Scenario
3: Strong carriers grow by strategic acquisition of operationally sound, but
financially challenged, carriers. This is a win for both sides as the acquiring
target receives operationally rich resources and the seller receives financial
support of operations or an exit path.
Having lived
through many trucking economic cycles, the possible scenarios above are those
that are most hoped for by carriers — that carriers and shippers get on the same
page and support each other. Unfortunately, looking back historically, the
reality has always been short lived as the fragmentation of the trucking industry
drives tractor and trailer purchase and thereby added capacity, and the built-in
adversarial objectives of shipper and carrier are manifested in the shippers
forsaking the partnership formed during capacity constrained times for lower
rates. Maybe this time around, real
lessons will be learned, and a more symbiotic relationship will emerge as
carriers and shippers craft the post COVID-19 reality.
David Roush is
president of KSM Transport Advisors, LLC, part of the Katz,
Sapper & Miller Network. With
30-plus years of experience, David’s focus includes freight networks, financial
management, operational metrics and optimization strategies. Connect with him on LinkedIn.
