It's a new morning, and you're taking that first sip of coffee as your device comes to life and you begin your first load search. Cautious optimism fades -- it's another day of less-than-desirable rates. The question keeps rolling through your mind: When will this cycle end and when will it start to get better?
You negotiate your best rate, realizing it's time for a reality check.
For most, trucking is more than a job -- it is our passion, our life’s work, and our identity. We spend our lives following a dream that sometimes is not what we ever envisioned. The turmoil of the latest downturn causes us to look at our business model. We spend hours honing skills, sharpening pencils to cut expenses, and finding different revenue streams, only to understand the harsh truth that the expenses are eating away at the razor-thin margins that existed just a few quarters ago.
Yet we simply must find a way to be successful and stay profitable, so our dream stays viable.
Negotiating rate structures with customers recently, it became abundantly clear that if we accept a lower rate per mile today on the hopes that we will ask for a higher price next week, we are kicking the can forward and fooling ourselves that we are making progress. A shipper is going to assume that we are going to move their product next week for the same price we did this week, and why wouldn’t they?
Here is our dilemma: If I am running below my cost, then the difference must come from somewhere, either my cash reserves or my line of credit. If my truck runs below my cost, I have a finite amount of time before I have a financial liquidity problem. Carriers operating in this way and hoping for better times are creating more of the same problem. Each week an operator discounts their rate to a shipper and runs below cost, they draw from their cash and the shipper still expects low cost at the next request. At some point the carrier can no longer provide service, and the shipper must pay the (probably higher, but in today's market who knows) rate to someone else -- simple supply and demand.
It's certainly not a wise business plan to burn through cash until enough capacity leaves the market and rates go up again, if it can be called a business plan at all. What can an operator do otherwise?
Loyalty, service limitations are clear, but don't give up on either
During a downturn like the current, long-ongoing one, we see clearly the limits to service and loyalty with shippers. Many, maybe even most, are willing to assume risk on shipments in exchange for lower prices. Yet there are still shippers that will value your service, and are willing to pay for your service. Make sure you maximize opportunities inside their company, and look for ways to help them with solutions in all areas of their business.
Place an utmost priority on those customers who value their relationship with you as a carrier.
[Related: Leave trucking better than you found it: Work hard on real relationships across the board]
Understand your costs better than ever before. Know your cost per mile and per unit of time -- per-hour, per-day -- to fully appreciate just where the profitability line is for your business. Maximize those rates where you can while looking for ways to reduce expenses, and think creatively. Does it make sense for you to outsource jobs you may do yourself currently, or to give up an unprofitable route? Do you have a difficult or unprofitable customer you can do without?
Don’t let fear drive your decisions about your business.
We must be careful that we don’t confuse activity with accomplishment. The old adage that if the wheels aren’t turning, you aren’t earning doesn't always hold true. You may be able to create more bottom-line profit simply by doing less unprofitable business, thereby reducing maintenance, tire wear, and fuel and insurance costs. In challenging times, a few well-paying loads that will cover your overhead may be a better option than running mediocre freight the entire month.
You might consider a brokerage operation for loads that don't fit your lanes, or as a way to effectively utilize office staff. If your operation has mechanical services, you can pick up revenue streams there as well.
While most owner-operators and small fleets don’t have the luxury just to park equipment and hope for rates to increase or expenses to fall, taking a balanced approach to your business decisions can make for a big long-term impact on revenue and profit, to the positive.
In business, just as in life, weathering the storm and seeing the sunshine once again is a win.
Stay focused, stay the course, and don’t lose hope. Better times are ahead.
[Related: More 'cheap freight' curves ahead: Better ways to assess rates and revenue, costs and emotions]
Find more information on load revenue/cost evaluation and customer management in Chapters 3 ("Understanding your revenue and costs") and 18 ("Going independent") of the updated Overdrive/ATBS-coproduced "Partners in Business" book for new and established owner-operators, a comprehensive guide to running a small trucking business sponsored for 2024 by the Rush Truck Centers dealer network. Follow this link to download the most recent edition of Partners in Business free of charge.
