Staying Afloat In The Trucking Market On A Rainy Day As A Small Fleet Business
The trucking market is increasingly losing its sheen for owner operators and small fleets with high operating costs and guilty of not managing their resources well. But technology can help.
A hearty welcome to the 47th edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
Today, the easiest way to start a discussion with someone in the trucking industry is to ask if they feel the cramps from the tanking freight rates. While there’s fierce media sparring based on who’s reading the market right and if the situation is really all doom and gloom, what everyone agrees on is the market isn’t as rosy as it was at the start of this year.
Ultimately, this is a problem that weighs heavily on the independent owner-operators and the small fleets, as when conditions get tough, they are the first ones to go under. A lot of this boils down to how they manage their bottom line.
Ultimately, this is a problem that weighs heavily on the independent owner-operators and the small fleets, as when conditions get tough, they are the first ones to go under.
For one, small fleets struggle to keep their truck utilization rates high in a cooling market to make enough revenue. Many of these trucks are on mortgage, which is squeezing their margins even further. Fuel prices that have gone up over 50% in the last year have meant an inextricable increase in operational costs. Top this off with higher driver wages (along with the difficulty of finding them), higher maintenance costs, and increased parts prices, the situation is quite somber.
“Small fleets and owner-operators branch out from bigger firms as they want empowerment — so that they can get their own loads, control their schedule and destiny,” said Priyesh Ranjan, the CEO of Vorto, an automated supply chain platform. But on the flip side, they run phenomenally inefficient business that makes them sitting ducks in an unwinding market.
One of the reasons why small fleets with big ambitions quickly go under when the market turns is that their fixed costs balloon up so high (with new trucks come bigger loans to be repaid) that they don’t have the cash reserves to keep their business alive when they aren’t profitable.
While all things considered, the market does what the market does best — be cyclical. Ups and downs have existed in the market since time immemorial, and the onus is on trucking fleets to be mindful of their operating costs and tidy up their act.
The market does what the market does best — be cyclical.
There are a few ways to do it, said Ranjan. First, it makes sense to work on the cost structure. “Small fleets work under a company that provides them the infrastructure. This provides them the authority to do back-office dispatching, billing payments — and in some cases — even to get work. Such companies take a big chunk of the linehaul, and by the time the money trickles down to the owner-operator or the driver, it’s peanuts.”
Digitalizing their backend operations and automating them is a start, Ranjan pointed out. “Companies like Vorto can help here. Traditionally, fleets lose about 25% of their revenue to such third-party infrastructure, while we have dropped that to 5-7.5%. This solves the cost structure problems,” he said. “This aside, we can also get large discounts from fuel companies via fuel cards and provide a network of maintenance yards, where we can subsidize the cost of managing their assets or maintaining them as we get volume discounts from them.”
This aside, the hauling efficiency needs some attention. One of the biggest issues here is the lack of efficient spending of the driver hours of service. While every driver can be behind the wheel 11 hours a day, only about five hours of that time is utilized in driving freight, with the rest being lost waiting for the next load, idling at a pickup or drop off location, and driving around deadhead miles that are unpaid (and losing fuel in the process).
Deadhead is a bottom-line killer. Trucking firms often chase lucrative loads that pay above-market rates, only to find themselves stranded at some location where they have nearly no options for an outbound. The deadhead they would have to put up with will get their average rate to less than $2 a mile, making it a damp squib.
Trucking firms often chase lucrative loads that pay above-market rates, only to find themselves stranded at some location where they have nearly no options for an outbound.
Ranjan contended that by leveraging technology to reduce hours that go to waste, revenue can go up and fleets can stay profitable, irrespective of the market situation. “We can do that by automating the load matching process through network optimization. If you want to work for six days, and let’s say you start from Los Angeles and want to be in Miami at the end of the week, the software can string four loads to get you to Miami. Maybe the system makes you do some significant deadhead on load three, but when you average that across the six days, you actually make more money than if you just look at it one load at a time.”
In essence, it’s a game of numbers. Reducing some deadhead here and some idling time there allows companies to stay afloat even during the worst rainy days and save their business from bankruptcy.
The Weekly Roundup
In a world that is ready to move past the pandemic, China’s ‘Zero COVID’ policy and subsequent lockdowns have been viewed as extreme, especially given the further disruptions it’s created to the global supply chain. The question is, are these lockdowns merely a temporary inconvenience, or will these lockdowns mount into yet another full-blown crisis for the shipping industry? As a confusing narrative comes from Chinese shipping officials, it remains unclear if the situation is getting better or if the country is suffering from a protracted supply chain gridlock.
A slow fall in the trucking market could be heralding an impending downturn. The record-breaking demand within the trucking industry is beginning to drop off, albeit slowly, as rates remain high, but tender rejections and spot rates have begun to decline in recent weeks. Small business and independent operators are feeling the sting from the combination of a drop in rates combined with high fuel costs. As the freight sector is widely regarded as a bellwether for the US economy, the current freight market could be seen as ominous foreshadowing.
The lean logistics model is swinging hard in the opposite direction for Canadian businesses. Where companies would typically only buy three weeks in advance, some are going as far as to buy six months ahead of their typical ordering schedule in order to insulate themselves from further supply chain disruptions. Industrial warehousing space is disappearing rapidly as leases are snapped up in an effort to store the overflow. Industrial leasing costs have rocketed a staggering 40% in just under three years.
A Whitehouse oversight committee has determined that Trump administration appointees approved $700 million in pandemic aid to a trucking company, in spite of Pentagon warnings. The aid awarded to Yellow Corp., formerly YRC Worldwide Inc., was in direct violation of the CARES Act, which was approved in March 2020 to soften the financial impact of the COVID-19 pandemic. The amount awarded represented 95% of the total funds distributed under the CARES Act loan program, despite the Department of Defense’s warning that the company was not critical to national security.
…said who?
“It adds another layer of logistical and supply-chain uncertainty into the market at what is already a historically volatile time. Grain cars are significantly behind schedule, processing plants are shutting down, feed mills can’t get feed some days, export vessels are being delayed.”
- Michael Seyfert, president and CEO of the NGFA, commenting on railroad bottlenecks that is disrupting the flow of ag-commodities across the country
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