In an industry as volatile and dynamic as the trucking industry, it is quite challenging for trucking companies to keep up and sustain in the ever-changing market. With new trucking trends coming in every year, trucking companies look for innovative ways to keep thriving. Those in the industry need to know how to manage trucking business.
If you can recall the popular song by Bob Dylan, "The Times, They Are a-Changin’"—that he sang in 1961—you will know why this sentiment still holds true today.
For almost three years, the trucking industry has experienced a robust bull market, with record earnings in nearly every segment, from company drivers to owner-operators and trucking companies themselves.
During times of high demand and revenue growth, it's natural for businesses to become hyper-focused on maximizing profits, often at the expense of managing expenses and the business as a whole. As a result, companies may become more selective with the loads they take, the rates they accept, the lanes they run, and the customers they do business with.
However, it's important to remember that in the constantly evolving world of the trucking business, times can change quickly and companies need to be prepared to adapt and manage all aspects of their operations to ensure long-term success. In this blog post, we shall learn how to manage trucking business in a volatile environment.
Let’s not forget that times are changing. A decline in both the spot market loads and rates can serve as a leading indicator that the market has stabilized, and there will be a decrease in activity for truckers in the future.
Unfortunately, some news sources exaggerate the situation and use alarming headlines that suggest small independent businesses will suffer record bankruptcies. It is noteworthy to mention that much of the negative news is just sensationalized headlines. However, it's still necessary to respond to changing times.
One of the most significant shocks ever experienced by the trucking industry occurred in early March 2022 when fuel prices, which constitute the biggest cost for owner-operators, increased by $1.15 per gallon in just two weeks.
This led to a rise in operating costs of about 20 cents per mile (equivalent to approximately $400 per week). The previous highest two-week fuel price increases were a $0.40 per gallon hike during Hurricane Katrina in 2005 and another in 2008 at the onset of the Great Recession.
Therefore, the March 2022 fuel spike was three times larger than any previous episode. As a result, some small business owner-operators expressed that they could not sustain the cost increase and were considering parking their trucks, returning them to banks, moving from the spot market to a stable carrier, or reverting back to being company drivers.
Thankfully, the cost of fuel has stabilized, which has allowed fuel surcharges and market rates to adjust to the increased cost. Many trucking companies are using several ways to reduce their fuel costs and increase fuel efficiency. Prior to the sudden rise in fuel prices, the general belief was that the trucking industry would have another prosperous year in 2023.
While many of the underlying factors that supported this outlook remain intact, there is now uncertainty about how the combination of rising interest rates, high energy and fuel costs across the country, and overall record levels of inflation will affect the economy.
There is little doubt that these negative factors will eventually lead to a reduction in consumer purchasing power, which in turn will result in a decline in demand for goods and services, and ultimately, less freight transported by trucks.
The main question is when and for how long the impact will be felt. Either way, it seems that the industry is heading towards a period of change. Hence, it is imperative that one must know how to manage trucking business.
Below, we have outlined some tips you can follow and learn how to manage trucking business in the ever-changing market and to positively impact your business.
It is imperative to shift your perspective from solely prioritizing revenue, which includes seeking high-paying loads in particular lanes, to adopting a more holistic approach as a business owner.
This entails examining the entire revenue stream and effectively managing the expenses associated with the business to optimize your overall profitability.
To adopt a more comprehensive revenue mindset, it's important to consider running lanes and routes that haven't been explored before. Instead of solely focusing on the highest rate per mile, aim to generate the most revenue per day over an extended period of time. This might entail accepting lower rates initially to gain entry into a market where rates are higher.
Avoid waiting idly during layovers in hopes of securing a better rate the next day. On average, owner-operators have fixed costs of $240 per day for both business and personal expenses. If you wait for two days to find a higher-paying load, you'll have incurred a cost of $480 that will be difficult to recoup.
Manage deadhead and out-of-route miles carefully. In the past, it made sense to deadhead further for a higher-paying load when loads paid over $3/mile and fuel costs were $2.75/gallon. However, with loads now paying less than $3/mile and fuel costing over $5/gallon, deadheading further incurs higher costs for lower pay.
Consider running an extra load every week or every other week. In 2021, the average ATBS owner-operator drove 8% fewer miles because they made more money from high-paying loads. When the market slows down, it's necessary to work a bit harder to attain the desired income.
Managing your costs while gaining a thorough understanding of your fixed and variable costs and how they impact your breakeven point is integral to your trucking business. Fuel expenses have become a daily expense that requires careful management. You can benefit from fuel discount programs offered by your fleet if you are leased to a carrier or through independent networks.
There are various fuel management strategies to improve fuel economy, but the two most effective and cost-efficient are reducing speed and idling. Implementing these strategies can result in savings of more than $10,000 annually, especially with fuel prices surpassing $5/gallon.
Maintenance costs have also increased, ranging from $.12 to $.18 per mile. If you are leased to a fleet, you can take advantage of their discounts on parts and labor, while independent truckers can negotiate with maintenance facilities to obtain discounted high-quality services. Analyze all other expenses and determine which ones are essential and which ones can be reduced or eliminated.
There’s a famous saying, "tough times never last, but tough people do!" While we may not be facing difficult times currently, it seems like the times are changing.
Therefore, it's wise to plan ahead and be ready for any potential challenges. To streamline your trucking operations and simplify complex business processes, it is recommended to adopt trucking technology and use transportation management systems (TMS).
With a robust TMS system such as LoadStop, you can manage your trucking business efficiently despite the market conditions and withstand tougher times with ease.
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