Low Paying Freight and Crisis Management

As the trucking industry deals with lower-than-usual freight rates, carriers are using varying responses. The ones who have weathered bad seasons before knew what to expect. They had disciplined themselves to not overspend when they had the chance. But there were a lot of new carriers that came into the market in the spring of 2022. They were attracted by high freight rates and nearly insane demand. It was a blood in the water-feeding frenzy that is very rare to see.

When the demand for power was so high that nearly anything and everything was jumped on, sanity was lost in the moment. Some finance companies agreed to leverage carriers without reports or restraint. I know one carrier that went from 8 trucks to 40 in 10 months… and they were company trucks, not independent operators. I’m sure there were many other examples of hyper-expansion.

As I mentioned before in another article, I had a client who bought a $150 K truck in Nov/Dec 2019, drove it for 27-30 months and sold it for $180 K in 2022. That’s some serious negative depreciation… its actually recapture AND Capital gains… something that virtually NEVER happens in trucking with a new truck. I mentioned the windfall of the driver/operator before… but just think of the BUYER in that story! They financed a $180 K purchase and 12-16 months later the truck at auction could get maybe $65-70 K. That’s over a $100 K drop in one year… ONE TRUCK. I know the carrier who bought it… they didn’t buy just one, they bought 12 that I know of. It can safely be estimated this is a cool million-dollar loss in one year and has to be paid down with low-paying freight. I’m sorry but that’s not going to happen… I just heard the carrier had closed their doors. At the time of writing this article, I cannot confirm what happened to the assets or even if they declared bankruptcy – I just know a bunch of people who were owed a lot of money didn’t get paid and I was told they probably won’t be.

Inexperience in the free market environment, combined with excessive ability to borrow can be a recipe for disaster. I was around when the final stages of deregulation brought in thousands of new carriers (pre-2000). So, when fuel costs (which were stable for two decades) increased by 30-50% in about a year, things got very bad, very fast. The entire industry had never even heard of a “fuel surcharge” never mind a fuel subsidy for independent operators. Trucks were lined up and parked in farmer’s fields as operators and over-leveraged carriers took the brunt of the slowdown.

In 2009, the oversupply of houses compared to the number of buyers dropped real estate prices nationally for the first time since the great depression. The economy hit a brick wall, and in the middle of a “driver shortage” carriers stopped hiring (except in rare situations). Many laid off the bottom 10-15% of their operators, slashing their capacity to keep their good operators current in truck payments. It’s like the industry dug a hole, put on a helmet, and waited for the bombs to stop dropping. Some carriers kept afloat by “trimming the numbers” from their operators. For nearly 18 months I had a three-inch pile of papers on my desk with examples of out-and-out “theft”. It was not a good time. I kept telling my clients… just be thankful for a job… because there was little that anyone could do. Taking your carrier to court would only get you fired.

Today many carriers are bemoaning a freight crisis. As humble as I can be in the circumstances, I must still respectfully refrain some of my sympathy. Things have been worse… much worse. Those who were seasoned, or restrained from losing their minds in debt are doing just fine under the circumstances. When the asset prices or debt threatened to go too high, they simply stopped bidding and borrowing and just accepted their capacity as is/was. Today they have reasonable debt (if any), and their asset costs are solid… even under the circumstances.

Given the environment of low-cost trucks, if they wish to upgrade their equipment with used, they now can act under the business model “buy low – sell high”. When it comes to an environment of low-paying freight
it’s a buyers’ market – taking advantage of the industry’s crisis to make sound management choices.

You don’t need to be a seasoned businessperson to take advantage of opportunities, you just need patience. Patience sometimes only comes through experiencing bad seasons, usually to the proud or greedy. I know because that’s how I learned my patience.

The tuition for the school of hard knocks is very high… but luckily… tax deductible.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.