How smaller fleets can combat rising fuel costs
Learn how smaller fleets can combat rising fuel costs with or without technology in this post.
Learn how to navigate a freight recession and rising trucking costs through expense management, adapt to changes, and position your business in a market shift.
The term ‘freight recession’ has appeared in the media quite a few times in recent years – for good reason. We’re in one, and everyone in the trucking industry has to play their cards right to come out relatively unscathed on the other side.
From 2020 to 2022, the trucking industry witnessed a seismic shift: trucking costs surged by a staggering 36 percent, while spot rates have dropped nearly 30% from peaks. Over the last year, spot load posts have dropped by more than 40%, according to DAT. This is a clear indicator that we’re indeed in the throes of a freight recession, and the balance of supply and demand has been profoundly disrupted.
From October 2022 to October 2023, spot rates have lowered 11.6% for reefer, 13.0% for flatbed, and 13.5% for dry van. Over the same time, spot load posts have dropped 41.6% and spot truck posts have lowered 8.6%, according to DAT Trendlines.
That means your business needs to move forward with the utmost caution until things stabilize. The best way to do this is by minimizing costs wherever possible, while reserving resources to take advantage of a turning freight market. In this article, we’ll explore the current state of the trucking market, what has created these conditions, and how your business can save money and succeed – even in the face of daunting economic conditions.
A freight recession, similar to a standard economic recession, is when there is a persistent decrease in freight volumes over multiple quarters. During a freight recession, the supply of trucks outgrows the demand for freight hauling. DAT Analyst Dean Croke said on the Semi-Related Podcast, “the number of for-hire carriers registered to haul interstate freight doubled from the pandemic to today. Of the 150,000 that joined in that two-year period, only 22,000 interstate carriers have left in the last 11 month. We still have more trucks than loads in the market.”
Such a surplus in capacity has led to significant drops in spot market rates. ATA Economist Robert Costello noted a nearly 30 percent decrease from their peaks. The result is a challenging environment for trucking companies, as the oversupply of trucks leads to competitive pricing pressures and underutilized assets.
The freight recession presents a clear signal to the industry: you must adapt by aligning your operations with the current supply-demand dynamics or face the economic consequences of this current downturn, as we’ve seen by increasing .
Right now, the trucking industry is grappling with significant rises in operational costs. From 2008 to 2020, costs remained nearly flat. But from 2020 to 2022, these costs have increased by 36 percent, according to an Optym analysis of the ATRI Operational Costs of Trucking Report. However, this increase hasn’t been fully reflected in the Producer Price Index for long-distance truckload freight, which has gone up by only 13 percent, indicating a mismatch between rising expenses and the prices trucking companies can actually charge.
If we look closer at the components of these operational costs, we find escalating driver wages due to the competitive labor market as well as fluctuating fuel prices increasing faster than transport rates can adjust. Dean Croke, again on the Semi-Related Podcast, said: “We’re seeing an exodus of carriers because rates haven’t gone up commensurate with the diesel cost.” This highlights the struggle to maintain profitability as expenses continue to climb.
Other financial challenges that extend beyond fuel include fleet maintenance, insurance, and compliance costs. Such a combination of factors has put pressure on trucking companies, forcing some out of the market and leaving the industry to navigate through a freight recession while facing undeniable financial complications.
As trucking costs rise, it can significantly threatens profitability and can impact competitive pricing. The more expenses increase, the more truck companies face the challenge of balancing the need to cover costs while offering attractive rates to their customers. A single misstep in this balancing act can lead to loss of business and eroding margins.
Scooter Sayers, President of Sayers Logistics, highlighted the importance of cost management when he said, “If a carrier can reduce their cost by saving fuel, by not having to add labor as they grow, they can offer better pricing to their customer. So, it’s a win-win for everybody.” This idea underscores the potential benefits of enhanced operational efficiency – from fuel savings to the strategic use of technology to avoid unnecessary labor costs.
In a recent Optym webinar, Gulf Relay CEO Scott Auslund shared that “Our customers are constantly asking us to provide more efficiency to them.” At Gulf Relay, they’re looking for tools that are “really about taking our existing staff and making them more productive and allowing us to add trucks to the fleet rather than saying there is an opportunity three years down the road where we can have AI route everything.”
During this ongoing freight recession, carriers must examine their expenses to identify potential savings. Their objective should be to operate more efficiency without compromising quality. Some of the key areas for cost reduction include:
Crews manning fleets are just as important as the vehicles themselves. Their costs reflect not just their wages but the health of your company’s culture.
While many of these expenses are seemingly fixed, they offer a lot of room for strategic adjustments:
Risk management is a necessary shield against the unforeseen. Insurance isn’t just a regulatory requirement but a strategic asset, and there are numerous ways to reduce its many costs.
No trucking company can reach full efficiency these days without taking advantage of modern day tools and technology. It’s true that they represent ongoing costs, but they also offer substantial savings and ease of compliance.
Being successful in any industry requires a keen understanding of costs associated with capital and cash flow management. The trucking industry is no different. There are two primary financial costs that stand out for their impact on a carrier’s fiscal health:
As market dynamics fluctuate from quarter to quarter, you might find your business at forces far beyond your control. Scott Auslund, in the previously mentioned Optym webinar, noted: “The difficulty of dealing in trucking is you don’t set the price for the market. You’re constantly focused on cost optimization.” Thus, the need for strategic measures to mitigate rising costs and enhance your company’s financial resilience is always present. Three steps your company can take as part of a cost-cutting framework include:
Moving freight is an inherently cyclical and evolving business. You never know what type of market you’ll be looking at year to year – the unexpected nature of the COVID-19 pandemic taught everyone this lesson in the strongest possible way. Therefore, surviving these downturns is not just about resilience and flexibility but having the foresight to anticipate and prepare for the next upswing.
Bart De Muynck, speaking on the Semi-Related Podcast, communicated a timeless idea about economic cycles: “At some point we will see inflation going down, interest rates coming down, and the economy and consumer spending picking up again.” Your business should look at these anticipated shifts as a strong call to action. You must be ready to scale your operations as the market begins its rebound.
Randy LaValley, owner of Lavalle Transportation, described his business’s strategies coming out of the 2008-2009 economic downturn: “We were just keeping enough for the company to barely keep our heads above ground and keep going. As soon as I saw the light at the end of the tunnel, I doubled down and did a bunch of stuff and picked up more business and bought more trucks and trailers. We came out of the last quarter or six months of that recession, and we were ramping up with a full head of steam.”
Thus, emerging from a recession with momentum is one of the best ways to position your company to capture market share and accelerate your growth as conditions improve.
Bonus tip: Take advantage of guides, like the carrier rate report, to identify changing markets and intervene early to capitalize.
In addition to scaling, your trucking company should remain agile, open-minded, and willing to pilot new technologies. Opening up to innovation isn’t just about adopting whatever new gadget comes along – it’s about embracing a mindset to welcome change and seek efficiency wherever possible. That could involve exploring alternative fuels, adopting AI and other logistics software platforms for optimization, or implementing advanced analytics for better decision-making.
Learn how freight tech is transforming trucking.
The trucking industry isn’t a static entity – nor are the strategies that ensure your company’s success. Adapting to industry changes is a must for your long-term viability. You’ll need to stay informed about regulatory shifts, customer expectations, and technological advancements – whether they’re right around the corner or ten years down the line. You also must be prepared to pivot when traditional methods falter, and new opportunities arise.
Ultimately, navigating a freight recession comes down to preparedness for recovery, a willingness to embrace innovation, and keeping an adaptable approach to industry changes. Staying resilient during this time period requires a commitment to supporting your drivers, ensuring their well-being, and fostering a culture of loyalty. If you embody these principles and stay nimble and responsive to change, you’ll come out with your head held high on the other side of any economic downturn.
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