Navigating the freight recession: how to minimize trucking costs

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.

What is a freight recession?

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 .

The current state of trucking costs

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.

Effects of rising trucking costs

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.”

Areas carriers can trim costs

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:

1. Vehicle-related costs:

• Fuel costs: Fuel costs can be incredibly volatile. Carriers must explore more fuel-efficient technologies, alternative fuels, and even aerodynamic modifications to trucks that reduce drag and improve mileage.

• Truck/trailer lease or purchase payments: Used class-8 truck prices have plummeted nearly 40 percent from their peaks, according to ATA Economist Robert Costello. Carriers should consider purchasing used vehicles or renegotiating their lease terms to take advantage of lower prices.
• Repair & maintenance: Proactive routine maintenance can prevent costly breakdowns and extend vehicle lifespans. Investing in driver training so they can perform basic maintenance can also reduce overall trucking costs.
• Truck insurance premiums: Shop around for insurance and consider higher deductibles or fleet discounts to reduce premiums without leaving your company exposed.
• Tires: Tire management programs that include regular inspections and maintenance can ensure your fleet’s tires last longer and perform better, improving fuel efficiency.

2. Personnel costs

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.

• Driver wages & benefits: You absolutely must offer competitive wages. Driver earnings are outpacing inflation and benefits packages can be tailored to be both cost-effective and attractive.
• Recruitment and retention costs: High turnover is a significant drain on company resources. As Gulf Relay CEO Scott Auslund put it in a recent Optym webinar, “It’s not the right answer to churn people. We’re here to try and build a company around that.” With a positive work environment and career development, you’ll improve retention and reduce costs associated with recruitment and training, which have been estimated to range from $2,243 to $20,729 per driver replacement. It’s important to consider the costs associated with not retaining drivers during a freight slowdown, as cost per hire will increase once the market picks back up.
• Administrative and onboarding costs: These costs are essential – yet they’re often overlooked as crucial aspects of logistics operations. AI can streamline administrative tasks and improve the onboarding process to prevent costs from escalating as fleets expand. Auslund also addresses driver retention, emphasizing the importance of meeting drivers’ expected mileage and pay: “We promised this person X amount of miles a month or a week and that’s their paycheck. So, if we’re not meeting that for two weeks in a row, that driver’s going to look elsewhere… there’s a cost and expense.”

3. Operational costs

While many of these expenses are seemingly fixed, they offer a lot of room for strategic adjustments:

• Tolls: Toll management solutions can help carriers minimize these expenses that can add up dramatically over time. You can also negotiate with toll authorities for volume discounts or use toll avoidance technologies for significant savings.
• Permits and licenses: Staying ahead of renewals can avoid costly last-minute fees. Plus, consolidating permit and license management through a single provider can streamline your processes and reduce administrative burdens.
• Licensing and compliance fees: Keeping up-to-date on regulatory changes can prevent non-compliance fines. You should invest in software solutions that help you maintain compliance – even if they have an upfront cost, as they’ll help save much more money in the long run.
• Overhead costs: Regularly review your overhead expenses – office supplies, utilities, facility costs, etc. With more efficient practices and equipment, you can reduce costs and decrease the need for larger office spaces that drain resources.

4. Risk management costs

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.

• Cargo insurance: Carriers can reduce cargo insurance costs by opting for higher deductibles, bundling policies, or through risk assessments that enable more accurate coverage tailored specifically to their actual risks.
• Liability insurance: With safety training and a “safety culture”, companies can see fewer accidents and claims which lower liability insurance premiums over time. Additionally, advanced driver assistance systems can prevent accidents while demonstrating your commitment to safety to your insurance providers, potentially lowering rates.
• Workers compensation insurance: While worker’s compensation insurance is one of the more significant expenses, you can reduce it through stringent safety protocols, prompt injury reporting procedures, and effective return-to-work programs. If you actively engage and safety and health programs, you’ll see your workers’ compensation premiums decrease as your claims dwindle over time.

5. Technology and software

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.

• Software and technology costs: Integrated carrier software solutions, when properly integrated, can streamline your operations – from route planning to load boards to document management. There’s an upfront cost, of course, but the long-term savings from reduced errors and increased efficiency can be substantial.
• ELD (Electronic Logging Device) costs: Ever since the mandate for electronic logging devices, carriers have had an additional expense they can’t get out of. However, the data these devices collect can help to uncover inefficiencies in routes, wasteful driver habits, and potential opportunities to improve vehicle maintenance.

6. Financial costs

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:

• Interest on loans and financing: Loans and financing allow a trucking company to grow and sustain its operations long-term. But the interest on those loans can be a significant expense. Your company must be vigilant in its pursuit of favorable rates and terms. You can also refinance existing debt during periods of lower interest rates to reduce monthly payments and interest paid over the life of a given loan. Also, if you maintain a strong credit rating, you’ll open the door to better financing options with lower interest rates in the future.
• Invoice factoring: When clients take 30, 60, or 90 days to pay their invoices, maintaining a healthy cash flow can be a challenge. With invoice factoring services, you’ll get immediate access to a percentage of an invoice’s value and ensure you have the working capital you need to keep your trucks rolling and operations running normally. Invoice factoring comes with a fee, but it works as a strategic tool for managing cash flow gaps and avoiding more expensive forms of credit.

Strategies to mitigate rising trucking costs

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:

1. Gathering financial data: Gaining a robust understanding of your trucking company’s finances should be the foundation of your cost optimization strategy. Collect all your financial records, catalog income sources, and delineate every expense category – including fuel, maintenance, and insurance. With this comprehensive collection, you’ll leave no stone unturned as you have access to any time period you wish to analyze.
2. Calculating gross profit: Take your financial data and calculate your gross profit. All you need to do is subtract your total expenses from your total income – this reveals your income after direct operating costs. This figure works as a snapshot of your operational efficiency over any particular time period and shines light on the health of your business as you’ve grown and evolved over time.
3. Analyzing and setting goals: With your new understanding of your gross profit, take a line by line look at your profit & loss (P&L) statements to identify cost trends, areas with the highest expenses, and assess your overall profitability. This analysis will enable you to set realistic financial goals and budgets for cost-cutting measures you can implement during the freight recession. Remember: it’s not about slashing costs with reckless abandon – it’s about making informed decisions that will guide your company through tumultuous economic conditions.
4. Bonus tip: Another strategy you can use to add depth to your overall cost-cutting program is to compare your costs to industry benchmarks. Take advantage of resources like the National Private Truck Council (NPTC) Benchmarking Survey Report or the American Transportation Research Institute (ATRI) Operational Costs of Trucking guide. By comparing your company against others, you’ll gain a broader perspective on where you stand in relation to industry standards that’ll help guide your cost optimization efforts.

Adapting strategies to survive a freight downturn

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.

Scaling in anticipation of market recovery

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.

Embracing innovation and flexibility

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.

Adapting to industry changes for long-term success

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.