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In order to survive, fleet operators have increased efficiency, embraced technology, and collaborated with shippers.
“I can’t expect customers to pay more pennies at this time.” Royal Jones, CEO Mesilla Valley Transportation, said that if I can save pennies it is the exact same thing. “Every penny per mile is $150,000 per month.”
The trucking industry has not had a normal market for four years. From the boom in freight demand that occurred during the economic recovery from the COVID-19 epidemic to the ongoing downturn in the market that began in 2022, said Dean Croke. He is the principal analyst at DAT iQ. This is the freight data division of DAT Freight & Analytics.
He said that the current conditions are similar to those of late 2018 and 2019. There has been a prolonged period with low demand.
“Shippers still hold pricing power.” “They’re still driving down contract prices on [requests of proposal] because there’s still capacity in the marketplace,” Croke said.
Spot rates are almost identical to what they were in 2019.
“We are seeing a soft demand in manufacturing, food, chemical and steel.” Croke said that even though housing starts increased, there was not enough demand to change the rate needle. “There is a loss of confidence, because we do not know when the market will change.” All of this supports a very soft market for freight that is oversupplied in capacity.
During the pandemic, the number of motor carriers authorities increased as a result of the influx of new small carriers. Some of these new businesses have since left the market but a large portion remains.
“On the supply-side, the general headline is that we still have more truck than loads at the market level,” Croke explained. He added that carriers made unprecedented profit during the economic recovery from the pandemic. This allowed them to survive today’s weaker markets.
During the current downturn, several notable carriers have filed for bankruptcy, including Yellow Corp., a less-than truckload giant, and Arnold Transportation Services.
Lindsay Bur, senior economist at American Trucking Associations said that the number of carriers who left the industry increased by almost 7% between December 2022 and December 2023. However, this rate is lower than in previous downturns.
Bur, speaking at a conference for the industry, said: “It’s happening but it will take a while to see these carriers leave the market.”
Banks who own the liens and are reluctant to repossess equipment are a part of the reason why capacity is slowly disappearing. During the recovery after the pandemic, buyers were willing to pay a premium for Class 8, tractors when the industry’s capacity was not enough to meet the demand.
The equipment factor also contributes to the willingness of these carriers to accept whatever loads they can.
Croke said, “They must run hard at lower speeds just to pay for their financial insurance.”
ATA’s Bur expects a large number of bank repossessions if used Class 8 truck price increases.
Costs are higher and rates are lower
Carriers have to deal with not only low rates, but also a significant rise in operating costs. In recent years, wages, fuel prices and insurance premiums have increased.
“A new truck costs so much more today than it did five or six years ago. And with interest rates so high, you’re paying $800 to $1000 more per month for a 60-month mortgage,” said Jones, Mesilla Valley Transportation. “The costs went up, not down because rates went down.”
Jones added that in some cases, brokers offer rates that are 20% to 30% less than the costs of carriers.
Mesilla valley Transportation is ranked No. The Top 100 list of North America’s largest for-hire carriers ranks 73. However, the company turns down freight every day because the rates are too low.
Jones said that his company would sometimes accept lower rates for broker boards if they helped move trucks to the locations where they were needed for contract freight.
“Thank God we have 70% contract,” said he. “If I ran 100% spot, that wouldn’t work.”
A. Duie Pyle, a fleet that operates in a soft market for freight, emphasizes the importance of carrier performance on overall transportation costs. (A. Duie Pyle)
John Luciani, Chief Operating Officer of Less-than-Truckload Solutions at A. Duie Pyle said that pricing is both an artwork and a science.
The carrier will not accept a business if it is too low, but will try to find a way to say “yes”.
“We are looking for customers who will give us data on the supply chain, and we’ll then create a solution,” said he.
Every customer must contribute to profitability.
Luciani added that customers should consider the “real costs outside of the four corners on the freight invoice”.
This includes not only freight rate but also carrier performance.
Luciani said, “We are 98% in time and our claim ratio is around 0.26% of revenue.”
A. Duie Pyle ranks No. 57th on the TT100 for hire.
Chris Kelley, senior Vice President of Operations at Old Dominion Freight Line said that it is important for customers to be educated on the total cost.
He said that sometimes people look at the price first, rather than the value.
Chargebacks, delays and damages can all impact the total cost for the shipper.
Kelley said, “We have a value-calculator to discuss some of the things that we do to account for the cost of transport and how to maximize each dollar you spend.”
Old Dominion is ranked No. 8 on the TT100 for hire. The TT100 for hire has ranked Old Dominion at No. 8.
Kent Williams, executive Vice President of Sales and Marketing at Averitt, said that when pricing pressures cannot be sustained, it’s better to pass up an opportunity than accept a margin which will not allow a reasonable return.
Fortunately, most customers appreciate the value of a long-term partnership.
“They stay with us, even when the market conditions would allow them to find more competitive rates elsewhere,” said he.
Carriers such as Averitt may become more selective when market conditions require a greater emphasis on margins. (Averitt Express)
Williams said that maintaining profitability by increasing shipment density is one of the biggest challenges carriers face in a downmarket.
When market conditions slow down and the geographic area that a carrier covers remains constant, its density will decrease, which can negatively affect efficiency and margins,” said he.
In slower markets it can be hard to maintain the same level of hours and mileage that professional drivers expect during busier periods.
Williams said Averitt reallocates its resources from slower markets to more active ones to keep drivers and associates working, ensuring the carrier is ready for market conditions to rebound.
Averitt is ranked No. 25 on the for-hire TT100. The TT100 for hire ranks 25.
Boosting Efficiency
Josh Allen, chief executive officer of ITS Logistics, a dedicated transporter and provider of supply chain services, explained that there are two ways transportation companies can save money: either by cutting costs or creating efficiencies.
“We’ve focused our efforts on creating efficiency by leveraging technology, optimizing the network, and improving asset utilization,” he added, adding that the company increased the number of loads 40% over the previous year in the first quarter.
Mesilla Valley Transportation reworked their fuel optimizer, and eliminated one stop per vehicle per month. This adds up to over 1,700 stops per month.
“We are increasing the number of miles per day per vehicle by minimizing stops.” We spent less on fuel, stopped less and reduced incidents. 60% of truck stops incidents happen at truck stops,” Jones said. “Every time you stop you waste an hour. This is 60 miles. “I’d rather put 60 miles on the odometer.”
The carrier has also used technology to calculate return on investment when using toll roads.
Jones said that in the midst of the chaos, we spent $30,000 to $40,000. “We began to calculate the difference in time it would take to avoid paying a toll. In some cases it was only three minutes.
Mesilla Valley Transportation avoids tolls now if only minimal time savings are made. Jones said that toll charges have been halved in the Dallas region alone.
Old Dominion works closely with shippers to identify cost-saving opportunities in the supply chain.
Kelley said, “Partnering with them to reduce costs in their network helps us reduce costs in our network.” “Sometimes, it can be as simple as changing labels on products. A small change in packaging could change loadability.”
Old Dominion encourages its customers to use electronic manifests and bills of lading. These provide detailed information and increase accuracy, while reducing labor.
A. Duie Pyle is also looking for ways to improve the efficiency of its operations.
Luciani said, “In a downmarket, we are always looking to eliminate tasks which don’t add any value.”
A. Duie Pyle has an email address for employees to submit their ideas.
Emails from inboxes made a recommendation about idling policies.
Luciani said, “We have a policy of active idle, we measure intertrip idle and total trip idle, and we have built up a little competition between the terminal level and drivers level.” “It has helped reduce costs and improve fuel consumption.”
The Custom Cos. is a diversified trucking firm based in Northlake (Ill.) that is working to reduce the number of touchpoints.
It is incredible how many people touch an LTL shipment over its lifetime. Joseph Klikas is the chief experience officer of the company. He said that in one service center, there were five touches. “That’s where we see the highest cost.”
Klikas said that The Custom Cos. has been talking to shippers to identify opportunities to deliver freight to the market directly.
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“You can add a lot of value for the client if the freight is handled as little as possible,” said he, adding that the business also focuses on the lanes that are most profitable. “We find that by pricing to earn the most efficient lanes, you can make more money than if you were to price into areas that you are not good at.”
Klikas uses software from Carrier Logistics Inc. in order to identify costs and streamline loads. Ben Wiesen is the president of Carrier Logistics Inc. and said that technology allows LTL carriers get shipment data into operating systems earlier, enabling linehaul schedules to be changed proactively. It helps carriers monitor their costs, which can fluctuate significantly as freight volumes change.
“It’s one thing to know what your costs are today, but they are constantly changing.” Klikas says it is important to be aware of them when you bid for business. Even the smallest shifts in costs can have a significant impact on profitability, depending on the volume of business you were handling at the time.
The cost of equipment maintenance is another area that fleets, truck manufacturers and technology vendors are focusing on.
Even minor maintenance issues can be costly if not addressed promptly.
“Low-key problems may not trigger a diagnostic troublecode, but they still can have an impact on fuel efficiency,” said Craig Vanderheide. Vanderheide is the director of product development for Intangles a provider of predictive technology. “This 1-2% decrease in fuel efficiency can have a significant impact on a fleet’s costs per mile.”
Investing for the Future
Even in a market that is down, investing in new technologies and business improvements can be crucial to future profits.
The No. 1 for-hire TT100, the parcel giant UPS Inc. is ranked No. The TT100 for-hire list is ranked No. 1. Through its multiyear Network of the Future project, UPS Inc. aims to maximize efficiency and minimize cost.
Jim Mayer, senior media relations director, said that Jim Mayer expects total capital expenditures to be between $17 and $18 billion between 2024 and 2026, which is about 5.5% of revenue.
He said that UPS is deploying a number of new technologies including robotics and automation, RFID technology and artificial intelligence.
ITS Logistics invests in assets and capabilities that will help the company build stronger relationships with its customers.
Allen explained that the rationale was that we’ve already invested in customer acquisition and service. “The more problems that we solve, and the more sticky our solutions are, the more dollars will we bring to the bottom line.”
Recent investments for ITS Logistics include the opening of its 1.1-million-square-foot distribution facility in Fort Worth, Texas, the launch of a Tech Innovation Center in Walnut Creek, Calif., and assets such as trailers, power units and chassis.
Allen said, “This deeper capability set makes our company a better partner to our customers and puts it in a strong growth position for when the market turns.”
Old Dominion continues to look for ways to gain a competitive edge through its equipment and facility.
Kelley said, “Even if things are slower, we cannot stop investing in our networks.” “What we’ve done so well is strategically invested when others may be pulling back, giving us capacity.” We always gain market shares as the market recovers.