By: Mike Hosted, VP, ATBS
From May 2020 until April 2022, we saw the biggest and longest freight boom in the history of trucking. Most great freight cycles are here and gone in 6 to 12 months, but because of many extraordinary factors like the COVID-19 Pandemic and government stimulus, this past booming freight cycle lasted two years! This caused an unprecedented number of ICs and trucking companies to obtain their own authority and move to the spot market to cash in on the record freight volumes and rates.
However, as we stated in our article back in April, “the times were a changin”. Since April, we’ve seen:
Fuel spike to nearly all-time highs.
High volumes and rates in the spot market evaporate to pre-COVID levels.
Maintenance costs continue to soar and parts remain scarce, which is causing much longer than normal downtime for repairs.
Purchasing a new or used truck continue to be unbelievably expensive.
AB5 became codified in California.
Labor shortages causing headaches and delays at shippers and receivers.
And now, contract rates are starting to drop.
What a list of hurdles and changes!
For the seasoned veterans out there, you know that trucking is cyclical and will always have its ups and downs. However, this last freight boom brought many new faces into the IC world of trucking. Those newer folks have never seen a downturn and therefore may not know how to manage their business in a down market. Yes, some will fail and go back to being a company driver or even leave the industry altogether. However, for those who want the American Dream of owning their own business… now is the time to dig in and make your business as efficient as possible while taking some extra steps to ensure success!
It’s really time to get back to the basics. Any football fan can relate that it’s time to focus on “blocking and tackling” to push your business forward. Getting back to business fundamentals 101 will not only keep you afloat now, but set you up for even better success when freight gets back to great levels in the future!
So what can you do right away?
Don’t Panic, Rates are Down Everywhere
The grass isn't greener on the other side and changing carriers is extremely expensive when you factor in downtime. Expand your area of operation and go places others don’t want to. A significant number of drivers now have the mindset that they won’t go to certain areas of the country. That can really shrink the availability of good-paying loads. Re-explore and be open to going into more difficult markets while having an understanding of your cost per mile and the time it takes to get in and out of there.
Understand Your Profit Plan and Update Your Numbers.
Now is the perfect time to take a step back and evaluate your profit plan. Putting together your revenue forecast, fixed costs, and variable expenses can help you identify where to make financial changes quickly. If it is done correctly, you can also understand your break-even point, or how much revenue you need to generate to pay your trucking and home bills. You can also identify your needed tax savings quickly to make sure you don’t fall behind with Uncle Sam.
Reduce Your Biggest Cost Right Away!
Fuel is the highest cost for almost every truck. Luckily, it’s also the cost you can control the most. Habits and the latest fuel technology are quick additions to reduce your biggest cost. Remember every dollar you save on fuel goes directly into your pocket!
What do you need to set up for more long-term success?
Monthly Financials (P&Ls)
A good business always tracks its financials and monitors them at least monthly. Now that you’ve set up your new profit plan and know what it takes to be successful, make sure you have a scorecard to monitor your progress. A profit and loss statement can be compared to your profit plan to make sure you are reaching your revenue and expense goals to hit the bottom line you need to achieve your own personal success.
Change Your Revenue Mindset
Consider running lanes and routes you haven’t previously. Don’t just focus on the highest rate per mile; focus on generating the most revenue per day over a sustained number of days. This may include accepting some substandard rates that get you into a market where rates are higher. Don’t sit and wait (layover) hoping for a better rate the next day. The average O/O has business and personal fixed costs of $240/day. If you sit two days waiting for a load that pays more per mile, you’ve dug yourself a hole of $480 that is harder to get out of.
Make Sure You are Saving Enough for Repairs
Maintenance is the #1 reason for IC failure. It’s not always the cost of the repair itself that causes a business to fail, but often can be the extended downtime associated with the repair where you still have fixed costs and home bills to pay without generating revenue. You need to make sure you have an in-depth and personalized maintenance plan for your truck. Our average IC is saving between 12-14 cents per mile.
Be More Frugal
Sometimes the best way to have better cash flow in tough times is to really really watch your spending. Shop around for the best price on fuel. With a carrier, that is often what the fuel routing software tells you. Check on your insurances to make sure they are appropriately assessing the value of your truck. Most importantly, when times are tough, be frugal with personal spending on the road. Eating at restaurants has become very expensive and is a great way to increase spending quickly!
The bottom line is that things in trucking took a major downturn here in the last six or seven months. For some of us, this is just another cyclical event that we’ve been through before, and we’ll survive this one too. For those of you who are newer to this world, we need to focus on getting back to the basics. Tighten your financial belt, start making changes today, have a more in-depth long-term plan, and work a little harder. Tough times can easily be defeated with hard work, and it will always set us up for better success when things turn around like they always do!
At ATBS, we have worked with owner-operators for almost 25 years with the purpose of helping our clients become more successful business people and save money on taxes. If you feel alone and down about the market, give us a call and we will fight with you to come out of this stronger than ever. Ready to get started? Visit www.atbs.com or call (866) 920-2827.