Is the Trucking Industry set up to Fail?
By Sandy Long
Listening and reading about the Arrow fiasco and what caused it got me thinking about how the trucking industry does business these days. Is it set up to self destruct? While poor business practices and poorer moral choices led to the Arrow fiasco, just how much of it came from the way trucking has evolved in recent years.
Looking at trucking, it should be simple; a shipper has freight to move, they contract with a trucking company or owner operator who moves it, either the shipper or the receiver pays for the freight shipment costs; simple right? No, not these days.
Trucking companies use fuel cards that for the most part are like secured credit cards; they have to maintain enough money on those fuel cards each day to pay right then for the fuel they buy. That could be almost a million dollars a week for the largest companies with fuel prices high.
The larger shippers rarely contract directly to a trucking company, instead using brokers from in-house or outside brokerages. Freight rates have been stagnant for the last 20 years and in the last decade have actually fallen as competition for the little freight available has increased. Those rates are further lessened as brokers double and triple broker loads within, at times, their own companies or affiliates to retain as much money as possible for themselves. Then, instead of being paid when the freight is delivered or in a timely manner, freight bills are not paid on for up to 120+ days by the brokers, who have to wait to be paid by the shipper, leaving trucking companies in cash flow problems and making them rely on credit for cost of business monies.
With little or no regulations covering brokerages and brokers, it only takes one fraudulent one to really mess up the cash flow issues of a trucking company. Several years ago, at the small company I worked for then, one of my pay checks bounced. Calling the boss when I found out, I found that a check from a broker for $10,000.00 had bounced causing a domino effect thru the company. My company had no recourse because the brokerage had gone out of business and there were too many others in line for the $10,000 bond. The same people from the brokerage reopened under a new corporate name and it was business as usual until they did it again to their trucking companies.
If a 1500 truck company has cash flow problems due to non payment or timely payment of freight charges for the loads they hauled, where do they come up with the $250,000 needed for their weekly fuel bills much less payroll and other costs such as insurance and taxes? The banks have cut back on giving credit to companies who might have some issues facing them of monies already owed. Trucking companies do not print money and cannot spend money they do not have.
Looking at things logically, I wonder just how much of the way trucking has evolved has been done on purpose. According to Transport Topics, 450 fleets and/or small companies went out of business just in the 3rd quarter of 2009. Extrapolating that out over the year, that would be 1800 companies in the whole year; that is a lot of companies to close. Where did their contracts go? Perhaps to larger companies who swooped in to pick over the leavings I would think. Can you see the trend as I can?
A caller to a satellite radio show suggested that soon, there would only be a few major carriers and a few small companies to haul the higher risk freight. The caller’s comment fell in line with what I have thought for a decade or so. That we would soon all be working for mega carriers that would be under governmental control and most of the freight would ship by rail. In my opinion, trucking as we know it has been set up since deregulation to fail.
My thoughts are supported by current and recent events within the industry, the systematic destruction of trucking and truck driver’s images, the increase in overwhelming regulations and the continuing effort to open the southern border to allow foreign truckers to haul goods we use. While many might think me a conspiracy nut living on the fringe, people should take a look outside of the box and think about what and why things are happening the way they are; the writing is on the wall.