Has The Freight Market Hit Rock Bottom? 3 Ways Fleets Are Staying Ready For Recovery
It goes without saying: 2023 is proving to be a challenging year for trucking companies.
Current market conditions – what many call a trucking recession – are diminishing trucking companies’ ability to turn a profit and stay ahead of financial obligations. Following a post-pandemic boom in trucking demand, markets have tanked. As a result, carrier layoffs and bankruptcy is rising.
In this challenging market, most fleets are forced to tread water and haul freight at the break-even point, staying afloat until more favorable rates and higher demand levels return to the market. It’s a case of being resilient enough to ride through the remainder of the trucking recession and agile enough to capture new business opportunities as they arise.
And while many industry stakeholders are convinced that the freight market is at rock bottom now, the latest data shows better days may be on the horizon.
In this article, you’ll learn why freight industry analysts consider current conditions at “rock bottom.” We’ll then look at three ways trucking companies can get prepared to capitalize on the upswing when it comes.
Is the trucking recession at “rock bottom”?
Several metrics within the trucking industry, such as capacity demand, freight rates, and import volumes, have been impacted by significant declines at the same time. Many industry analysts classify the resulting conditions as a “freight recession” or a “trucking recession.”
But there are signs emerging that indicate the current market conditions may represent the recessions rock bottom for truckers. Carrier start data now shows resilience, with starts remaining in line with the rolling six-month average. This indicates that enough opportunities exist to support new carriers – a positive sign that the industry may be nearing its next recovery cycle.
When will the trucking industry recover?
While it’s unclear when freight volumes will return to pre-pandemic levels, there are a few indications that better days in trucking are within sight.
Rebalancing is underway: The good news is that Q2 industry numbers show signs that freight rates are stabilizing. The difficult news is that the actual level at which these rates are stabilizing is close to most trucking companies’ break-even point. As a result, vulnerable trucking companies are struggling to survive.
Following the record-breaking number of new carrier starts during the post-pandemic boom, a recent report shows a significant drop in the nation’s number of carriers as inexperienced and vulnerable trucking companies exit the industry.
Stabilizing freight rates and a contraction of the nation’s carriers to pre-pandemic levels indicate a rebalancing of the freight market.
Nationwide recession fears are fading: In early 2023, talk of a nationwide recession dominated news headlines. But as the year progresses, emerging signs paint a different picture, pointing towards a far milder recession than anticipated, or none at all.
For instance, new home sales are trending upward. Employment growth across the United States defies expectations, with 339,000 new jobs added in May. And in welcome news to business owners, inflation looks to be cooling off – many expect that interest rates have peaked.
Since the freight industry is closely linked to all facets of the broader economy, trucking conditions will likely mirror macroeconomic trends. As consumer confidence returns, so will freight demand. Optimistically, analysts are predicting moderate improvements in trucking industry numbers during Q3 and Q4 leading to slow growth in the latter half of 2024.
Maintain resilience and stay in the game
If, as the latest data seems to indicate, the freight market is at rock bottom, and the next recovery cycle is within sight, the challenge will be for fleets to maintain resilience, stay in the game, and prepare to act with agility when growth opportunities develop. For that to happen, it may come down to maintaining efficient operations to squeeze profits from a tight freight market and applying stringent risk management to avoid damaging losses that could sink your business while you wait for those better days to return.
Let’s look at three critical things fleet managers should focus on to maximize efficiency and risk management while waiting for the next big upswing.
1. Control your company’s cash flow
Trucking companies need reliable cash flow more than ever to keep trucks on the road, manage bill payments, plus keep up with maintenance and service costs. Many trucking companies are being re-evaluated in 2023 by their lenders as banks and other traditional lenders monitor their portfolios more closely for risks of default. In this environment, fleets with diminishing financial performance levels are at risk of having their lines of credit and business loans recalled.
To that end you may need to take tighter control of your cash flow by finding an external partner who can quickly respond to cash flow gaps. In this market, it’s more important than ever to ensure you have a trusted financial partner you can count on. That might mean re-evaluating your business financing strategy and the quality of service from your cash flow provider. Alternative finance companies specializing in transportation financing deliver reliable funding to trucking companies with creditworthy customers and equity in their working equipment. Look for an alternative finance company rooted in experience to provide maximum cash advances, quick funding you can count on, and responsive customer service.
2. Minimize costs without compromising operational efficiency
A dollar saved impacts your bottom line directly and positively, making it even more valuable than a dollar earned. Controlling costs is essential for maintaining profitability and competitiveness. It is an ongoing process that requires monitoring, analysis, and continuous improvement. Here are three effective strategies to control costs by lowering your fleet’s cost-per-mile.
- Fuel management: On average, fuel represents 35% of your overall operating costs. Any saving in this category will have a significant positive impact on your bottom line. Invest in fuel-efficient technology and use a robust fuel discount program that delivers savings, cost control, and security.
- Optimize vehicle performance: Despite upfront costs, performing regular vehicle maintenance, using technology to monitor vehicle performance, and adjusting driver habits as needed will save overall operational costs.
- Equipment utilization: Minimize operational costs by optimizing the assignment of loads to trucks based on factors such as proximity, capacity, and delivery schedules. This can lower your fleet’s cost-per-mile. Utilize dispatch software and algorithms to match available trucks with the most suitable loads. Seek backhaul opportunities to utilize trucks that would otherwise return empty after delivering a load. Establish partnerships with other companies or freight brokers to secure return loads and minimize empty miles.
3. Be on the lookout for fraudulent practices
It has been estimated that trucking fraud costs the freight industry over $80 billion annually, but recent reports reveal that fraud is rising – and large trucking companies are one of the targets. The average value of stolen cargo in 2022 was $214,104, enough to sink vulnerable trucking companies. A renewed effort to increase awareness and prevent fraud should be a central tenet of any fleet’s operating procedures.
You can help prevent theft and fraudulent activity by increasing awareness, guarding information, and verifying the identities of new customers through their contact information on file with the FMCSA.
Industry Q2 numbers show signs that freight rates appear to be stabilizing at near or below pre-pandemic levels. Rates are now hovering close to most trucking companies’ break-even point – vulnerable trucking companies are struggling to survive.
As vulnerable carriers exit the market, resilient fleets will be well-positioned to capitalize on the market’s eventual return to profitability.
Work with an experienced and reputable alternative lender specializing in the trucking industry to secure flexible fleet financing. The best of these lenders provide reliable funding, effective capital management services, valuable online tools to help maximize efficiencies and expertise to help solve complex issues as they arise. Fleets with fast funding and expandable credit limits will have a competitive advantage with the resilience to withstand razor-thin margins and the agility to respond to new business opportunities as they develop.
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