How To Survive The Chaos In Freight Transportation
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The OTR transportation industry is currently in chaos, unlike anything seen before. While trucking typically experiences cycles, this period is exceptional. Oscar Rombolà, a managing director of eCapital and a transportation financing veteran of over 35 years, shared his insights on what trucking companies must do to survive the chaos of extreme volatility.
Oscar points out that the industry’s transformation from boom to bust resulted from changing consumer buying habits during the COVID health crisis. Stay-at-home orders prompted a surge in online shopping, causing a 26.4% global e-commerce increase to $4.248 trillion in 2020. As consumer spending continued to surge in 2021, the US freight market peaked at 1.8 million loads in a single day, an incredible increase over the pre-pandemic average of 400,000 loads per day.
This sudden and remarkable increase overwhelmed the industry’s capacity supply, driving the spot market to historically high levels. Excessive profits were made on loads, causing a stampede of new for-hire trucking companies to enter the market. But nothing lasts forever – the spot market took just over twelve months to go from historical highs to a new rock bottom level. The chaos of excessive rates that took root during the pandemic boom years quickly transformed into the chaos of extremely loose capacity magnified by fierce competition.
Leveraging his extensive experience in the freight industry, Oscar Rombolà offers advice on how to survive the chaos in freight transportation until a balanced market returns.
The transforming state of chaos
The negative impact from the pandemic fallout began to ravage freight markets at the start of 2022, transforming the industry and the state of chaos. Much of consumer spending was diverted from consumer goods to services, such as restaurant dining, traveling, and entertainment events. Meanwhile, soaring inflation, high-interest rates, and the end of government assistance programs took the oxygen out of consumer spending overall. Demand plummeted, freight became hard to find, and spot rates dived as operating costs escalated. Margins became razor thin – many trucking companies struggle to break even with each load. Over 1.1 million for-hire trucking companies operating in the US are competing against each other in a freight market struggling to recover.
The rise of broken contracts
Many trucking companies resorted to unprincipled practices to capitalize on substantial profits during the height of the pandemic boom. Large numbers of brokers and carriers broke freight contracts and sacrificed customer service to chase the extreme rewards of the spot market. This often involved carriers abandoning dedicated lanes, leaving shippers in a bind. Fast forward to the present, and the situation has reversed – now, many shippers are canceling contracts with carriers. Contracted freight is being shifted to the spot market for more economical rates. Oscar highlighted the shift, stating, “In the past, contracts were untouchable, with rates set and honored by both parties for the contract’s duration. Well, now it’s not like that!” Dodgy practices such as broken contracts and rate cutting further contribute to the prevailing chaos.
How to survive the chaos
So, how do carriers survive the chaos? The answers lie in quality service and being careful. Oscar explains, “The trucking companies that are faring well are careful and have upheld excellent customer service. Many of these companies continue to maintain good business because, don’t forget, transportation is all about service.” He continued, “Make sure your service is impeccable, your trucks are impeccable, and your delivery is impeccable.” But more is required. “Know your cost-per-mile and look for loads or work with brokers you actually make money with.” Oscar added, “Make sure that you have discounts in as many things possible, from tires to fuel to insurance costs, and be extremely careful not to fall victim to bad debt or fraud.”
While this advice may seem simple and obvious, it remains vital in managing the complexities of the current situation. A comprehensive approach to good service, knowing your cost-per-mile to control expenses, and risk management are essential to survival. The good news is that you are not alone. Industry experts are available to provide services, expertise, and cost-cutting advantages to aid your sustainability.
Freight factoring alleviates the stress of chaos
Although improving cash flow is their primary function, industry-leading freight factoring companies provide more than fast funding solutions to keep your trucks moving. To streamline efficiencies, the best freight factoring companies offer cost-saving services, risk-mitigating tools, and back-office support. “Freight factoring companies provide more than just access to operating capital – they offer turnkey solutions to help maintain financial health,” states Oscar.
“Take the example of a small fleet of 10 trucks with an office staff of 3 people to run operations. If any one member of the staff goes off sick, on maternity leave, or is absent for any reason, office administration may get backed up. Billing and collections can suffer, and risk management can fall behind. These are the administrative tasks that can drive trucking company owners nuts!”
The best freight factoring companies can alleviate all that stress with back-office services, free of charge. Professional collection teams improve accounts receivable efficiencies, credit risk tools help to reduce bad debt, industry experts assist to help avoid fraud such as double brokering, and cost-saving services are available, such as fuel discount programs.
Efficiency is the recipe to survive an industry recession
2024 is expected to pose continued challenges until the industry’s chaos subsides as the balance between demand and capacity stabilizes. Oscar expresses optimism, stating, “Is there a light at the end of the tunnel? Of course there is. Trucking is an essential service. No number of technological advancements will replace the need for trucks to deliver the nation’s supply of goods and products. The smart entrepreneurs who use this time to plan and become more efficient will profit in the end. This has always been the recipe through every recession.”
Conclusion
The chaos that envelopes the industry is a limited period. Better days lay ahead as the latter half of 2024 is anticipated to be a return to moderate economic growth and a more balanced freight market. Although the current chaos threatens the survival of many trucking companies, it is weeding out the inexperienced and vulnerable trucking companies that are worsening the current situation. Resilient trucking companies are shoring up defenses against the lingering effects of the pandemic, positioning themselves to endure and thrive in the brighter days ahead.
Consider the benefits of freight factoring to provide fast funding, industry expertise, cost-saving services, and risk-mitigating support to help survive the chaos and prosper as the market rebalances in 2024.
The content of this article is intended to provide a general guide to the subject matter. The views and opinions expressed are those of the authors and do not necessarily reflect the official policy or position of eCapital.
Key Takeaways
- The OTR transportation industry is currently in a state of chaos unlike anything seen before.
- The chaos driven by excessive capacity shortages that took root in the post-pandemic boom years has transformed into the chaos of extremely low demand and fierce competition.
- Unprincipled practices are further contributing to the prevailing chaos.
- A comprehensive approach to good service, knowing your cost-per-mile to control expenses, and risk management are essential to survival.
- Freight factoring companies offer turnkey solutions to enhance financial health and increase efficiencies to help survive chaos.
- Smart entrepreneurs who use this time to plan and become more efficient will profit in the end.
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eCapital Corp
eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.