The trucking industry enjoyed its peak during the supply chain crash at the start of the Covid pandemic. The pandemic trucking industry is now gone, and there are chances that we do not see this type of demand again for ACT Research.
Pandemic and the trucking industry:
At one point in time, during the pandemic, the truckload spot market started to handle more than one million loads per day, versus the historical average of 4,00,000. They kept up with the demands of the shippers and retailers and focused on efficiency, by using more trucks. This high performance has set unrealistic expectations for the trucking industry.
Such a situation has also led to new carriers settling into expensive leading deals. As of now, truckers should learn to cope, as the market is affected by supply chain challenges and driver shortages. This downturn is getting worse, leading to a recession.
Statistics that support trucking recession:
In April 2022, the GDP of the United States declined by about 1.4%. Since March, the trucking industry was slowing down, coinciding with the fuel prices, rising by 26% nationally. The fuel prices are now soaring 62% higher than at the same time, last year.
The larger trucking fleets can protect themselves during this economic downturn. The status of new venture carriers and owner-operators are still a matter of doubt. Owner-operators buy fuel at the pump price. These prices are soaring, and the industry faces a lag in cash flow, as it waits for 30 days (about 4 and a half weeks) to receive payment after completing a load. This difference in cost and payment creates a tricky situation for the trucking industry. The new owner-operators are in a situation to either auction their trucks or go back to their truckload carriers.
What can the new truck owners and small fleets do to prevent recession risk?
Though recession risks are already on the cards, the new truck owners should start preparing, and not wait until the recession hits. Here are the following steps to prevent recession risk.
- Lower risk and increase safety:
Trucking companies should pay their debts when the money is good. They should maintain a clean driving history and clear all new bills on time. They should build strong relationships with trusted brokers and shippers.
- Control the cash flow:
Truckers must deal with costs paid out up-front before moving a load, such as investment in equipment, insurance, fuel, maintenance cost, etc. To have control over the cash flow,
- Have clear terms on a credit application, rate advisory, and invoices.
- Stay away from load boards.
- Work on receivables weekly.
- Base decisions on data:
Trucking businesses should take all business-relevant decisions based on data and use electronic logging devices. This helps them manage their vehicles, drivers, driving habits, audits, and maintenance.
The best ways to handle growing recession risks for the trucking business are to strengthen customer relationships, work efficiently and have prompt insurance coverage in place.