There is no doubt that the truck freight volume is down, and there is little chance it will be ramping back up to those heady pandemic days any time soon. At least in the United States, inflationary pressures and higher interest rates are taking a toll on American consumerism. Even Americans with good discretionary income levels are getting the feeling of a dark cloud on the near horizon and are getting more conservative.
As a result of less American consumption, trucking spot rates, generally negotiated within 48 to 72 hours of the freight movement, have declined over the past year and will likely drop a little further with no holiday rate bumps driven by higher service expectations. The only good news for carriers is truckload spot rates are getting closer to the bottom. Rates can only drop so far before enough carriers go out of business to help create a better equilibrium between capacity and tenders. For contract carriers, since spot rates push and pull contract rates, there is downward pressure on contract rates. Shippers will take advantage of receiving negotiating leverage back due to having the alternative of having the spot rate market eager to put freight in their trucks at bargain prices.
What a ride. Unfortunately, the ride back down is always bumpy.
2018 was a good and healthy year for trucking. Today outbound freight tenders are about the same as in 2018. Sounds good, right? Maybe not. The pandemic and the Fed pumping liquidity into the market sparked ultra-high spending levels, which should not have been there.
Consequently, there is now about 29% higher truck capacity than in 2018 for the same level of tenders. The economic orgy of 2021 and resulting capacity demand resulted in many new entrants and the growth of existing carriers in the trucking market. Now that the 29% can be considered over capacity. The capacity reduction has already begun, and capacity will continue to reduce until the market nears healthy freight tenders versus available truck levels. Regretfully the words ‘reduction in truck capacity’ is just a sanitized way of saying painful bankruptcies and truckers going out of business.
What does all this have to do with cargo risk?
During times of capacity shrinkage, some transportation managers and truck brokerage operations seize the pain carriers are going through as an opportunity to beat down rates paid to an unreasonable level. The motivation is to come in under budget or make a fatter margin and it is easy to sell ice water in hell, so they abuse carriers. Sometimes in some unhealthy companies, it is their job objective. Pressure from some upper management can be unrelenting to reduce costs rather than increase efficiencies where the focus should be. For the former, arbitrarily cutting budgets to capitalize on vendor pain can be compared to stealing cinder blocks from your home’s foundation for use to build a second story on that very same home. Eventually, your home will become unstable at its base but have a banging second story. Truckers are the lifeblood behind many businesses’ ability to provide their products to customers. Why strangle them to death?
At Risk Carriers
Each trucking company is issued an MC Number (motor carrier number) by the Federal Motor Carrier Safety Administration (FMCSA) when the trucker is granted authority to haul interstate freight. About half of the trucking industry are independent owner-operators who often sign on as a contractor with larger trucking companies. Currently, there is a healthy portion of the trucking industry with MC Numbers that are two years old or less. This means that quite a few truckers hauling freight have never operated their trucking business during a downturn. While more established older hands in the industry have the wisdom to park their trucks instead of operating at a loss if the environment warrants it; the newer ‘at risk’ truckers fight to survive, trying to get to the end of a tunnel that is too far away to get to. This is where the risk increases for beneficial freight owners.
Truckers may fall into traps set by over-aggressive miserly shipping managers and freight brokers, forcing truckers to work for pennies on the dollar. Sometimes the new truckers only realize they are hopelessly upside down and broke once their truck is forced off the road for a week. In an effort to keep themselves on the road, truckers can start skipping regular truck maintenance such as tire replacement and shrug off needed rest periods or drive while ill. This sets the stage for accidents on the road due to failing equipment or a diminished driver. Even if you are a soulless SOB who does not care about drivers or the general public’s safety, that is still your freight in the truck. It would be better to pay reasonable rates. You pay realistic rates, don’t you?
Okay, now that we have established you are not a soulless SOB, the SOBs are still out there crushing at-risk carriers. So how does a reasonable rate-paying person like yourself protect drivers, the public, and your freight, from risky carriers?
There is no one litmus test to test carriers; there are only subtle signs. The first thing I would watch for is truckers who ask for fuel advance money or require ‘quick pay’. Both could be indications the trucker is out of operating revenue and is living hand to mouth. The next best practice tool is asking the carrier for a copy of their insurance certificate, not just the file copy to email or fax to you, but one always sent by the trucker’s insurance company directly. Receiving a six-month-old copy from the carrier does you no good, but by obtaining an insurance certificate from the insurance provider, you can be confident the carrier has insurance.
This one may sound counterintuitive when brushed up against capitalism, but if a carrier accepts a foolishly low rate without negotiating for more, it likely is not the first time they are doing it. You may get kudos from shortsighted management, but if I were your manager, I would immediately task you with vetting the carrier to assess if they are an at-risk carrier. It may be a case of a true backhaul and a driver trying to get exactly where you want your freight to go, but it is surely worth checking. The company deserves to know the quality of the carrier their freight is in the care of.
Lastly, a quick ‘Saferweb’ check is always nice. Saferweb SAFER Web – Company Snapshot (dot.gov) is a website maintained by the FMCSA. Saferweb holds a record of every carrier with an MC number that operates in the United States. The site contains home base information for the carrier, the number of units/drivers a carrier has, the collective mileage the carrier traveled for the last recorded year, and cool things like the carrier’s road inspection and resulting ‘taken out of service’ record. There are cases where the carrier may be so small or new that there are few records to review, thus skewing percentages. Still, there are often helpful hints about the carrier’s suitability for your freight. The more inspections performed, the more accurate the results reflect the carrier’s operational efficiency.
Below are two snippets from a carrier record I lifted from Saferweb that I ran into while vetting a carrier for a customer. The review was done on April 4th of this year. Two things jumped out at me.
First, the carrier has 16 power units and 12 drivers, but in 2021 managed to log only 614,982 miles. If the miles are spread evenly between drivers, it would indicate the carrier normally does not do long-haul freight. Being more of a local carrier can be a good thing. Still, if my shipment was a long-haul load, I wonder whether the drivers have enough long-haul experience.
Next, the carrier’s inspection record was a red flag. The chart shows the number of inspections and the resulting drivers or trucks taken out of service. The subject carrier’s taken-out-of-service numbers were more than double the national average of other carriers taken out of service. While the website does not show why the carrier was deficient during the inspection, this indicates the carrier needs to improve truck maintenance and uphold driver requirements set by FMCSA.
It may seem harsh, but if it were my company’s freight and risk on a long haul, I would find another truck to carry my freight even if I had to pay a few more dollars. There are too many good carriers out there looking for freight, and the cost of a spectacular failure would be higher than the price of a quality carrier. So those of you nodding your head in agreement, I am happy to say, you are not a soulless SOB.