As transportation professionals, all of us have been through the roller coaster ride called cyclicality many times. Trucking is famous for it. The economy gets hot. Truckers buy trucks. Truckers buy too many trucks. The economy cools. Capacity goes from very tight to not tight at all. Rates rise. Rates fall. And the cycle begins again. We’re experiencing this now as 2018’s monster rates have fallen to 2019’s rates that seem more like the 1980’s. For those of you who are more seasoned, like me, you’ve seen it before, and you’ll see it again. For those of you who are younger, get used to it. Because the trucking industry is so fragmented, it’s how this industry has always worked.
In my career I have always paid attention to the pendulum.
Shippers have always tended to swing between low cost and best service. For years I worked for a carrier that was “best service”. But gradually that carrier began to price themselves too high, valuing their service more than what the shipper thought it was worth. Shippers will accept a certain level of failure if the price is right. Likewise, as in today’s market, prices escalated way too much in 2018 to the point that publicly traded companies had to footnote their missed earnings with “transportation costs”. To my knowledge that has never happened.
Truckers also always seem to forget that the cyclicality of this industry is something that never changes. The example I was always given was that in a tight market a shipper tells 10 carriers they have a load to cover and all 10 carriers buy a truck because all their other trucks have freight on them. That’s how capacity goes from tight to not tight at all. It’s how new carriers with truck payments die a quick death and how smart carriers with no payments park their trucks against the fence in times like we are now experiencing.
So, the industry ebbs and flows between price and service. We have just swung wildly to the right to low price. Depending on whether you’re a spot market carrier, a contract carrier, or a broker, you’ve likely seen prices drop from a little bit to a lot.
Where do we go from here? Pretty quickly the pendulum will begin the inevitable swing to service. For brokers, low prices often can mean taking chances on lower cost carriers. With lower cost, sometimes comes lower quality service. Not always, but sometimes. For asset-based carriers, the high truck payment guys will quickly realize they can’t survive at the present price structure so they will begin to disappear. The well capitalized carriers who have parked trucks and are known for service will wait it out. Things like service reporting and FourKites and Macropoint will begin to be talked about again.
If you haven’t gotten your customer service shined up, now would be a great time to get that done. Your customers are about to demand it. They won’t tolerate bad service even with the low price. And with that, the pendulum will again begin to swing.