Trucking is Sure Confusing These Days

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Trucking is sure confusing these days isn’t it? Chew on these facts for a minute:

1.      The trucking industry is officially in a recession, according to data tracked by ACT Research and reported by FreightWaves.

2.      Freight volume in 2019 has been strong, but has now started to weaken below 2016-1017 numbers. Spot rates are down double digits and contract rates are being converted to spot rates by shippers faster than you can imagine.

3.      Is there a driver shortage as we have been told our whole careers? U.S. unemployment is at 3.7%. A record number of Class 8 trucks were sold in 2018 and so far in 2019, the number of cancellations is below average. So, I guess this means there is no driver shortage?

4.      I sent this question out to several of my contacts this morning, “There have been several carriers that have gone out of business in the news in the past couple weeks. Curious as to your thoughts? Over expansion on the carrier communities part causing unrealistic rate softness or what exactly?” Whether you agree or disagree, many publicly traded shippers missed their numbers last year due to transportation costs. Knowing that the trucking economy is in recession and that there are too many trucks for even a robust U.S. economy means that shippers are going to keep the pressure on to lower rates so that they do not have to raise prices to their customers.

5.      Tariffs, weather, and other things have impacted the transportation economy negatively this year.

6.      The most recent Cass Freight Index (June 2019) indicates that, “As volumes of chemical shipments have lost momentum, our concerns of the global slowdown spreading to the U.S., and the trade dispute reaching a ‘point of no return’ from an economic perspective, grow.”

Like I said, it sure is confusing!

So, freight brokerage, how do you handle these facts?

From my perspective:

1.      Stay the course with your marketing and contacting of your prospective customers. Continue to do things that show them your knowledge and passion for the industry while understanding that they have an ample supply of trucks at their disposal. Make sure you have a growth strategy for acquiring customers. There are a lot of shippers who move smaller volumes that are not attractive to larger fleets. Find them.

2.      Cover your customers freight and maintain an unblemished track record of doing so. In an industry that has a reputation of being unreliable, be the shining star of reliability.

3.      Do not cut corners when you are vetting carriers because you are trying to find someone ‘cheaper’. Bad idea. Really bad.

4.      Goldman Sachs reported earlier this year that 23% of all loads moved in the U.S. were handled by freight brokerages and 3PL’s. With most of those smaller fleets looking to the spot market rather than contractual freight, “shipper behavior” is changing to tap into those smaller fleets on a more regular basis. Instead of using them for surge capacity, more consistent use of those fleets is smoothing out volatile spot freight rates. Freight brokerages live in this environment.

Keep working!

-Russ

HOW CLEAN ARE YOUR RESTROOMS?

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Just back from a few days of making calls in the Chicago market. Wow, was it cold!

While in the Windy City, we made a pit stop for gas and a bathroom break. I nearly stopped at a stand-alone gas station, but I thought a convenience store would have a cleaner bathroom for the ladies. So, I went up another block and stopped at a Thornton’s. They had one of those “We take pride in having the cleanest restrooms!” signs on the mirror glaring at you while washing up. The sign was fake news. Nothing in the restroom was clean–paper towels on the floor, water splashed and dried on the mirror, toilets unflushed and it stunk to high heaven! It was nasty.

I started thinking about owning a truckload brokerage. Yes, I realize that probably sounds a little strange; equating dirty bathrooms to my business. Here’s my thinking. Any gas station or convenience store can plaster a sign on the mirror saying they pride themselves on the cleanliness of their bathrooms just like any freight brokerage can say they are better than their competition. We at R & S Delivered work so hard to change the way some shippers view brokers–Seen one, seen them all. You know the “How do you differentiate yourself?” question. Think about it. The Journal of Commerce estimates there are over 18,000 truckload brokers in the United States. Every broker who calls on a shipper, no matter their age, experience, qualifications or passion, pretty much says the same thing.

Every broker says they:

1) are pro-active in communication

2) have thousands of carriers

3) rarely, if ever, use load boards

4) are passionate about what they do

5) have long-term carrier relationships

6) vet all our carriers using the most stringent rules

7) are all about trust and integrity

8) are transparent at all times

9) have hundreds of years of combined office experience

10) can solve all your problem lanes

and so on.

When “Mr./Mrs. Decision Maker” is sitting and listening, how do they determine who really has the “cleanest restroom?” While the sales pitch may solve all the shipper’s problems, do the actions mirror the pitch?

Here’s what we at R & S Delivered think:

First, does the broker provide value to you the shipper? If they don’t, then they should be removed and replaced. I was talking to a prospect a few weeks ago, and he said, “I need another broker like I need another hole in the head.” If selected properly, I truly believe one or two brokers can easily do the work of many.

Secondly, do the services the broker offers match up well with your business? Sure, the big guys do it all, but if you are in a specific industry sector and your broker does very little in that sector, move on.

Thirdly, does the broker provide industry sector references? If you are in the foodservice business, then ask the broker for contact information for the foodservice companies with whom they do business. Follow through. Call or email them. Seriously, I can’t remember a shipper asking me for references other than on an RFP, and then the references were never contacted.

Fourthly, who is sitting across from you telling you about their business? Is it someone of authority? Is it a decision maker who will continue to be involved in your business and take ownership of the process? What is your gut telling you about working with this person and the character of this company?

Fifthly, will the broker honor their contract rates? This has been especially important in the past year when hurricanes, ELD’s and a red-hot economy caused many brokers (and asset carriers for that matter) to abandon their contract rates and move to the spot market. A lot of brokers use a short-term strategy to maximize profits instead of using a long-term relationship strategy. It is the broker’s responsibility to find the “right” carrier to haul the loads, so, if rates go up, the shipper is insulated.

Anyone anywhere can put a sign up telling you how important it is that their restrooms are clean. Be sure you’re asking the right questions of a potential broker. You don’t want to find out too late their advertising is false, and then find yourself having to clean up the mess. #truckload #truth #brokers #shippers #chemicals #plastics #food

 

Best, Russ

Moving on up!

R & S Delivered is growing again! Tonight is moving night. In the pictures below you will see our humble beginnings. Five years ago my wife, Stacey, and I started the company in our basement. Within months we moved to 4540 Gravois in St. Louis which had 800 s.f. and we could fit 5 people! 18 months later we moved to our present location at 2816 Sutton Blvd., in St. Louis. which helped us grow to 16 people in 1700 s.f. over the past three years. Tonight we move a block up the street to 2663 Sutton where we will have 2800 s.f. and can grow up to 25 people.

Many thanks to our customers and our staff who through a lot of trust, hard work, and a perfect mix of grace and mercy have helped us grow to this point.

We love what we do.

#shipping #transportation #business #trucking #broker #growingbusiness #plasticsindustry #chemicalindustry #freightbroker #freight

Who coined the phrase “Pigs Get Fat. Hogs get Slaughtered.”​?

 

This is an impromptu post. I didn’t intend to write it when I got up this morning. I’m writing it after an interaction I had with a customer this morning. That customer had an easy refrigerated load picking up in MN and going to WI. Load picks up on January 2nd, a long time from now, and delivers the next day. It’s less than 300 miles. One of that customers “valued carrier partners” quoted $1,950.00 to haul that load. The market rate on the load was about $850.00. I quoted $850.00 and was awarded the load. The customer emailed me asking if my rate was correct. I said yes. I also said, “And can I say something? Whoever your carrier “partner” is that put $1950 on that lane should be eliminated from your list of “partners”. That’s a rate that only a pig would suggest. Seriously.” Now at the risk of offending someone with my picture, it takes big balls to quote a rate like that to a customer. A customer that you value. One who you should be giving your very best to every time they ask you to quote a load. Customers are so very hard to find. You call on them for months or years and finally get your chance to work for them, and this is what you give them? $1,950.00 on a load that should pay $850.00? Shame on you for not valuing your relationship with that customer.

It’s the holiday season. Christmas time. A time of giving and spending time with family. A time to send out thank you cards to your customers thanking them for your business. Think about it. If you’re a broker out there who thinks the best way to get ahead is to be a hog, prepare for the slaughter. You don’t deserve to be representing our industry.

Oh, and to answer my original question, Who coined that phrase? It was an Australian TV show in the 1980’s called Rubbery Figures. They get the credit. #chemicals #plastics #food #trucking #truckload #broker #Christmas #hogs

Russ Schultz

Spot Market Below Contract Pricing!

Don’t Look Now, But Spot Market Pricing is BELOW Contract Pricing!

November 3, 2018 –

Taken a look at about any lane on DAT lately?  What you’ll find is that the spot market rate, which for the past couple years has been above the contract rate, is now below it.  In some cases well below it.  Take this lane as an example: Richmond VA to Owensboro KY – spot $1149 contract $1654.  But really you can look at about any lane.  They are all similar.

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To understand it better, let’s first look at the definitions of Spot Quote & Contract Rate Quotes

Having established that a strategy must be developed and that the shipper almost always drives that strategy, let’s define and examine.

What is a spot quote? A spot quote is a one-time rate quote issued to a shipper for one transaction or one group of transactions.  You find spot quotes on low volume lanes, sporadic seasonal lanes, and when a contract carrier has dropped a shipment for whatever reason. The spot market covers about 1/3 or all truckload freight movement.

What is a contract rate quote? A contract rate is a rate quote issued to a shipper that is to be held static for a period of time, usually one year.  The rate is generally quoted by an asset based carrier, but can be quoted by a broker as well if they have a dependable carrier that they know will handle the lane volume for them.

Since 2017, the spot market heated up and stayed heated as hurricanes, ELD’s, and a ramped up economy stoked the rate fires to near inferno status.  Economics 101 teaches supply vs. demand and demand was the clear winner.

Even into mid-2018, freight demand was projected to stay elevated, with the economy predicted to remain strong. Capacity “in terms of drivers and trucks” will remain short despite “a substantial number of trucks coming into fleet hands or truck dealer lots” later this year, he says. Fleets will struggle to find drivers to fill those new trucks mitigating their ability to increase capacity.

In an article published earlier this year, FreightWaves stated, “Since mid-year 2017, the spot market rate was higher than the contract rate. That development appeared to cool off in February (2018) and the first half of March (2018). What didn’t cool off is the increase in contract rates as shippers implemented higher contract rates based on the latest bid cycle.

It is not just the big guys are that are getting rate increases. Many shippers that FreightWaves spoke with mentioned that carriers that haven’t asked for rate increases for the past five years are coming to them demanding increase. In the tweener market, carriers are reporting getting high teens, as the owner operators are moving down market into shorter lengths of haul (i.e. moving out of the tweener market) to maintain compliance.

So what has caused the spot market rate to drop so suddenly?  First, the US economy has started to show a few signs of losing some of the steam it has had for so long.  Challenges are building. Preliminary US GDP growth according to advanced estimates will be at 3.5%, compared to 4.2% in the second quarter.  Actual numbers will be released November 28th.

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Second, housing starts have bounced up and down the past 5 months but permits for future homebuilding have continued to decrease. This signals weakness in the economy as housing starts and the homebuilding industry are a leading economic indicator.

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Third, new home sales continue to fall, so inventories are growing.  The Fed likely will raise interest rates again this year after keeping them artificially low the past many years.

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While all of this negative information is going on, guess what Class 8 truck sales are doing?  Continuing to set records.  North American Class 8 orders for September continued to surge, coming in at 42,300 units for the month.  The third quarter 2018 decisively set an all-time record with 146,800 Class 8 orders.  September Class 8 order activity was the 10th best month ever but with most of 2018 hitting all-time highs, was only the 5th highest monthly volume this year.  Sturdy freight growth continues to strain industry capacity and fleets are placing orders a year out to secure new truck availability throughout 2019.  North American Class 8 orders for the past twelve months have now totaled 497,000 units.

I’m not sure where all the drivers are to sit in these new trucks and I don’t have what percentage of these new trucks represent fleet increases versus replacements, but regardless, carriers are buying trucks with the new found rate increases that have secured.

So what to do?  Well it is bidding season so once again there will be shippers and carriers determining what rates will be put in place for the coming 12 months.  Shippers of course will be able to point to the spot market declines and the negative economic news while carriers will be able to point to the same things they have been pointing at the past year and a half.  It all makes for good theater so don’t miss it.