Dollars & Sense

By Kevin Rutherford

Dollars and Sense: Expect more pain before any gain

By Kevin Rutherford | September 09, 2009

Many economic indicators show the economy may have hit bottom during the summer. Most analysts seem to agree.

However, history shows that bottoms can be long and rocky, as I expect this one will be. Once at the bottom, we usually see spikes that look like a recovery and then things drop back off and the bad news starts again. We are seeing that in the economy and in our industry.

I predict some pickup in freight and rates in this fourth quarter, but the real upward climb will not begin until the second quarter of 2010. For you, that means it will get harder to survive before it gets easier. Here’s why.

Only 480 fleets filed bankruptcy in the first quarter of 2009. That is low, given the environment. We are currently sitting at about 76 percent capacity of truck utilization, near record low levels. It’s so abnormal that the term “zombie truckers” has been coined to describe fleets that can’t make their equipment payments and are being kept afloat by lenders who don’t want the equipment back.

So whenever freight volumes pick up, there will be more than enough equipment to move it. The worst part is that rates will lag far behind as fleets put their excess capacity back to work. As volume increases, fuel prices will rise further.

There are the three keys to surviving this transition:

1) Cut costs.

2) Cut costs.

3) Cut costs.

Clear enough? Here is a plan of attack. Make sure your profit and loss statement includes percentage of income. List your costs in order of percentage of income. Create a plan to lower your highest three costs – often fuel, maintenance and taxes. When I review P&Ls for owner-operators, I find as much as 5 percent to 10 percent savings in those areas, which can add up to as much as $10,000.

FUEL COSTS. Examine these three key areas:

• Lower average cruise speed. One mile per hour slower equals $1,000 per year in your pocket.

• Improve aerodynamics. Something as simple as moving stacks from in front of the sleeper to behind the truck and adding a flow-through muffler can improve fuel mileage by as much as half a mile per gallon.

• Idle less. Seize every opportunity to turn off the engine. If you’re not using some type of auxiliary power unit, do research and find one that fits your operation and budget.

MAINTENANCE COSTS. Sometimes a couple of investments up front can lower overall costs. For example, a good bypass filter system that extends drain intervals to 150,000 or 200,000 miles can lower costs by as much as $1,500 a year.

TAX COSTS. Partner with a good trucking-specific accountant and review your tax return and your operational data. Chances are you’re missing out on some deductions.

Owner-operators who are successful riding out this economy will be those who can survive low freight rates and rising fuel costs the longest. Those who can cut costs to the bone will have a huge advantage.

While waiting for the recovery

I’m getting a lot fewer miles. Should I switch carriers?

Think long and hard before you do. Miles have dropped off everywhere. If you switch, you are now at the bottom of the list and in a new, unfamiliar system.