Manual for a downturn: How to keep your operation above water.

| May 27, 2009

There’s no one tried-and-true method for an owner-operator to weather the current economic storm. There are many different problems, after all. One man’s slow freight is another’s low broker rate, which is to say nothing of the dire situation Marysville, Ohio-based Marvin McDaniel found himself in as his carrier shut down. Leased to small fleet Harrington Transport, he’d seen the writing on the wall as the primary customer, a Honda plant, dramatically scaled back production.

“I’ll probably see if I can get on with Byline Transit,” he said in February, knowing his contacts there would help get his foot in the door. “I grew up with all these guys.”
Exploring local opportunities is one of the many strategies an owner-operator can take to boost revenue in a tough economic environment. Read on to learn others.

Stay available
You can accomplish a lot simply by being willing to accept hauls, says Todd Amen, president of Colorado-based owner-operator business services firm ATBS. “A lot of it is just managing your time and being available when freight is available,” he says.

Stan Brown, based in Fontanelle, Iowa, hauls in the power-only trailer delivery and relocation operation of RexDon of Charleston, Ill. Though he was used to getting home every couple weeks, by late February he’d been out for about a month. As he anticipated drivers who take time off in the winter coming back in April “because they’ve got to pay for their new plates,” he was adjusting his schedule to stay out even longer.

You can also increase your availability by asking about your carrier’s or shippers’ problem loads. “One of those loads might well be attractive to you,” says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association. However, be aware of every cost associated with the load. Loads of less than 250 miles often have a premium rate but take extra time to pick up and deliver, he notes.

All freight-related businesses, says freight broker Preston Greer, are caught in a volatile environment in which service is often reduced quickly as shippers fall back on movements only as needed. Being as available and versatile as possible is crucial.

Manage time by the calendar
Take vacation time or plan major maintenance during the first two weeks of the quarter (early January, April, July and October), when freight is slow. Never take time when freight is most abundant – the last two weeks of the quarter or the last week of the month. Try working around the following schedule, recommended by ATBS, to maximize your week, as well.

Monitor your partners’ health
Last year, with the bankruptcy of Bombay furniture, New Jersey owner-operator Thomas Lemon found the dedicated Bombay account for which he hauled intermodal for Container Port had disappeared.

While he hadn’t seen it coming, he’d been aware of the potential. “Bombay was high-end furniture,” he says. “High-end furniture is not something you have to have.”
For leased dedicated haulers and independents with one or two primary shippers, a shipper’s bankruptcy could mean their own. Watching the health of your business partners, whether carriers or shippers, is vital.

Late payments from usually prompt customers, reduced freight or unreturned phone calls can be red flags, says OOIDA’s Todd Spencer. “You’ve got to pay attention to those finer points.”

2008’s losses
-127,000 trucks
-2,700 trucking companies
-6.5 % capacity

Net capacity decline due to business failure in 2008, calculated by Avondale Partners.

Change carriers
After Bombay’s bankruptcy, Lemon couldn’t make two runs a day consistently with his carrier. Paid by the run, he felt like he was on the verge of falling behind on his $2,200-a-month truck payment and other expenses. Last summer, he leveraged prior experience in the local/regional dump business to lease on with Arkansas-based Oakley Transportation.

His experience hauling dump trailers made the switch somewhat simple, as his 2005 Peterbilt 379 was outfitted with the hydraulic “wet kit” necessary for Oakley’s operation. Still, he says, “I hate making a change, because it takes a long time to get into their routine.”
Indeed, that and other factors make the cost of changing carriers as high as $11,000, Amen says. For that reason, he says, “I hate recommending guys look at changing what they’re doing.”

But when you’re using sound business practices and still having trouble making ends meet, it can be wise to seek a new work arrangement.

Explore seasonal and local opportunities
Opportunities other than typical long-haul can often pay off big for independents, says Chris Brady of Commercial Motor Vehicle Consulting.

“Look at a commodity that is available at a particular time of the year, because you know that a shipper will pay extra,” Brady says. “It’s almost like hauling some particular vegetables or fruit out of an area at a particular time.”

Seasonal spikes in demand in certain areas can be wellsprings of good rates. Kurt Brown, running on his own authority out of Knoxville, Tenn., was banking on a side kit for one of his flatbeds to pull him out of the abysmal rates he saw on load boards in February for flatbed commodities. “Nursery season is upon us,” he says, which means a likely high volume of loads coming out of McMinnville in east central Tennessee.

Preston Greer, president of McMinnville-based specialized nursery freight broker Greer Transportation, says to keep in mind that the downturn affected seasonal businesses, too. “The nursery business follows the building industry,” he says of his own.

Consider other brokers
“If you’ve been using just one broker, expand out to several,” advises Brady. Utilizing Internet load boards such as Internet Truckstop and GetLoaded.com provides high-volume, efficient ways to get loads.

For owner-operators dealing with brokers, Spencer stresses “not only checking to see whether a broker is properly registered with FMCSA and has a bond on file, but making sure you check their credit rating.” Rating services like Redbook and RTS Credit take reports from carriers about freight brokerages, producing an overall rating.

Even though rates have deteriorated, freight broker Greer notes that the shrinking economy has improved his own appreciation of the needs of his owner-operator clients. “I’ve had to adjust my business to help guys get to where they can get a load back to be profitable,” Greer says.

Market yourself directly
The cost of changing carriers is high, but the cost of changing business segments is higher, especially when it means spending $30,000 to $50,000 for a specialized trailer. Sometimes a better choice, particularly for independents, is to step up self-promotion to current and potential shippers and brokers.

OOIDA’s Spencer notes a drawback. “Oftentimes, when freight is really terrible, it isn’t especially productive for small carriers to call shippers direct that they haven’t done business with before – the theory being, ‘I’m going to avoid the middleman.’ Even if you offer the shipper a lower rate, they still don’t use you because they’re unsure of the level of service.”

An operator’s best marketing approach today, Spencer says, might be “to develop a relationship with a shipper that they’re already servicing in one way or another – either because they’re leased through a carrier or they got that load through a broker … The shipper actually sees that you are the service provider.”

Show commitment to your customer

St. Pete Beach, Fla., owner-operator Joe Cicciaro relies on an account he’s had for four years, hauling Texas beef to Florida and delivering tomatoes in season to San Antonio. In late summer and fall, he’ll spend five to six months hauling produce from California into Texas.

Even with a weather-shortened season on the West Coast last year, he grossed $108,000 in four months, he says. “Throughout my [32-year] career,” he says, “I’ve stuck to a particular approach. I don’t go around looking for work – I set up a deal, and I pretty much run it as far as I can.”

Even so, as his freight markets change, he’s contemplating taking the seasonal variable out of the mix and focusing on more year-round work at Florida juice plants. Rather than running tomatoes into June, he says, he may try for a juice contract right at the tomato season’s height to demonstrate he’s in it for the long haul and to come in when juice manufacturers need reefers the most.

“If you drive leased to a carrier,” says Amen, “make sure you’re treating your carrier like your customer.” Stay on time and safe, above all else, and treat the carrier’s shipper customers like your own.

MANAGING COSTS
Revenue is only half of the profit equation. Cost is the other half. While you might keep only 35 cents from every dollar in revenue, a dollar in cost-savings goes straight to the bottom line. Following are several cost-saving recommendations.

LIMIT IDLE TIME Idling requires about a gallon of fuel per hour, which can cost you around $120 per week if your truck idles eight hours a day. Idling can cost $3,000 or $4,000 in fuel per year.

BUY THROUGH A FUEL NETWORK If you’re leased, take advantage of a fleet’s fuel plan.

CHOOSE YOUR TRUCK WISELY Your bottom line will show whether you chose a truck with too big of an engine and too much chrome versus a truck spec’d to your business needs.

THINK AERODYNAMIC To make your truck more aerodynamic, add features such as roof fairings, chassis fairings, cab extenders and aerodynamic mirrors. Snug the trailer tight to the tractor.

PERFORM REGULAR MAINTENANCE Check often enough to catch low oil, a dirty air filter or an air compressor leak. Check your current miles per gallon at each fill – if it falls off, determine the reason.

MAINTAIN TIRE PRESSURE To maximize fuel economy and tire life, check the pressure in all 18 tires and fill them up at least weekly to the manufacturer’s specifications.

USE SLOW STARTS AND STOPS Moderate acceleration and deceleration consumes less fuel and extends the life of your equipment.

SHIFT WISELY Don’t drive by engine sound but by rpm. If you’re not absolutely sure about your engine’s sweet spot, ask the manufacturer.

CUT OUT-OF-ROUTE MILES Cutting your out-of-route miles – typically 6 percent to 10 percent – by 3 percent will save an extra 3 percent on fuel and other variable costs.

EAT OUT LESS Take healthy food on the road and cut out some diner meals each week.

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