Dry docks

First, the good economic news: Diesel prices are the lowest in two years, interest rates are the lowest since the Kennedy administration, and inflation is so far behind us it doesn’t even register in the side mirror.

The downer, though, is the impact of a weak economy on freight. The continuing slowdown casts a pall over the New Year’s outlook for owner-operators, though there are a few bright spots.

“I haven’t experienced freight this low since I bought my truck,” says owner-operator Andrew Soucy of Lebanon, Tenn., who bought in 1996. “I’ll be in Dallas on Monday, so I’ve been looking, but I just don’t see much of anything – and for stepdecks like me, there’s nothing.”

At press time, signs of trouble were everywhere in the U.S. economy:

  • Industrial production was down for 13 straight months, the longest stretch since the Great Depression.
  • Not since 1983 had so many Americans been on unemployment.
  • The gross domestic product suffered its largest quarterly drop since the recession of 1991.
  • Inventories were stagnant.
  • Building permits for new houses reached a four-year low.
  • Consumer spending dropped in September for the first time in more than two years.
  • These trends boil down to slower freight, says Tom Sonricker, president of Transport Business Solutions in Kernersville, N.C., which provides accountancy services for owner-operators. “Less freight means more and fiercer competition in the owner-operator market,” Sonricker says.

    “Since trucking represents 87 percent of the nation’s freight bill, as goes the economy, so goes trucking,” says Bob Costello, chief economist at the American Trucking Associations. “The trucking industry is certainly going to feel the pinch from this recession, even if it is a mild one.”

    Bob Delaney, vice president of Cass Information Systems, which handles freight payments for more than 2,000 companies, agrees. “Manufacturing capacity is down to 74 percent, and that’s as low as it has been since 1982,” Delaney says.

    “There are too many goods in inventory,” says analyst Christopher Brady, president of Commercial Vehicle Consulting in Manhasset, N.Y. “The freight environment is currently weak, and it’s going to weaken through the first half of 2002. For owner-operators, it’s going to be a difficult time because a lot of fleets will probably keep their company drivers busy at the expense of owner-operators.”

    Bob Hirsch, president of the Truckload Carriers Association, says that’s a valid assessment. “While there may be some desire to shift a greater percentage to employee drivers, I don’t believe for many carriers that’s going to be 100 percent,” Hirsch says. “When all is said and done, there are companies out there that realize owner-operators are an important element of their fleets, and I don’t think they’re going to throw the baby out with the bathwater.”

    Experienced, productive, reliable owner-operators become even more valuable to carriers in tough times, says David King, marketing coordinator for the National Association of Independent Truckers. The hazmat industry since Sept. 11 is a prominent example, but the rule holds across market segments, King says – meaning successful leased owner-operators should have all the freight they can handle in 2002.

    “A lot of household-goods haulers, for example, did not experience the traditional slowdown this holiday season,” King says. “I talked to a guy in Georgia the other day who hauls chemicals, and he can’t slow down. He was thinking of getting rid of his tanker, but in the past eight weeks he’s completely changed his tune.”

    King calls the current economy “a mixed bag of tricks,” rewarding some segments even as it punishes others. Car haulers, for example, should benefit from strong sales spurred by Detroit’s zero-percent financing, King says.

    The most overstocked shelves of the American economy, Delaney says, are those devoted to computers, electronics, semiconductors and telecommunications equipment. “These industries overproduced due to poor forecasts at the close of 2000 and the start of 2001,” he says. “Their business has declined by 30 percent, and they have a considerable way to go before we see a recovery there.”

    Refrigerated food will likely be more stable than other segments of the freight market, but those who haul to supermarkets will be better off than those who haul to restaurant chains, Brady says. Particularly hard hit, he says, will be owner-operators hauling heavy equipment and construction materials.

    One such equipment hauler is Soucy, who says drivers are a lot less choosy about their loads nowadays. “Normally you’re looking at $1.60, $1.70 a mile, but today people are just scarfing things up, whether it’s $1.25 or $1.50,” Soucy says.

    “It’s going to be a difficult time because a lot of fleets will probably keep their company
    drivers busy at the expense of owner-operators.”

    – analyst Christopher Brady

    Fair pricing is more important than ever when freight is down, Hirsch says, and he urges shippers and carriers not to panic and deflate prices. “They shouldn’t go for just anything,” Hirsch says. “Not only do they injure themselves, they bring a lot of other people down with them, too.”

    Soucy agrees. “My equipment’s paid for,” he says, “so I have the luxury of sitting back and saying, ‘I’m not going to take that cheap freight.'”

    By contrast, owner-operator Clyde Cummings of Valdosta, Ga., has a monthly payment of $1,940 on a truck he bought new in 2000. “The plans for 2002 are to try to keep my head above water,” Cummings says. “Freight rates have not changed for years, but the cost of operating has gone up and is still going up. So many owner-operators have lost everything, and there are going to be more. I wish now that I never owned a truck. It is just that bad.”

    Former owner-operator Ralph M. Bohm, a trucker for 20 years, is making a new start with the new year – as a 43-year-old bicycle-riding freshman at the University of Maine in Orono, majoring in mechanical engineering. Mounting fuel, insurance and repair bills finally overcame Bohm’s natural optimism: “I’d sit up there in the cab and think, ‘It’s a piece of junk, but it’s mine, and if I just work a little harder, I can make it.’ It was a great feeling. I didn’t make it – but, you know, I might go back.”

    Still optimistic and on the road is Tom Zaharopoulos of Avondale Estates, Ga., who is leased to Schneider. An owner-operator for a decade, he figures that in 2001 he netted $56,000 – his best year. Zaharopoulos thinks 2002 might be just as good, largely because of Schneider. “They are the biggest in size and freight base, so a leased operator can’t help but make money,” he says.

    Even so, Zaharopoulos says he is considering getting his own authority if he can get enough contacts. “I have a lot of confidence in myself to do whatever it takes to get the job done,” he says. “Plus, I have a salesman’s personality. I enjoy interaction with the customers, especially if the customer is very particular.”

    For owner-operators committed to the long haul, the current economy has at least one bright spot, Sonricker says: Because of low interest rates and a glut of trucks at dealerships, “There will probably never be a better time to purchase and finance a late-model truck.” An owner-operator should consider buying in 2002 if he has decent credit, if his truck is nearly fully depreciated and if he doesn’t owe more on it than it’s worth, Sonricker says.

    Soucy fits that description but plans to keep running his 12-year-old restored truck. “I’m starting to see more and more owner-operators with older trucks,” he says. “It’s more economically feasible for me to run the wheels off this truck than to buy a new one.”

    These are the best and worst of times to become an owner-operator, King says. “You can get into a truck cheaper than ever – used trucks are going for practically nothing – but it’s the worst time possible if you don’t have a decent cash reserve. In this economy, you do not want to start out in the hole.”

    Owner-operator Tom Nelsen of Kingston, Wash., spent the last weeks of 2001 truck shopping because he wrecked his 1998 Volvo 610 in April. “I would go back to being a company driver at 30 cents a mile and ride out the hard times if not for that accident on my record,” Nelsen says.

    Still, he’s optimistic he can make a good deal. He has found a 3-year-old truck, nothing fancy, with fewer than 200,000 miles, for $35,000, of which he can put down 25 percent, or $8,750. Truck plus flatbed will give him a combined monthly payment of less than $1,000, Nelsen says.

    “Thousands of people have gone broke in the past year,” Nelsen says. “There’s a reason there are all these used trucks on the market. It’s a tough, tough business, and I’m 46 years old and not well educated. Fortunately, I have the opportunity to start my own business and get on down the road. I’m cautiously optimistic. I’m fairly sure I’ll make it – as long as there’s freight.”

    Delaney is cautiously optimistic because surplus inventory can’t last forever. “If the war against terrorism continues to do well, consumer confidence will recover, and retail sales will increase,” he says.

    Much depends on year-end sales, Costello says. “If holiday sales sag more than anticipated, the first quarter of 2002 will be particularly weak as businesses work off excess inventories,” Costello says. “In any case, it will probably be the second half of the year before business sees a significant boost.”

    Brady also expects the economy to turn upward in the second half of the year, but he cautions that improvement will be slow, “so it’ll still be a difficult time.” Others are less optimistic still. “If we start a recovery by 2003,” says Leo Suggs, chairman of Overnite Transportation, “we should consider ourselves fortunate.”

    Even if hard times continue, say King, Sonricker and Zaharopoulos, skilled owner-operators can make money.

    “The day of the owner-operator flying by the seat of his pants and surviving in spite of himself is over,” Sonricker says. “Those who are able to survive will be smarter and stronger.”

    For these pennies per gallon, let us give thanks

    Truckers had one reason, at least, to celebrate Thanksgiving: The average U.S. diesel price was down 33 cents from the year before. By Dec. 3, diesel was at a two-year low of $1.19.”I pray to God diesel doesn’t go to $1.80 again,” says Washington owner-operator Tom Nelsen.

    His prayers could be answered in dramatic fashion. “If no corrections are made by OPEC in crude oil supply, the forecast for 2002 will be significantly different,” says analyst George Clemen of Oil-Gasoline.com. “Prices could fall much lower.”

    Assuming the status quo is maintained in an already turbulent Middle East, an oil shortage anytime soon seems unlikely. “There is some reason for optimism on the supply side,” says Ron Planting, manager of information and analysis at the American Petroleum Institute. Refineries are operating at 91 percent of capacity, producing record amounts of diesel and heating oil, and the current U.S. petroleum inventory is 130 million barrels, 15 million more than a year ago, Planting says.

    In April, partially to take advantage of bargain prices, the United States will begin filling its Strategic Petroleum Reserve to capacity. Today the reserve holds 545 million barrels of oil; by 2005, it should hold the maximum amount, 700 million barrels, the equivalent of 51 days of imports. In an emergency, the president can order the reserve tapped, as President Clinton did in 2000 to combat price increases.

    Strong inventories keeping diesel prices down can have a huge impact on an owner-operator’s bottom line. Georgia owner-operator Tom Zaharopoulos, for example, says his fuel cost in 2001 averaged 21 cents per mile, 6 cents higher than in 1999 but much better than in 2000, when it was nearly 25 cents per mile. For a driver running 120,000 miles a year, 4 cents a mile saved in 2001 means an additional $4,800 in his pocket.