Trucking in the freight trough: The 'sweetness of low price' v. the 'sour of bad service'

Jason Cowan: You do want to see the same face on the dock at the receiver. You do want to see the same faces. You know, they know the value of that. They know the value of their relationships and their product getting from a to b and, you know, the, what is it? The sweetness of low price is really fast, even though the sour of bad service lasts a lot longer, sweetness is tempting to jump in and take, you know.

Todd Dills: At the top there, you heard the sage wisdom of Silver Creek Transportation founder and President Jason Cowan, Overdrive Small Fleet Champ for the year 2021. He was speaking on the difficulties of managing freight contracts with customers in a time like the present, two years after what's been a flip flop in demand for carriers of all shapes and sizes in the markets for freight movement all around the nation. What he noted bears repeating.

Jason Cowan: The sweetness of low price is really fast. Even though the sour of bad service lasts a lot longer, sweetness is tempting to jump in and take, you know.

Todd Dills: Cowan was speaking as part of a roundtable on ways to build an owner operator a small fleet business. To weather inevitable down cycles, Overdrive hosted the event back in August, sponsored by Bestpass and Fleetworthy Solutions. Since rebranded under the Fleetworthy name and including the Drivewyze weigh station bypass solution, now aiming to be a one stop shop for bypass, toll collections management and discounts, and fleet management solutions.

I'm Todd Dills, and today on the Overdrive Radio podcast for September 23, 2024, drop into the first portion of the roundtable that featured, in addition to cow and other leading voices among owner operators and seasoned veterans in Overdrive's orbit, all speaking to ways to set your trucking business up to stand out from the crowd to beat that sweetness of low price when it, inevitably, comes to you from the customer's mouth. On the other side of a break for a word from Overdrive Radio's sponsor, I set the stage for the discussion with Cowan, Overdrive's own Gary Buchs, and ICV Express owner operator Ilya Denisenko. So keep tuned.

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Todd Dills: That's HOWES, howesproducts.com. Now on to “how to build business for trucking's down cycles.”

Here we go.

Today we've got three different perspectives, ranging from an owner in his first year in business operating with authority to that of a longtime small fleet owner in Jason Cowan Jason Cowan is president and founder of the now nearly 40 truck Silver Creek Transportation, headquartered out of Henderson, Kentucky. Fleet was launched by an acquisition of a local trucking company back in 1994, and since Silver Creek has become a leader in specialty trucking, serving a diverse customer base with an array of services from walking floor and dry bulk tanks to flatbeds and dry vans, Jason has been laser focused on maintaining a healthy company culture in an increasingly fine tuned operation. Seeks to actively involve company driver team and leased owner operators and safety and maintenance goals. If you've been an overdrive reader in recent years, his is probably a familiar face. In 2021, Cowan and Silver Creek Transportation were crowned as Overdrive Small Fleet Champ award winners. So we'll also hear today from another familiar voice in overdrive contributor and owner operator business coach Gary Buchs. You'll probably recognize his voice from regular appearances on K.C. Phillips’ SiriusXM show lately. Likewise the many columns he's written on owner operator business topics for Overdrive, going back almost ten years at this point, before retiring from the road in 2019 and beginning to more formally serve as a mentor to the next generation of small business truckers. Gary's one truck owner operator business was leased to Landstar, where he dispatched himself pulling a drive in. In large part that all followed trucking work and other outfits and many years in business as a small farmer. His business acumen wasn't unnoticed during his time actively trucking. in 2016, in fact, he was the recipient of the owner operator of the year award and promised you an owner brand new to the trucking business with authority. Chapel Hill, Tennessee based Ilya Denisenko, whose ICV Express trucking business follows close on the heels of several years experience hauling both over the road and locally. He's fairly new to the trucking business ownership? True, but not the business itself.

ICV Express draws on bedrock business lessons the owner learned in the tight margin restaurant industry. That experience drove into a keen focus on containing costs with a maximum efficiency, which he's been putting to work in the tough freight markets today. To thrive, though, like I said, ICV expresses authority is less than a year old, so I wanted to set the stage a little bit for where we're going.

This, this slide is from our Partners in Business coproducers, the owner-operator business services firm ATBS. So what it shows is net revenue, per mile for the average owner operator among ATBS clients since 2017 up through the end of last year. Yet it excludes an average fuel surcharge. So basically, what you're seeing here is a reflection of where underlying freight rates have gone over that time, separating out the wild swings in fuel. So since that high point that we see here in the early part of 2022, after a two year run up during the pandemic, it's virtually consistently down that entire time.

Just this past week, we got the midyear update to the same metrics from ATBS showing net revenue per mile. And what it shows for the first six months of this year is relatively flat numbers between $1.35 and a buck 45 /mile again, that’s minus an estimated fuel surcharge. The way ATBS’s Mike hosted interpreted this in the presentation he gave last week was to point out that we’ve hit a bit of a floor, he felt, on rates as costs have stabilized to an extent for owner operators after the big run ups for both costs and rates throughout the pandemic period. When I introduced our online discussion last month, I hadn’t seen those latest numbers. It turned out I was right on this score:

Judging by what owners have been telling us so far this year, I highly doubt this has improved much since the start of the year, if at all. ATBS reported at year end 2023 that average income for owner operators had lost about ten grand since high averages in 2021 of nearly $75,000. So certainly a tough environment for owner-operators. Covid rates attracted so many new businesses to trucking, increasing competition mildly, and then fell very hard on the other side. And, you know, on the other side of that profit calculation, too. At the same time, inflation has just increased costs. So it's no surprise, really, what owner operators are most concerned about.

I showed here Overdrive readers’ answers to a simple question. That is, what area of your business is most concerning you right now? What's waking you up at 02:00 a.m.?

The top two bars here show their highest areas of business concern. One, how, to increase revenue. Two, how to reduce control costs. Seems simple, right? Not exactly. But there is help out there, and today we hope to provide some examples, conversation starters, to give you some ideas.

There is a little good news when it comes to trucking business cycles. It's certainly been worse. And two of our panelists have pretty clear memories of the worst down cycle in trucking in the last 30 years, at least. And we've got a little physical, tangible evidence to prove it. So Gary bucks dug up this old journal entry from late 2008. Essentially it's about the stress that comes with the profit squeeze of a down market and managing associated risks, from safety concerns to the kinds of slow, prolonged failures that can come with operating at unsustainable profit levels. I know it'll be virtually impossible to read the old journal entry on the screen in full, though I've highlighted just a small portion of it. Gary's illustration of what so many were thinking at the time and what no doubt many of you are thinking now.

Namely, as was shown on the slide next to Gary Buchs’ old journal entry, a quote from it, “Caught and squeezed of the economy. What do I do now?”

We've offered some answers, though, in recent memory. So what this slide shows is, in our Partners in Business seminar at the Mid America Trucking Show in March with ATBS, we looked at the impact of just a single extra load moved month after you've met all fixed costs for the month. This example shows what an extra load might have done for the average owner operator’s income. It's a big hypothetical, of course, and assumes an average owner operator hasn't already added an extra load with extra time on the road already. Miles generally, it should be noted, have been up as income has fallen off, particularly last year. So there's probably a lot of folks doing that already. But the upshot is that just one more single day achievable 500 mile run per month in this calculation gets close to giving the average owner back all the profit lost since the high water income year of 2021. Two extra loads a month that will give it all back in full and then some. So, Gary, you were part of that March presentation that we gave at MATS. A lot of what you talked about were the practical and otherwise limitations to that extra load idea. In your work with owner operators, you coach on a day to day basis, though, what are you seeing, from them in terms of response to difficult conditions today? Is anybody maybe having success fitting in an extra load in the flow of work, improving more on the cost side, or maybe adding value in other ways?

Gary Buchs: There are, there are cases, there are instances where these drivers, these owners, I should say, are finding some success with extra loads of. As I prepared for this, I wrote down a lot of notes and just kind of aired out some thinking. And, the one thing I came up with, owners don't have a lot of extra capital to change. a lot of things necessarily. Location, location, location. I think there's something, Elia, he's shaking his head. Being in the restaurant business, what does that mean for trucking? And I got to looking at things like the load to truck ratios for even regions and times a year, as you put up that screen about the rates, the 22, actually, that coincides with, more loads to truck ratio. Not, only nationwide, but you can find data to study for regional. So when I talk location, location, location, I think about, what can that do for you? And really, it's kind of a no cost management thing you can do. It's not like you have to pay for the location where you go.

Todd Dills: An owner mindful of his operating location, choosing particular locations to build lanes, or specializing in a particular local area or region can yield a number of benefits to help reduce business risks and thus unexpected costs Gary noted.

Gary Buchs: It reduces downtime risk, I feel, because you're closer to the shops, you know, and so on, and it also reduces downtime because you're closer to your core customers, that you built your foundation. What that can do for you is to help you get that extra load because you're working in a smaller region, you will see those customers more often, and you can build that relationship if that works for you. And you have to be a salesman, you have to be willing to go out there. that's one of the, the things that impressed me about not only Jason, but Ilya, when I talked to them privately about their, willingness to go out and actually meet people face to face. if you work those regions properly, you'll have shorter deadhead between, loads, and if a load cancels, you won't have so much deadhead and so on. The shorter deadheads, fewer cancellations, the, ability to access extra loads because you've done more for a customer and you can be in contact with them and say, hey, I'm going to be available x days at this hour. I anticipate if you have something come up, because often it's that one little thing, the extra load they talk about. I think mentally we go to the Friday, Saturday, you know, window in our mind that extra load might be that Monday morning delivery at 05:00 a.m. that you loaded on a Friday evening or a Saturday or a Thursday even.

Todd Dills: I think a lot of what you're talking about is like really owning your area, and being exacting about where you sort of choose to, build your business. And, you know, Ilya, you, there's a certain element of that in the establishment of what your, what you're doing there and the fact that you chose a very particular place to set up the business. your living proof, that solid incomes and independent owner operators achievable today.

And we've talked a lot about your success and how it's stemmed from pretty careful planning ahead of buying the truck that you did, which was I think late last year. And you set it up with specs for maximum fuel mileage. And it wasn't just that aspect of setting things up though, that I think that you've managed to build your success on. Hopefully you could lay out some of the details for us of the planning that went into launching the business and kind of how you're profiting now, even with very limited brokered freight options. You're not working with direct customers, we're working with brokers. And you're a very new authority, so a lot of folks don't want to work with you.

Ilya Denisenko: So as far as the planning goes, basically for all my costs, that's obviously the biggest thing people think about when they go into any kind of business. like me and Gary spoke yesterday. I explained to him I basically planned for worst case scenarios for everything. I plan to get best case $1 a mile for up to six months for all my loads and to cover space.

Because I mean below a dollar a mile, there's not much that's gonna happen, I mean unless you're like in Florida occasionally. But I plan to cover any expenses on top of that, including my own personal expenses and anything above that. Okay, great. That's better than I expected. You know, same as like going in, buying the truck. I looked like I planned for worst case kind of stuff. Like I looked at what, what's the worst thing that could happen? Obviously, you're buying a big expensive truck. Everyone's scared of it breaking down. So you have to really look into the history of the truck as much as you can. That includes the ECM report, the oil sample, all that kind of stuff. You have to talk to that experts. You can on a weekly basis, you can listen to people like Kevin Rutherford on his show and consult with them. And there's other experts out there too. You can speak to people that specialize in every kind of engine. they'll help you out almost for free. And then if you have an issue with your truck, you could go to those people for help. They already know what kind of truck you got. They know what you're working with and they'll help you out better than the dealer down the road, probably cheaper, too.

Todd Dills: Speak to the location aspect of it. You have been in New Jersey personally. Higher cost area for sure. I think you moved to Tennessee before you started this business. But, what was the thinking that went into that decision?

Ilya Denisenko: Well, back then, I was a company driver and even work in trucking. That's a great location. There's trucking companies there, there's production all over the place. Whether you're in refrigerated, whether you're in flatbed, whether you're in drive in whatever, there's everything over there. And even just for routes, it's a big crossroads there. You got I 65 24, you got I 40. You could go any direction you want there. And then just for my own business itself, revenue wise, like I said, there's production everywhere. Like, I'm not out in the middle in, like, Utah or wherever. There's not that much going on. And personally, too, like, I figure out which areas are better. I usually go up to Ohio. Sometimes I go back down, to Texas, depending on the weekend. But being in the crossroads there, that gives me the options to go that way or that way or that way. I'm not really too far out of the way for anything. The fuel prices in Tennessee aren't too bad either. It's good for costs and all that stuff. I'm not right next to the shops that I like for volvo's, but, the shop that I prefer, it's right in north Carolina. So it's not like I'm driving cross country, but it's a few hours away. I can head right over there.

Todd Dills: And on the cost side, tell us about the fuel mileage you're getting out of that truck.

Ilya Denisenko: my quarter two IFTA was 9.1 mile per gallon. And this is on the 2020 Volvo with 633,000 miles on there right now. and I purchased it with 575 on there. And the previous fleet that owned it, all their drivers drove 75 all the time on there. So I don't know. Like, I'm not sure, like, what previous damage they experienced on there, but so far so good on it.

Todd Dills: That's huge, that nine miles to the gallon. No doubt. And Jason, you. You've been spec’ing for fuel mileage as well in recent years. I know, but, your. Your business is in a very different situation than Ilya over here with just the one truck. So you're, you're up at, what, near 40 trucks now? You're dealing mostly, with direct customers rather than brokers. And, you know, I've heard you talk a lot about the rates discounts, that, even many longtime customers where you have a really good relationship. They've even been asking you for these the last couple of years. And we were talking a couple weeks ago about all of this. I think you said something like, you know, at a certain point, Todd, all you can really do is hang on with things as tough as they've been. Right. But, you know, how have you done it? what different things have you done to have, you know, they've been effective at silver creek on revenue and cost size, the profit calculation.

Jason Cowan: Well, what you have to understand, I think, in relationship with your direct customers is that the service you give, the service you provide, all the things that they're looking for, those relationships will last a long way. When we see a downturn like what we've gone into. Those don't, those don't always last when rates begin just to really drop. And, they will come back to you and go, hey, we love your service. You know, we love you guys. You never miss. But, you know, we're leaving 50 on the table, so we've got to do something. And, you know, so you realize that if you have a small downturn, your service and loyalty will hang in there. In a downturn that we've experienced, you, you'll get out in that deep water. So, we still, spend a lot of time building relationships with our customer base. And then, you know, we do all of the things that I think you do, where can we cut expenses? Where can we increase revenue? Where can we add loads? You know, if we have a road truck, like what Gary was talking about early, can I bring a road truck in, do a local load, you know, get that revenue up? we change the way that we, have our load planners book loads. So instead of me, telling them, hey, you don't take a load less than, you know, $2 and $2 a mile, what we try to tell them is, I need this much gross dollars out of a truck for the week.

And that gives them the ability, if they're in a bad area, to get out, to get in a good area where m they can make it up. And they're not just beating themselves up with, I can't just keep this one specific rate. But then in the survival part of it, what we've learned is that there comes a time when, if the rates don't come up, whatever that difference is, has to come from somewhere. So it either comes from our reserve cash, it comes from extending maintenance things out, or not being able to do some of the things that we'd like to do, tightening our belts up in different areas, but that cash has to come somewhere. And you can look at those same numbers over and over again and they don't change. And so to pull that, they're going to be times in business where you just have to have cash from somewhere. And so either that comes from the reserves that you put back, your retained earnings, or if you have a line of credit that you can tap into all of those things. And it would be, it would be my advice that when things are good, those are the times to look at where your cash reserves are going to come from. Because a lot of times when things are good, we're not thinking it's ever going to be bad again. In the same way. When it's bad, we think, oh, it's never going to be good again.

But, you know, those, those things have to happen. So the hanging on a lot of times just comes with a, you know, after I've looked at all my expenses, after I've made my company as efficient as we possibly can, what's the next step? And, you know, sometimes that is looking for capital in some way to get you through the hard terms till it, till it comes around.

Todd Dills: But this, this one has been one of those downturns where, your customers are coming to you.

Jason Cowan: Yeah, they do.

Todd Dills: Definitely not with good news.

Jason Cowan: Yeah, well, yeah, because, you know, they're, they're in the same position. You know, we all don't live in a vacuum. They're, they're feeling the same struggles and pain in their situation. We are in mercury. And so they have people looking to them just like I'm looking to my team going, where can we cut costs? Where can we cut cost? And, you know, if that's, that's just where we are. And so, you know, still, you have to have your line, hey, this is where I need to be. And, most of the customers are our customers that are. Customers are good to work with us. And, you know, they realize that, as Gary and I've talked about a lot, you do want to see the same face on the dock at the receiver. You do want to see the same faces. You know, they know the value of that. They know the value of their relationships and their product, getting from a to b. And, you know, the, what is it? The sweetness of low prices really fast. You know, even though the sour of bad service lasts a lot longer, that sweetness is tempting to jump in and take.

Todd Dills: You know, Gary, reflect back on that, that 2008 time period for me, if you could, and that journal entry of yours. I suspect that, there may have been a little bit of a depletion of, the cash reserves, that Jason is talking about back then. what were you getting at with that?

Gary Buchs: There were some, and the biggest reason for myself ... The rates back in oh eight in that timeframe versus now. We, had fast failure. The market dropped quick. We've had this slow parasitic draw on rates and on our savings. So there's a difference between fast and slow, both gains and failures. And so what went on then was more of a rate cut, not loss of business, but I, loss of income opportunity. Today's market, the differences between that and today are we've got more businesses moving locations. They may be shutting down because their product is not something anyone wants to buy. We just had an announcement. Gibson City, Illinois. We have a farm, equipment company. And they just announced they're going to lay off 80 people in this little town. Little city. It's not even a city. It's a few thousand people and 80 families. And the stress that's going to cause, well, a lot of it has to do with, I don't know the exact reason why this one, but companies are moving or consolidating their operations. And so, how do you deal with that?

As a trucker, when I talk about being in a smaller region area is getting multiple customers, and always being aware and asking and keeping your ear to the ground. Ilya and I talked about that, where he would know something was going to change, but he couldn't tell anyone. But don't confuse, revenue or number of loads with miles, because we're conditioned often as owner operators, as long haul truckers, to think miles gross revenue equals profit. One of the things I learned when I was at Landstar management told me once, they said, you know, every BCO, they call them business capacity owners. On average, if they haul two or more loads or deliver two or more loads in a week, in seven days, those owners are more successful, more profitable than those that are hauling less. And the average was like 1.7 or 1.8. And that really got me to thinking about that. And so, my goal became one load per diem for each per diem day. And I got where I averaged about 0.70.76, loads for each per diem day. So that is something that an owner can look at, because the quicker you turn that revenue, those loads, they may seem smaller, but shorter loads often pay two, three, even four times the rate. And if you manage that right, with communication, you will be able to get rid of that load much faster than even what they say the schedule is.

Todd Dills: If you communicate, try to minimize the load and unload times as much as you possibly can with effective communication.

Gary Buchs: It's like investing. You want to be diversified in your customer base because it's that old, all the eggs in one basket kind of thing. You want to be as diversified. And the reason is, it's common sense. If you are diversified and one drops, the others can carry you.

Todd Dills: That's a difficult prospect for you, Ilya, as a brand new owner.

But, I wanted you to share your, some of the networking that you've done with brokers in order to kind of get past the limitations there. Let's explain. You took an icebreaker, basically, kind of a gimmicky but funny and a real conversation starter with you to an event called the Broker Carrier Summit back in, back in the Springs, coming up again in October. But tell us about that. Tell us that story.

Ilya Denisenko: One of my things is like whoever you're speaking to, you got to put yourself in their shoes, right? So me coming brand new into the industry, in January, right, when I started, the whole freight fraud and theft thing skyrocketed. I guess brokers were extending their requirements for authority longer and longer and longer. And basically from the start, I was limited to TQL and CH Robinson because they're the only ones that will work with you from the start within probably the first eight months.

So the thing is, if you put yourself in their shoes, they're concerned about security, theft and fraud and all that stuff. How can you overcome that? You have to show that you're going to stand out. You're going to show that you're different than the other thousand people that call them every day for a load, right. So I worked with my social media, I documented all the stuff, I documented all the service that I'm implementing on a daily basis. I'm showing like almost every broker I talked to, one of the first words I mentioned is either tracking or communication. Like if I'm driving, like with their load in the truck, I don't care if they're tracking it. Like if I order something on Amazon, I want to know where it is too, right? I'm offering them the stuff that they're concerned about. And then afterwards, okay, what else can I do?

I heard about the broker carrier summit, right? There's all kinds of conferences, but this is the event where the people that I want to work with also are looking for people like me to work with. It's different than trucking conferences. It's different than broker conferences. This is like literally the event to meet people. For any other owner operator in the first year, this is like, you have to go there. Like, this is where you're going to stand out. You can't do what's going to happen there over a phone call, over an email, nothing. You're speaking to your clients in person versus the other thousand people calling them.

So in the same manner, I also thought in advance, I was like, okay, the other people are probably more established than I am there. How am I going to stand out from the people that are talking to them there? So coming out of restaurants, what do, ah, new restaurants do? They give out free samples. So I was like, free sample. So I took my business card I printed on the back of there. First load we do with you, if it's over 500 miles, we'll do it for 50% off. If it's under 500 miles, we'll do it for free.

Because like first it's a conversation starter, then they're like, why would you do this? Why would you do it for free? And then that's where you get into the good conversation. You can explain, I'm here, I'm here for long term relationships. I want to work with you long term. So even if I do for free, that's a small price to pay. You know, at the same time it gets my foot in the door. I could show them how I stand out from the other drivers. I'm going to show them like my route along the way. Any issues come up, they'll know about it before anyone else. And on top of that, most likely I'll be at the delivery earlier, so.

Todd Dills: And it broke the dam with some of these brokers. But I think it's crucial to note that none of them took a load for free. Yeah, they actually paid you, right? Like it got you to the front of the line, I think though, just by they remembered you, right? Like that's, you know, you, you do something like that, you're in front of somebody, they remember you. And it helps jumpstart that relationship in your case.

Ilya Denisenko: Like they said, no one else does this. That's the point. I want to do this that no one else is doing. And, yeah, like you said, every one of them was like, oh, like, we don't need to take you up on this. We'll give you a shot. And then there's my chance to show them the difference in service. And like, at that conference, I think I was onboarded with five or six brokers that all require a year of authority. And at that point, I had just over three or four months doing the.

Todd Dills: Thinking outside the box, in this case.

Jason Cowan: When I go to a customer, the thing that I, that I want to look at is if I'm in his or her perspective, what do I need? And so we've gotten so many times, we go to our direct customers and just say to them, how can I help you? What do you need? what can I do to make your life better or easier? You know, how can, how can we help? And then a lot of times we found opportunities in that scenario where they will just tell you, this is, I'm getting killed over here on this lane, or I'm always late with this customer that, and you're able to step in. And so, okay, what's the solution? Because at the end of the day, we're not in transportation as much as we're in solutions. We're trying to help. you know, everybody wants to go home in the afternoon of their family and go to ball games and take care of their kids and all of that, and we have to get this work out away. And so if I can take that load off my shipper receivers mind and they can go on about their day, then they do remember that. And, those are the things that help them. Just be direct. How can I help? You know, what, what is it that your company needs that I can provide? And, you know, it really does a lot of times kick them back on their heels because they're like, nobody's ever really asked me how, you know, we all going, can I, can I haul some loads? Do you have some freight? Let me quote some lanes. But when you sit down and look them in the eye and say, how can my company help yours be successful? What, what can I do? You know, it makes big difference.

Todd Dills: Next week on the podcast here, Silver Creek Transportation's Jason Cowan, Ilya Denisenko and ICV Express, and Gary Buchs respond to attendee questions about customer management and rates, about where they see the market headed and priorities for truck owners through the end of the year, and much more from our how to build business for trucking's down cycles online, roundtable discussion. You can get the full video of the discussion, too, via overdriveonline.com.