Thursday, April 22, 2021
by Tommy Key
Last April, no one could have predicted that 2020 would turn out to be a red-letter year for carriers and independent owner-operators. Yet that proved to be the case for businesses and operators that were able to stay solvent during the dark days of the COVID-19 lockdown.
Analysts are predicting that 2021 could be another good year for the industry. Paradoxically, this is presenting a new set of challenges for carriers, particularly those with rate contracts that were established prior to the current freight boom.
So what's behind the market’s ups and downs? And how can carriers get more leeway in their contracts? Here’s what we know and what we think carriers can do to shore up their operations.
From Full Stop to High Gear
Last March and April, the industry saw a drop-off in rates as parts of the country went into lockdown. Trucks were available to roll, but demand contracted sharply as nonessential businesses paused their operations and consumers sheltered in place.
The lower rates were made worse by cash-flow issues that rippled through the supply chain. As a result, many trucking companies were forced out of business. Tens of thousands of drivers lost their jobs, retired, or sought stability in other industries. And many trucking schools temporarily closed their doors, which delayed efforts to get more drivers on the road.
Now the industry is grappling with the opposite situation. As businesses reopened and consumers began to spend more freely, the demand for goods and materials surged. But with fewer trucks available, rates climbed to an all-time high. As a result, the year ended on a high note for carriers and independent owner-operators that made it through 2020’s more challenging dynamics.
Need for Caution
The industry will likely see high rates throughout
2021, especially as consumer confidence builds steam and the economy continues
to rally. But carriers need to proceed with caution, as a number of developing
situations could hurt long-term profitability.
In California, Assembly Bill (A.B.) 5 continues
to create uncertainty. Although the state exempted the trucking industry from
A.B. 5 in early 2020, a California court recently ruled that the law applies after all.
Depending on how this plays out in federal court, California-based
owner-operators and carriers could find themselves needing to adjust their
business models.
In addition, general operating costs are
creeping up. Owner-operators and carriers are feeling the hike in diesel prices,
which can be traced to higher crude prices, supply disruptions, and improved economic activity. Insurance premiums are also on the rise. And wages are up as carriers compete for good drivers in a tight market.
To some extent, elevated rates are shielding carriers against the hike in operating costs. But as new drivers are added to the rolls and market capacity is expanded, market rates will likely be reduced. We don’t believe that will have much impact on rates and pricing until later this year, or possibly not until 2022. Nonetheless, business owners should start preparing now for what could well be a curvy road ahead.
How Carriers can Safeguard Their Bottom Line
Even as carriers and owner-operators are experiencing growth and greater profitability, carriers with contract rates that were established early last year are feeling the squeeze. Built-in protections against reasonable market fluctuations have not been able to keep pace with current rates.
That doesn’t mean that losses are inevitable. Customers may well be open to paying higher rates in exchange for the continued certainty you bring to their operations. Getting them there,
however, will require a dialogue. First, educate yourself about all of the factors that are driving up rates and costs. Then, explain to your customers what’s happening and why. Be honest about the effects on your business and fair in proposing a rate adjustment. Based on our experience, carriers that are open and honest about the situation will be in a better position to renegotiate with their customers.
At Nationwide Logistics, we excel at balancing technology with personal attention to help carriers navigate whatever challenges come their way. Our onboarding process is simple, and we offer access to tens of thousands of loads. By maintaining a short-time pay standard, managing collections and shouldering the risk of nonpayment, our carriers have more time to focus on growing their business. Our experienced team is always ready to respond in real time to meet your needs at your pace.
Learn more about how Nationwide Logistics can deliver more certainty to your operations at nationwidelogistics.net.