If 2010 economic conditions continue into 2011, expediters can expect another great year. But if economic growth and freight volumes pick up even a little…
Many of the expediters who survived the Great Recession (December 2007-June 2009) report that 2010 was one of their best years ever. Yet the pain of the recession is easily remembered and in many cases still felt. As expediters move into 2011, strong revenue fuels optimism but recession pain prompts them to delay moves they might otherwise make. As the recession pain fades, another great business year appears to lie ahead for expediters. Additionally, certain forces will be in play in 2011. If they align in a particular fashion, expediters may proclaim 2011 to be not just a great year but a spectacular one.
Numerous forces come into play every year that help and hinder expediter success. The two forces to pay special attention to in 2011 are the pace of economic growth and CSA 2010.
Expediters often speak of the economy as if it was a thing in itself. It is more accurate to speak of economic conditions. A recession is an economic condition, as is a recovery. We just came through the longest and deepest recession in our lifetime and are now in a slow recovery. While the recession is said to have ended in June, 2009, its negative and positive effects extend to the present day.
The negative effects are seen in the empty buildings, abandoned trucks, dashed hopes and broken lives of the expediters whose businesses did not survive. A number of carriers, fleet owners, owner-operators and drivers were crushed. In a recent Sylectus newsletter, company president Stuart Sutton says, “The ground transportation industry saw almost a 30% decline in capacity (both in terms of trucking companies and fleets) as the result of the recession and it is taking a long time for that capacity to rebound….”
Capacity is the number of trucks compared to the amount of freight. When there is more freight to haul than there are trucks to haul it, capacity is said to be tight. That benefits truckers because the demand for their services and the freight rates tend to increase.
The recession wiped out not only a number of expediters but many major shippers too. With fewer companies alive to ship goods, freight volumes are not rapidly recovering. But with a significant reduction in the number of trucks available to haul the freight that’s there, it’s a good time to have trucks on the road.
The normal market response would be for existing fleets to expand and new people to enter the business. But the recent recession was anything but normal. Credit remains tight. People remain scared. Good used trucks have become hard to find. The price of new trucks has skyrocketed. New truck sales have increased from recession levels but the people buying them say they are replacing old equipment, not expanding their fleets. In other words, capacity may remain tight well into 2011.
While the recession destroyed some expediters, it prompted positive changes among those who survived. It wrung the excesses out of the business. Marginal business people were forced out because they lacked the financial strength and/or business skills to survive.
Good business people reacted like a fat man who survived a heart attack. Wanting their businesses to live, they focused more on minding the store than on big dreams and long vacations. They looked not to expand their fleets but for ways to reduce costs and improve productivity. They got jolted into re-thinking their business ways and tidying up their balance sheets and income statements. All of this enhances profitability.
If 2010 economic conditions continue into 2011, expediters can expect another great year. But if economic growth and freight volumes pick up even a little, truck capacity may tilt even more in favor of expediters, and the lean and mean expediters that the recession produced will be well positioned to cash in.
Government regulation is another force that may favor (that’s right, favor) expediters in 2011, specifically CSA 2010. This Federal Motor Carrier Safety Administration (FMCSA) safety initiative introduces new enforcement methods into the industry that are prompting carriers and drivers to rapidly adjust.
The program includes a new point system that may force tens of thousands of trucks and drivers off the road. If that happens, truck capacity could tighten even more and surviving drivers could conceivably command higher rates of pay.
The important word here is “if.” The program was to have been in full effect months ago. Instead, it is coming out in dribs and drabs. Carriers have pushed back, prompting the FMCSA to modify the rules. In what may be the first of many such actions to come, the National Association of Small Trucking Companies, The Expedite Alliance of North America and the Air & Expedited Motor Carriers Association recently sued the FMCSA over issues they have with the program.
These push-backs happened before CSA 2010 went fully in place. An even bigger push-back can be expected from shippers and the general public as the FMCSA continues its march to full CSA 2010 implementation. If CSA 2010 tips tight capacity into a genuine truck shortage, the public will howl and the FMCSA may be forced to back off.
Nevertheless, FMCSA, safety advocates and others seem determined to bring CSA 2010 fully into being. When the program is established in all 50 states, even in a modified form, it could shrink the driver pool such that driver pay and freight rates will increase. The demand for expedited freight transport could also increase as traditional trucking services become less available.
The pace of economic growth and CSA 2010 are just two of many forces that will affect expediting in 2011. The others, to name a few, include changes in hours of service, the increasing use of electronic on board recorders, and regulations pertaining to driver health (obesity, sleep apnea). While these receive a lot of attention and talk, notice that if they go into effect at all, it will not be for a number of months or years.
If nothing changes, 2011 looks to be as good of a business year as 2010. But if economic growth improves even a little and CSA 2010 proceeds more or less as planned, 2011 could be a spectacular year for the expediters who deliver the goods. If these two forces combine and produce favorable of tailwinds, the expediters who survived the recession will be well positioned to cash in.
