Just the other day, I got invited to be in a Twitter space that was discussing a failed broker and the plight that many trucking companies are dealing with when the spot market is in a “bearish” mood.
There were participants in this discussion who believed more regulations were the answer. Others felt as though enforcing the current regulations was the right direction. Thirdly, there was a group that said, “That’s just business, and business is never fair.”.
Many of the newer people, who have ventured into the trucking industry, have never experienced a downturn in the broker-based spot market roller coaster. There was a time when freight rates were going so crazy on the spot market, that many other components of the trucking industry also saw their prices go out of sight. The trajectory on pricing seemed that the sky was the limit. During this “bullish” run of the spot market, many people jumped into the industry, and from their vantage point, the future looked eternally bright as every day the rates were going higher.
Many of these very same people paid way above the normal price for new or used trucks and trailers. Meanwhile, many of us who have seen these cycles before, sat on the sidelines knowing there was going to be a crash after the “sugar rush”. On the upturn, there was a record number of new trucking companies and brokerages. This was followed by the downturn, in which there were record numbers of failures.
I guess you could call this the circle of life in the business world. If demand is high enough, pricing and profitability go through the roof. This very same set of circumstances that causes pricing and profitability to go through the roof, also attracts more and more competition until pricing and profitability begin their downward slope.
I came across a few articles after participating in the above discussion. These articles demonstrated that at some point, almost every business will fail. In fact, the percentages of businesses that fail within the first few years are fairly high.
The point I want to make is that it’s important to put together a business plan that can survive the downturns in the volatile freight market, while having the ability to enjoy the “bulls running free in the spot market”.
To me, it’s important to have a major part of the business built around contract rates, while having a portion of the business capitalizing on the spot market when conditions are favorable. Unfortunately, far too many people in the trucking industry put all their eggs in the spot market basket. And when the rates correct themselves, there is sometimes a fatal end to their business's profitability.
Of course, then the blame game starts going around, and it’s always somebody else’s fault. Instead, they should take ownership of the business decisions that were made by their own account.
In the end, it is your business! Take control of it and find the route to profitability.
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