Several years ago, I predicted that the trucking industry was headed into the “perfect storm.” I did not, however, believe the downturn would last as long as it did. The Sept. 11 terrorist attacks came along just when most economists felt that we were pulling out of the recession. And the bursting of the bubble in high-tech stocks dried up lots of investment capital.
The question is: Is the trucking industry headed into a boom in 2004 comparable to the bust in 2000 and 2001? The Federal Reserve helped trigger the downturn in 2000 by trying to engineer a “soft landing” for the economy, but it’s now probably overstimulating the economy today with its absurdly low interest rates. And those tax cuts that were phased in over several years are beginning to make an impact.
With record trucking company bankruptcies over the past three years, capacity certainly has shrunken significantly. It’s an elusive number, but let’s assume conservatively that capacity in trucking has dropped 5 percent. The economy is now growing by 3 percent, producing an obvious swing in supply and demand. I’m hearing from friends in operations departments that trucks are already running hard.
So if boom times are upon us, how long will they last? This is hardly the first time the industry has endured a difficult period when capacity shrinks followed by a very profitable period when trucks are in short supply. Unfortunately, when good times come along, the industry expands to the point where trucks are no longer scarce commodities. For example, 1994 was one of the best years for this industry. I managed a carrier that nearly doubled in size from 280 to 540 trucks. As I recall all too well, 1995 wasn’t a great year for this industry.
But this time may be different. First, there may not be a ready supply of new capacity. Because many fleet owners pushed out their trade cycles over the past few years, most purchases are replacement capacity, not expansion. But even if carriers get additional equipment, they still have to find people to drive them.
The driver shortage may not be as severe as it was three years ago, but nothing has happened to increase the labor pool. Sure, trucking company failures and layoffs in other blue-collar industries may have eased the pressure in the near term. But once the economy gets rolling, many of these workers may go back to their former employers.
With both equipment and drivers arguably in short supply, I believe that most carrier owners will temper their expansion plans. I doubt any sizable carriers will try to double in size in two years. So if trucking has hit boom times, the fun may last longer than anyone expects based on past cycles.
Profits may come more easily than they did before, but don’t take the good times for granted. Wall Street investors have an old saying: Never confuse a bull market with intelligence. It’s easy to pick great stocks when the whole market is going up. Likewise, just because you are making money doesn’t mean you are managing your company well.
When healthy profits start rolling in, it’s easy for trucking companies to get complacent. After two to three good years, managers start believing they have found the magic formula for success. The truth is, there is no such formula – unless you count maximizing productivity and the quality of freight. How many carriers have you seen build a fancy company headquarters during boom times only to go broke or sell out a few years later? Don’t let that happen to you.