Trucking executives seem confident that the year ahead will be good. In a CCJ survey conducted in late September, 57 percent of on-highway fleet owners and managers expected to increase the size of their power unit fleets slightly in 2007; another 12 percent expected significant growth. Only about 6 percent expected to run smaller fleets next year.
And what’s tempering growth? It’s the same old story: 59 percent cited driver availability as the biggest constraint on growth in 2007. That’s well ahead of equipment cost and freight pricing, each at about 13 percent. Freight availability? Only 8 percent. If these results don’t sound too surprising, that’s the point. For three or four years, fleet owners have expressed confidence that the coming year would be about as good as – perhaps even a bit better than – the year before. And generally, that has been the case.
In recent years, market fundamentals have bolstered the fortunes of many fleets that barely survived the downturn of 2000-2002. Freight demand has outstripped a steady supply of drivers, and pricing has been favorable – at least for for-hire carriers. As long as a trucking company could keep drivers in its seats fairly well, it had a good chance of making money.
Looking to 2007, economists seem to expect slower growth – but growth nevertheless. Economic projections, however, are only as reliable as the assumptions that feed them. Energy prices have proven quite difficult to predict, and they have a significant effect on the cost of goods and, especially, on disposable income. A downturn might not be in the offing for 2007, but an eventual downturn is inevitable.
What’s your business plan for a weak economy? Don’t sit back and let the market toss you around at its whim. Take charge by considering strategic moves that can help you compete.
Diversify. Although the overall economy remains good, you could be in trouble if your volume is tied heavily to residential construction or automotive manufacturing. Hauling roofing shingles, for example, has been a good business in recent years, but if that’s your whole business, a recession in housing could hurt badly. Consider concentrating your sales efforts in other areas, such as nonresidential construction materials.
More broadly, how exposed is your operation to a loss of or drastic reduction in freight from a single shipper? In truckload, many executives get nervous when a single customer represents more than 12 to 15 percent of their freight.
Invest. A meaningful opportunity to buy trucks with pre-2007 engines may have passed, but there are plenty of ways you can use retained earnings built up through the good times to make strategic investments in technology that can help you manage costs or attract and retain customers. Which technologies make sense depend on the nature of your operation, but certainly even small carriers now have access to business intelligence tools that help manage costs and maximize revenues. And they can give customers the visibility and information technology tools that larger carriers do.
Acquire. Many trucking executives seem to believe that the current business cycle is at or near its peak. Some owners want to maximize their return on equity by selling now. You can build your operation through acquisitions that bolster your competitiveness geographically or by adding a particular customer or line of business. You don’t want to pay too much, especially if the market is softening. But nor do you want to wait too long and miss out on the best opportunities.
As with many things in business, timing is key. Wait too long, and windows of opportunity close. It may be harder to motivate yourself to make big moves during good times, but it’s probably easier to execute those moves when you are financially stronger. Pretend that now is your last chance to ensure your long-term success.
