“I love this business and this industry … but we need help.” –Todd Staege, owner of trucking company TW Express Inc., Viroqua, WI.
Got a note from Todd Staege the other day, taking me to task for what he considers my off-base economic outlook where trucking is concerned. From where he sits with his company’s two trucks, things are bad and getting worse – a complaint echoed by many small carriers all over the U.S. He’s also of no mind to hear about the “tough times” at larger carriers like Con-way Inc. or Knight Transportation, either, for they are at least profitable and their executives haven’t been reduced to a hand-to-mouth existence.
“Sorry if that came across harsh. It is just so very frustrating hearing the woes of billion dollar companies when we are have to sell personal items (our car) just to keep fuel in the tanks of my two trucks,” he told me by email. “After paying expenses and the drivers there is nothing left – zero.”
Todd and his wife Wendy (That’s where the “TW” in TW Express comes from) are also extremely frustrated over diesel fuel prices – because, as the old saying goes, pump prices shoot up like a rocket but fall like a feather. “So if the price on the pump goes up in relation to price per barrel, why didn’t it drop 25 cents this week since oil dropped?” he asked me.
Freight rates are another huge issue with the price of diesel over $5 a gallon now across much of the U.S. “Check the rates on any of the boards,” Todd told me. “For example outbound to Denver is $1.15 per mile or so average. But it costs $1.60 to $1.70 per mile to run that truck down the road! I could go about this for days.”
According to the Owner-Operator Independent Drivers Association (OOIDA), fuel surcharges have long been the primary mechanism for trucking companies to respond to increased fuel costs – and now shippers are, of course, paying more in fuel surcharges to get their freight moved than they ever have before. But carriers – especially small ones – need that fuel surcharge to cover their most expensive operating costs, and it’s getting harder to get all of it.
“It’s all too common for middlemen in the trucking industry to push shippers to pay fuel surcharges, but only pass along a portion of those surcharges, or none at all, to the truckers who are actually transporting the goods and paying the fuel bill,” noted Todd Spencer, OOIDA’s executive VP, in comments earlier this year.
“Independent, small business truckers seldom deal directly with shipping customers,” he added. “Most of the freight loads they haul are acquired through third-party logistics companies or through larger trucking companies they are leased to as independent contractors. Mid-size trucking firms often have contracts with shippers for ‘front hauls,’ but depend entirely on brokers for ‘back hauls.’ That’s why small and mid-sized trucking firms that comprise the vast majority of the trucking industry have been particularly hard hit by record high diesel prices.”
Eddie Walker, president of Texas-based Best Used Trucks and president of the Used Truck Association, noted that high fuel prices are especially hard on the smaller fleets because they tend to run older, less fuel-efficient trucks.
“Years ago, if you were making $1 a mile, you were making some serious money,” he told me. “Today, if your truck gets around 5 mpg, you’re paying a $1 a mile in fuel to move that truck down the road. With costs like that, people don’t think they can make money in this business.”
(Eddie Walker is trying to find shippers that pay well for his used truck customers.)
As a result, Walker has added a new “trick” to has bag for getting folks to buy trucks from him – finding his customers shippers that pass along the full fuel surcharge. “You can still make money in this business if you get the full fuel surcharge, so I am out looking for shippers doing that – basically finding places for my customers to go to work,” he told me.
Back at TW Express, one other thing bothers Todd Staege to no end – the housing crisis. How is it, he contends, that people overextended on their mortgage are getting help, but small business owners like him are getting left out in the cold?
“When I hear of the housing bailout for people not smart enough to realize they can’t afford a $500,000 house making 40k a year, yet millions of hard working Americans running their businesses are forced out for no real reason except high fuel costs, I know I’m in the wrong business.”
In the end, Staege wanted me to understand one simple thing: It’s tough and getting tougher for smaller carriers out there … and somebody better start thinking of ways to help them survive, and do it soon.
July 25th, 2008 @ 3:40 pm
Todd and Wendy,
We are in the same position you are and sinking fast. We have more than 2 trucks and simply had to raise rates to survive, so we’ve done it. Now we will see what happens to our capacity. If the tenders go away, we will park trucks. It is just the way it has to be. If I can’t pay my bills, I can’t keep these trucks running.
I hate it. But when I see trucks parked and get calls from OO’s trying to sell us their trucks, it makes me sick. When I read in TT that small and medium trucking companies are calling equity companies to the tune of 10 or more/week trying to get themselves sold before they are forced into bankruptcy, it kills me.
And it could be me next! We will just have to wait and see.
Meanwhile, the Govt at all levels is proposing more taxes, more restrictions and more requirements that will cost us even more to operate.
I’m one of those running older trucks in the 5.5 MPG range. I can’t afford to buy new trucks, nor install APUs in what I have.
You are not alone. I wish you only the best. I pray we both come out on the other side.
Be well.
July 25th, 2008 @ 5:07 pm
Todd has many valid points in the difficulties small motor carriers face.
But the one issue that seems to be swept under the rug by a large majority of small carriers is the simple fact they haven’t a clue of what their true cost of running a business is. What I mean is they have heard from someone else it takes $1.60 per mile to make it, but when you do the math of $1 per mile for fuel, 35 cents for the driver, 20 cents for Maint. 15 cents for a truck payment another 15 cents for insurance, base plate, FHUT and other fixed expenses this equals a $1.85 per mile and we haven’t even calculated a salary for the truck owner or a profit margin so he can capitalize his trucking company. And I’ll be willing to bet I’ve missed an expense or two in figuring this all in my head as I type. The bottom line is, unless you know what your Break-even Point is, what amount of cash in the bank is required to capitalize your company and the period of time it will take to reach your capital goal, there is no way you can know what the hauling rate needs to be to accomplish all of this.
Anyone who doesn’t know their numbers, all their numbers will eventually fail. No change in how the fuel surcharge is paid, no legislation controlling the price of a barrel of oil will help any trucker run his business unless he knows his break-even point including a salary for himself, the owner. It’s not the fuel surcharge which determines whether you make a profit or not, it’s the total revenue received versus what it costs to run your entire operation, period.
when was the last time a service manager a t a truck repair facility asked you how much you wanted to pay for a repair? And if he did what would you say? And what makes you think any broker of shipper would do anything different ?
Something to Think About
Oh and about trucking getting better, as long as fuel stabilizes in price even if it’s at $6 a gallon the industry outlook will improve. As the trucking companies which were operating on the principle of if my wheels are rolling I’m making money no matter what the rate is go out of business things will improve for those who operate knowing their costs and setting their rates accordingly. There will, for a time, be more shippers and loads than trucks as we start the cycle again. For every trucking company that goes out of business there will be shippers looking for haulers. The smart haulers will quote a fair and profitable rate to these shippers and if the shipper doesn’t like it , their will be other shippers in the wings who will. The gougers will fall just like the ones that didn’t know their cost did as the industry starts to level out. Those who know how and when to say no and how to negotiate to get their need rate will be the ones in the best position.
August 19th, 2008 @ 4:34 pm
I came across this and thought others would be interested…
From truckers and farmers to loggers, construction workers and fishermen, skyrocketing diesel prices are pushing what many consider the backbone of the American economy right up to the breaking point. One company is taking an old solution and revamping to be a new solution. Umpqua Energy’s hydrogen generator uses electrolysis to break apart water molecules in to hydrogen and oxygen, which is then turned into Brown’s gas. Hydrogen can be used as an additive in diesel engines to increase performance, reduce emissions and improve efficiency. Other companies charge $15,000 per unit which produces ½ liter of hydrogen and oxygen gas per minute. Umpqua Energy’s model costs $995 while producing 2 liters of gas per minute, making this an affordable and practical option for anyone using a diesel engine.
One gallon of distilled water will last 4,000 miles. Emissions standards are improving around the country. Umpqua Energy’s hydrogen generator can reduce NOx by up to 60%, carbon monoxide by up to 100%, hydrocarbons up to 100%, particulates up to 95% and smoke up to 70%. For diesel engines made before 2003 the savings in fuel expenses are almost as impressive as the emission improvements. Annual savings estimated at $3,900-$7,800 and lifetime savings of $43,500-$102,000. This is an example for one semi truck. www.umpquaenergy.com