(Transportation Management Article - Continued)

Fuel Costs a Huge Burden

In general, independent trucks, who generally either work as sub-contractors for larger firms or gain work through transportation brokers, lack the clout or sophistication to add hefty fuel surcharges to their mileage charges to recoup (or even profit from) rising fuel costs, as most larger freight companies do.

While the large carriers have as a result managed to almost totally shift the fuel cost risk to shippers, independent operators have seen it go the other way, as rising, un-recouped fuel costs take away huge chunks of their cash flow and profit.

The AP story notes the take of one independent trucker who saw his annual profit dropped from $50,000 to $11,000 in 2007 – poverty wages for a difficult lifestyle.

We’ve been through this before. Between 2000 and 2002, a quarter million trucks – about 10 percent of the US total - were repossessed nationwide. That ultimately contributed to a shortage of capacity when the economy later rebounded, leading to a supply demand balance strongly in favor of carriers for a few years, from 2004 through early 2006.

That may happen again, says Gary Girotti, a transportation consultant at Chainalytics.

“This is Adam Smith’s invisible hand at work, and it is needed to keep the trucking industry healthy. There is way too much capacity chacing too little freight at this time,” he told SCDigest.

Girotti thinks the shrinkage of independents and other factors will eventually clear the market of excess capacity – but the process will take time.

“It will eventually lead to high shipper rates, but not anytime soon,” Girotti added.“I believe volumes are still falling faster then capacity is being taken or forced out of the market. I projected that rates would stabilize in the second half of the year but I have to rethink that now. It may not be until later in the year or early 2009.

Girotti notes that a key issue down the road will be if capacity can be brought back on-line quickly enough when the economy does swing back around.

“The nightmare situation of the shipper is if the economy snaps back quickly with sustained strong growth directly after more then a year of stagnation without a ramp-up period, it will lead to capacity shortages that will not only rapidly drive up prices but will produce situations in which loads can not be covered and significant service drops, a la 2004 and 2005,” he says.

What’s your take on the pain and attrition in the independent trucker market? Should shippers care? Are there any moves they, brokers or the government should take? Let us know your thoughts at the Feedback button below.