The #1 Reason Why Trucking is in Trouble

I recently sat down with a large Missouri based trucking company to identify potential common shipping lanes. The original owner’s son has since taken over the day to day company operations but it was apparent that his father’s values remained. With small trucking roots, they have managed to stay privately held, family owned and focused on a hand full of profitable lanes (no freight chasing allowed) but one specific thing struck me. The company, now one of the Nation’s largest trucking fleets, refused to open a brokerage division. Although somewhat shocked, I wanted to stand up and applaud. A wider adoption of this one very profitable company’s thought process would reverse nearly every issue faced in the transportation industry. Their simple philosophy was “why would we make a guarantee to our customer that we are unsure we can fulfill?" So simple, but so complex. This was a family and company of principles. #faithinlogicrenewed.

How can any business, relationship or any agreement flourish when it’s most basic foundation is false? It is easy to see why long-haul transportation is in the position it is in today.

Step 1: Large trucking companies over-commit to freight contracts via annual RFP processes.

Step 2: RFP requirements are met by utilizing a mix of asset (owned) and spot (brokered) trucks. Pricing discrepancies are recorded as gains/losses.

Step 3: Market pricing (via published analytics) is set by the contracted rate billed and collected by clearing houses (rather than the actual brokered rate).  

Step 4: Rinse & repeat.

So, what is wrong with this process? The market is in conflict with the primary philosophy being used. This is like saying on January 1st, 2017, “I will be buying Amazon stock throughout the year for $800 regardless of its changed value.”

Yes, I get it. Shipping company’s need stability and the ability to project. It is seen that providing a static rate provides this. But in reality, it doesn’t. What’s the price of uncontrolled service, claims, exposed liability and lack of transparency? Freight is changing company hands two and three times in this process. Contracted trucking companies battling losses in unpredictable markets (like we have today), commonly bow out of future bid processed. Introducing new companies re-learning the same lessons year over year creating further costs and inefficiencies for shippers. The benefits simply do not outweigh the costs and issues.

Tools, tricks, and sleight of hand are used daily just to be able to continue this process.

Transportation’s number one problem is that the market is not being followed. The primary process used today is now grossly incongruent with reality. Those that best understand the market (commonly due to operating first hand) have lost their voice and are in no position to change the process. Being in conflict with the NATURAL free market will always lead to failure. Why this path continues to be chosen is a mystery to every small carrier (86% of the market) as well as anyone with true market knowledge.

Changing the process in how shipments are transported is not only logical but due to market swings now being so vast, critically necessary and undeniable. In the name of “that’s just how the business works” it has remained the same as if though profit releases us from reality. The irony of it all is that truth would bring more profits than our current system could ever imagine. Just not to the same players...