Giltner Inc - Logistics News, Free Article Marketing and Publishing Platform

For years, rising fuel costs have been a battle for customers, carriers, and logistic companies alike. The struggle was real for trucking companies to keep up with costs and for customers to absorb the fuel surcharges into their transportation budgets. Rates were on the rise when the recession hit in 2007.

Those of us in the industry knew something was up long before the pundits and economists confirmed it. Freight seemed to just disappear and every load was golden. Customers took advantage of the situation to send out RFPs and new contracts and the transportation companies fell into line with a bidding war that lowered rates to a new low that made the rising fuel surcharge easier to absorb for the customer and left the transportation providers struggling to make it; this in turn caused a real bitterness in a lot of relationships. Customers were showing profits for the first time in an extended amount of time and enjoyed a period of over capacity. Markets adjusted by companies leaving the industry and/or downsizing. Drivers that were laid off went into other jobs and owner operators went out of business. The fuel surcharges were remaining fairly consistent, high but a source of stability for the transportation providers. They became the saving grace in a market of plummeting rates.

Slowly the economy came back and rates were slowly rising to reflect that. Two major weather issues in 2013 and 2014 forced the industry to realize the extent of the new capacity crunch. Hurricane Sandy and the extreme “polar vortex” of the two winters shifted the market to the transportation provider’s benefit. The pendulum had swung. By mid 2014 we saw rates that had previously been unheard of. Like the shippers in the previous market shift, carriers took full advantage of their new negotiating power. Industry leaders like Internet Truckstop held workshops and taught “negotiation skills” to smaller carriers, customers apologized for “bad decision making” that resulted in paring rates to unsustainable levels in the previous years in hopes of reestablishing and repairing strained relationships. Carriers quickly became accustomed to high rates and “spot market” opportunities that tripled and quadrupled rates.

The brokers and logistics providers had to adjust business models and work with customers to keep the freight moving. Rates between them became more fluid and fluctuated daily. It became a daily struggle to balance the customer’s needs and the carrier’s needs. Finding and providing capacity became the top priority, working with customers to adjust rates became commonplace. Once again, the FSC stability was a big player in this game. The ability to maintain that amount in the flat rate market helped to keep the rates to the transportation providers at a level appealing to the carriers. On the flip side, the carriers began to see the entire rate as the “new normal”.

Then all of a sudden what everyone had said for years wouldn’t happen, did. Fuel prices started to drop and they didn’t stop. The fuel surcharge difference from 2014 to now for an average customer is .22 per mile. On a 800 mile trip that is 168.00 off the flat rate. Small companies think you are lowering rates to increase your profit, however, that is far from the reality. That part of that rate is just gone, there is no recouping it, especially in a slower market.

Now we come to the hard part, convincing carriers we are not “ripping them off”. As a broker/ logistics provider, I am happy to finally be able to know some savings are being passed onto my customers without “lowering rates” and hurting the industry overall. However, to my carriers the rates are dropping so quickly that they fear post recession rates returning. The adjustment period is tough and presents another obstacle we all need to work through together. Lower fuel prices benefit the trucking industry in the long run, as long as we can get through the short term obstacles. We all need each other, so let’s continue to work together to keep America moving.

 

MerriDee Copeland

Giltner Logistics Inc.

merridee@giltner.com

 

Leave a reply