“Business has been really good for everyone this year. Everyone has all the freight they can handle. So what do you do with that?” That’s the question McLeod Software President Tom McLeod posed to a crowd of customers in opening remarks at McLeod’s 2018 User Conference in Birmingham, Alabama, Oct. 1.
McLeod pointed out the economy is booming, with GDP growth of 4.2% in the second quarter. Truckload freight is up. Truck sales are at an all-time high. Economists, he said, predict that for the next year to year and a half, the economy looks to be strong and unstoppable.
“Economists can’t see much further than that. But markets do not grow to the sky. We’ve been watching the economy improve since December of 2009. But it won’t go on forever. Be sure to keep that in mind.”
In the meantime, he said, fleets should take advantage of the economic conditions to do the following six things:
1. Set your rates where they need to be.
“I still see carriers be a little bashful in going to shippers to ask for the rates they really need to be profitable in the future. If you can’t do it now, you’ll never get there. The market conditions now are really unprecedented.”
2. Raise driver pay.
Use those improved rates to address driver pay, which McLeod noted has lagged behind other industries that compete for drivers, such as construction. Driver pay needs to come up to a point where you can have success in recruiting and retaining drivers. “But don’t get too carried away because the economy isn’t going to go sky high forever.”
3. Clean up your network.
Decide what your network is. “Turn down the bad freight — places customers send you where you can’t get back and make a decent return on a round trip basis.”
4. Go after the customers you’ve always wanted.
“I know you don’t have any more capacity, and if they award you freight you may have to shift some of that, but this is a great time, a great opportunity,” McLeod says. “Because the challenges you’ve got, your competitors have those same challenges. You don’t even have to handle them perfectly – you just have to handle them a little bit better than the guy down the street. A gain in market share will put you in a stronger position when a downturn does occur.”
5. Deal with detention issues.
Now, when capacity is tight and carriers have leverage with shippers, “is a perfect time to address those detention issues and get back some of the utilization that’s been lost with the mandatory ELD rules.”
Shippers, McLeod said, have to realize they’re part of the problem. “They’ve got to clean up their act at the docks.” He emphasized that carriers need to move from a cents-per-mile mindset (even though that’s the way the rates are) to a dollars-per-hour philosophy.
“Your revenue per mile can look good, but if the truck had to sit at the dock for six hours to get loaded and the driver lost all that on duty time, it can turn a profitable load into an unprofitable one.” McLeod Software, of course, has developed a lot of reporting in its software to help with that, including a major new release of its detention module.
6. Look at opportunities in brokerage.
McLeod said it at first seemed counterintuitive, but third-party logistics companies are doing very well in this economic expansion. “I thought shippers might go directly to the carriers and squeeze out a lot of freight broker business. It turns out shippers, once they go through their 20 core carriers and can’t find a truck, they don’t know what to do. They’ve cut their traffic department staff, so they don’t have the expertise to do it in internally, so they’ve turned more over to brokers and 3PLs.” This spells a growth opportunity for some carriers that may want to start or expand a brokerage or 3PL business in addition to more traditional asset-based trucking operations.
McLeod also pointed out that the longer-term trends, out to 2029, is great for trucking. While there no doubt will be ups and downs on the way, the long-term forecast for growth for tonnage and revenue in truckload is enormous, he said. “If you look at any other industry out there, I don’t know of any that have this kind of a growth forecast.
“So you’ve got a great forecast, a great future ahead; all you have to do is take advantage of it.”