By Jami Jones
Trucking companies failures in the first quarter of this year rivaled the record levels reported in 2000 and 2001, according to a report released by Avondale Partners LLC.
The report, written by longtime trucking analyst Donald Broughton, stated that an estimated 42,000 trucks, or 2.1 percent of the nation’s over-the-road, heavy-duty truck capacity, went out of business in the first three months of 2008.
Broughton laid blame at the feet of continued pressure from all cost fronts, which include the “inability of fuel surcharges to keep up with constantly rising fuel costs” and forking out more cash for renewing licensing and insurance that typically come due at the first of the year.
These pressures, according to Broughton, pushed companies that were “teetering on failure, over the edge.”
He reported that the majority of companies failing were smaller companies with longer lengths of haul.
The end result was that 935 companies went out of business – a number that surprised even Broughton. In terms of this report, Broughton’s data generally count only trucking companies with five or more trucks.
In his report, he looks back on 2000 and 2001, another historically tough time in the trucking industry, and compares it to the current conditions truckers face.
He pointed out that a “segment” of shippers and freight brokers took a long hard look at pricing in the first quarter. Some went so far as to refuse to pay any fuel surcharge or, “in the case of brokers, collected it and then failed to pass it on.” There was an even larger group of shippers who resisted rates and surcharges being charged by carriers.
“Many carriers were desperate enough to find loads that they forgot the lessons learned in 2000 and carried freight without collecting a fuel surcharge,” Broughton wrote.
Broughton takes a long hard look at what is wrong with the fuel surcharge system in its current form in his report.
He points out that – even in the best of times – because of idling, out-of-route miles run while looking for a place to park or to avoid congestion, and deadheading miles, even the best fuel surcharge programs recoup only about 85 percent of the additional cost – at the most.
The current fuel situation is causing more problems with the fuel surcharge system, Broughton said.
He explained that most companies set a surcharge weekly, based on the U.S. Energy Information Administration’s price averages. But, because of that, most carriers don’t have a system in place to adjust their surcharge for fuel prices on Tuesday that are higher than they were on Monday, and so on throughout the week.
Most bills of lading are paid on 45-day terms. Even if 100 percent of fuel costs incurred at the time of the load were paid – which Broughton pointed out is not the case – the expense created by the rising cost of fuel while waiting on payment forces truckers to need more cash on hand to meet that ever increasing expense.
The glimmer of hope offered in Broughton’s report was more of a history lesson. As tough as things were in 2000 and 2001, truckers who were in business following the downturn “experienced the strongest pricing power since the industry” was deregulated in 1980.
However, economic reports that followed the release of Broughton’s report did little to boost consumer confidence. With analysts and the government yet to officially call the current national economic situation a “recession,” that wasn’t the case in a state-by-state report.
The National Conference of State Legislators surveyed 50 state fiscal directors and released its report April 25. William Pound, the executive director of the NCSL, stated that some states “have declined so much that they appear to be in a recession.”
The NCSL said that 23 states and Puerto Rico are already reporting budget shortfalls totaling $26 billion for the upcoming fiscal year.
The projections from the Washington, DC-based Center on Budget and Policy Priorities were even worse. The CBPP said that 27 states are reporting projected budget shortfalls next year totaling at least $39 billion.
The weakening economy is hitting tax revenue as the tanking housing market and higher food and fuel costs mean that people are spending less. The situation is particularly grim in Arizona, California, Delaware, New York and Washington.
The NCSL report did note one silver lining. For energy-producing states such as Alaska, North Dakota and Wyoming, “the fiscal situation is strong and the outlook is good.” LL
Staff Editor Elizabeth Andersen contributed to this report.