In the first half of 2019, 640 trucking businesses across the country declared bankruptcy. This number may seem high, but what is alarming is that it represents nearly three times as many bankruptcy cases related to the trucking industry as there were in 2018. This is a significant issue that might continue to get worse in future years.
The number of closing trucking businesses in the US is worrying. That much is obvious.
The reason, though, is something that the specialists are unsure of.
There are many variables that appear to be having an impact on the transportation sector. Whether it be because of a growing shortage of trained truck drivers, a lack of strategic vision, or an unwillingness to change.
So what is the fundamental problem? Or is this a persistent issue brought on by a number of causes?
The American Trucking Associations issued a dire warning to the White House about the effect that rising diesel costs will have on the trucking industry.
The ATA also made note of the fact that smaller trucking firms face a high risk of failing due to a lack of resources to sustain the rise in fuel prices. A supplier that is already under stress could see disastrous effects if these little truck companies collapse.
In 2019, 46 billion gallons of both diesel and gasoline were consumed by commercial trucks. At a time when the price of diesel fluctuated between $2.97 and $3.17 a gallon yearly, truckers spent $112 billion on diesel fuel in that year. The U.S. The Department of Energy stated that the national average diesel fuel price as of March 7 was $4.85 per gallon, the highest price in American history. With an average cost of $5.76 per gallon in California, diesel fuel costs on the West Coast are quite high.
Let’s see below six other potential reasons besides fuel costs that affect why trucking companies are in trouble to remain open.
Strategy
Future predictions are challenging, particularly when preparing the business of a trucking firm.
The successful running of any trucking firm depends on the capacity to stay relevant with changing trucking rules, legislation, and developing consumer expectations.
Company Management
Company management might be linked to another contributing element in the sudden rise of trucking company failures.
In reality, top leadership who had been charged with financial mismanagement and were facing many ongoing legal cases were blamed for the recent declaration of Celadon’s liquidation at the end of 2019.
Any business, regardless of its sector, needs to be run by people who uphold moral principles, obey the law, and recognize the value of a supportive workplace environment. Critical is for leaders in the trucking industry to understand the value of having the appropriate resources to meet the needs of the market today.
This may need consulting with professionals in supply chain management, route optimization, and financing.
Poor understanding of finances
Bankruptcy is primarily brought on by a lack of available cash to pay off accumulated debt. Simply put, this is a case of poor financial management.
Reduced cash flow can be caused by a variety of things, such as difficulty keeping clients in a cutthroat market, inability to fulfill orders because of driver limits, increased operational costs, ineffective invoice collection, and more.
For transportation businesses, improving cash flow management is essential.
You may finally cut waste and costs significantly by setting up simple procedures for consumers to pay their invoices.
Regulatory Issues
Due to the cost of integrating the necessary technical equipment for regulatory compliance, smaller providers made the strategic decision to halt operations. This accounted for the majority of trucking companies that closed in 2019.
Due to the expense of the equipment, the time required to teach drivers, administrative staff, and more stakeholders in their organization, the ELD Mandate presents a large barrier for smaller transport companies with limited cash resources.
The ELD Mandate also limits the number of hours that trucking firms can have their drivers on the road, which raises their costs.
Lack of Competent Drivers
The fact that CDL drivers are disappearing from the pool of competent drivers is one of the main obstacles facing the trucking business.
Fewer drivers are available to a trucking company, limiting its ability to move more freight for more customers. And in the most extreme scenarios, they might even be required to shut their doors.
Outmoded communication techniques
Customers today want instant updates on the progress of their commodities. Getting trucking companies to equip their trucks with cutting-edge communications equipment is a significant challenge, even if many distribution centers and eCommerce companies have the platforms to speed up communication along the supply chain.
Trucking firms that can’t keep up with consumer communication demands are losing clients, whether it’s through the use of satellite tracking systems, Wi-Fi access, or the technology within their transportation management platforms.
Although there are many economic aspects that contribute to a trucking company’s struggle to remain profitable, there are some that can be lessened with the help of an experienced third-party logistics provider.
To understand better what is the future of trucking companies its important to know trucking industry Trends for 2022/2023:
Carrier Liquidation
Numerous large and small transport companies have shut their doors during the last few years as a result of the challenging market conditions that are common in the sector. Due to the closure of these trucking enterprises, at least 3,000 truck drivers are currently jobless, contributing to an increase in the number of unemployed persons.
The lack of transportation is another factor. Trucking companies have less employment because retail companies are carrying less items from one location to another. Their profitability has decreased as a result of this leading to their bankruptcy. Unless there is a big expansion in the retail sector and a substantial increase in transportation flow rates, the pattern is very unlikely to shift in the upcoming years.
Modernization of Tech
Numerous aspects of our lives have been made better by technology, and the transportation sector is no exception. From corporate headquarters to the actual trucks, technology has advanced across the spectrum for transportation companies. To make their operations more streamlined and effective, more businesses are starting to embrace software.
Previously utilized only for moving products, trucks are now outfitted with cutting-edge technology that makes them more intelligent than before. To enhance their functionality, more trucks are adopting smart technology. Due to the need to tell their clients who purchase their products of the status of their orders, many trucking businesses have been forced to invest in technology that enables them to track the goods that are being transported.
More Mergers, overall
Due to the challenging market conditions, many businesses in this sector are failing. Some businesses, however, opt to go a different route and combine with other businesses. In the future many trucking businesses will probably start concentrating on developing autonomous vehicles if the market doesn’t improve and if there are no other options available.
There are primarily two ways that trucking businesses can merge. To combine your resources and compete against the competition, the very first step is to merge with an existing trucking company. It enables businesses to continue operating and possibly expand into new regions.
In order to diversify their offerings, trucking companies may decide to merge with another business. This would enable them to survive till the market conditions improved.
Change In Production Sites
Many of the top trucking businesses in the world have very steady production facilities that have only gotten bigger over time. To be able to undertake the production process and to meet the requirement for existing trucks, businesses are starting to look at newer places.
Ohio, Illinois, and Texas are three states where businesses are likely to relocate in order to save money on fuel.
California and Illinois are popular destinations for Reefer smokers.
In Pennsylvania and Texas, where production of flatbed trucks is primarily concentrated, production is anticipated to continue.
Moving to a new location is now happening throughout the whole transportation and logistics industry, not just in the trucking industry.
Market Turn
Even though the trucking industry is not in the best possible situation right now, some people are excited and optimistic about 2022 and everything it will bring. Because of the loss that the internet marketing sector saw in 2019, many people think that this sector is likely to reverse course and gradually grow as a product of the newer advances that are on the horizon.
If the current economic conditions don’t change, a market flip is anticipated to appear in 2022 and might greatly aid the overall industry and prevent some businesses from going bankrupt.
Price changes
Currently, truck drivers make significantly less money than the majority of Americans, even less than their counterparts who drive for Uber and Lyft. Due to a dearth of suitable jobs in 2019, truckers’ wages dramatically decreased. Because they were concerned that they might not be able to get any work at all, trucking companies began to charge less.
Concerns about driver wage increases have arisen in recent years, contributing to driver scarcity. Of course, the reason for this is the increase in trucking company prices.
Professional truck drivers encounter this in various supply networks as well. Taking into account the freight sector, freight demand, and particularly the freight rates? The issues with the supply chain also directly impact driver compensation.
The lack of employment as a result of driving wages is one consequence of this. They feel the same way regardless of the sort of driving.
The costs that trucking businesses charge their customers may change by 2022, either favorably or unfavorably. Trucking firms may need to lower their pricing even more if the market’s downward trend persists.
Prices may rise again to where they had been before the decrease if the industry enjoys positive growth. In either case, there will be considerable pricing changes for the trucking services that businesses offer.
Keep in mind that the trucking industry is still profitable.
Impact of online shopping
Consumers now prefer to purchase goods online instead of in physical stores, due to the e-commerce market’s phenomenal growth over the previous few decades. This industry has grown and become one of the most prosperous ones in today’s market because of the large variety offered on the internet and the fashion brands that goes along with it.
But it’s important to remember that the trucking industry is essential for the operation of the eCommerce sector.
Since this industry significantly depends on truckers to move its goods from one location to another, advancements in e-commerce would also benefit the trucking sector. Assuming that the e-commerce sector will continue to grow in the future, one can only expect that the transportation sector will also see some expansion.
Conclusion
The expansion of the trucking sector is reliant on current supply chain challenges and transportation industry trends. Let’s keep yourself up to speed with all the trucking industry advances in 2022. This will help the transportation business continue to prosper.