Trucking Recession Essential Lessons

I have now done consulting and taxes for operators for over 30 years. I finished my master thesis in 1996 with a “cutting edge” synopsis of the future “paperless” society that would be brought on by an invention called “the internet” (I’m not sure if you’ve heard of it – you can Google it if you haven’t). There has been an ocean of water that has passed beneath my bridge. I have weathered three trucking recessions: 2000-2001, 2008-2009, and 2022-present. Still, the worst (by far) was the 2000-2001 recession… however, the current trucking recession is the LONGEST I’ve ever experienced. More people are parking their trucks, walking away, losing hope and generally having a bad couple of years.

The industry suffers downstream from operators as well as upstream to carriers. Mechanics have outstanding bills, and financing companies are asked to make special arrangements. Last month, one chartered bank publicly announced their intent to distance themselves from the trucking industry. In 2001, three of the seven chartered banks froze all exposure to trucking… so at least that shows us a comparison level. When times are bad… everyone usually knows it. A few tips on dealing with difficult cycles in the industry;

First, make sound promises to yourself to be better prepared for the next recession. I know it’s a “hindsight is 20/20 statement” but if we want to be successful in any industry we must be prepared for the inevitable downturns. The problem is… too many people don’t know what they are looking for. The key is usually simple; good-high earnings are a clue. In the spring of 2022, at times guys were pulling for $12-18 per mile. These kinds of general rates are simply unsustainable; NEVER assume good short-term performance. I know a small carrier (8 trucks) that pocketed half a million in 9 months prior to June 2022. He had an opportunity to buy out another carrier and even though he had the cash, he remained disciplined and waited. A few months ago, I heard he bought out his old boss’s business for nothing and nabbed its 1.5 mil in valuable trucking real estate for a great deal. He built a 10-year financial foundation in 24-30 months. He ZIGGED when the industry ZAGGED. I also know several Owner Operators who ran out and got their running rights in the summer of 2022. Almost ALL of them are out of the industry today. If they had stayed as O/O they would still be alive. If it’s too good to be true… it usually is. The key to making sound financial choices is understanding financing risks. Too many people think that financing companies won’t finance you if you are overleveraged. That… is very naive. It’s the job of financing companies to… finance. They usually don’t stop until they THEMSELVES start to hurt bad, then it’s already too late. Most of us have the aggressive bug that needs to be squashed. Learn to work with CASH… NOT debt.

Second, when bad times come… real crooks are exposed. Nearly everyone is honest and ethical when times are good, but when times are BAD, contracts are questioned or compromised, and bills are left unpaid. Relationships are categorized into two piles: the vulnerable and the essential. The vulnerable are sacrificed, and sometimes, when it’s REALLY BAD, even the essentials are squeezed. Too often, we overvalue ourselves, assume we are “essential” when we are just vulnerable. That’s why ethics and integrity are essential to long-term survival. Be prepared to be vulnerable, stop depending on debt to carry you through bad cash flow.

Third is learning true MARGIN. What is essential to you and what is NOT essential? That camper trailer with its bi-weekly payment was probably not essential this last winter Eh? Maybe we could have fixed that old vehicle for another year rather than having to make that $700 car payment we now have. These are just obvious examples of increasing our cash flow margin in our lives. The devil you know is sometimes much better than the devil you DON’T know. I talked with a guy just last week who almost convinced himself that replacing his old truck with another used one was the better way to go. His fuel costs were 2.5% less than industry norm. The maintenance he was complaining about represented only about 75% of his fuel savings, so he was still ahead by .625% of the industry norm. The maintenance aggravation was skewing his thoughts; he was better off keeping the fuel-saving devil than learning all about some new devil. I think he made the right choice. He stayed the course.

Living debt-free or at least working towards that goal gives a person perspective on good versus bad choices. Debt produces panic in all recessions. The goal of all businesses should be keeping debt at an absolute minimum, especially in the independent operator industry. You are dealing with one primary asset that is highly depreciating. Your best long-term solution is always to work towards zero payments.

If you are still alive… chances are, you will make it through this. If you do… remember the tightness of cash. Remember the low margins and promise yourself you’ll never go back into debt as easily as you have in the past. Debt isn’t the end of the world… it just feels like it.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.