We truck in North America… not Europe

Consistency and predictability are a necessity for profitability in a competitive environment. The key phrase in that sentence is competitive environment. The trucking industry is deregulated, so the entire industry is competitive. Gone are the days of legislating competitors out of our business (though many still try). I have a friend who works in an industry with very few competitors. His work is more sporadic but when he makes money it’s large and has significant margin. Sometimes when he works, he may well be called in the middle of the night and then for days at a time… but then not again for several months. He keeps his customers because he is in his truck less than 30 minutes after his call. His “competitors” try and fit too many things into their schedule to serve the high-maintenance/high-margin clients. His job is anything but consistent… anything BUT predictable. Trucking, however, cannot survive with inconsistency or an unpredictable environment. The margins are just far too thin for that.

When the US EPA announced sweeping changes to their standards, many people and entire industries breathed a sigh of relief. The monumental standards imposed within the last 20+ years have created a death spiral for many in the trucking industry.

I was around when the late 1990s pushed through one of the first few stages of EPA standards. Though I admittedly did not know much about what was coming, I became very concerned when media began pumping article after article “promising” that fuel consumption will NOT be affected. They announced the additional costs would add only $10,000 per truck. For reference, trucks around 1999/2000 cost $125-135,000 for a dream machine. At that time the most I ever paid was $95,000. Everyone knows how the EPA standards affected fuel consumption, how it affected performance, shutdowns and maintenance issues over the last two decades. Though the fuel economy has admittedly been impressive over the last few years… the cost of asset purchase is nearly insurmountable.

I have a very significant sample size of clients in the operator segment. I am regularly asked if it makes sense to purchase a new truck with good fuel consumption or an old truck with a low purchase price. My answer is always the same… it depends on the predictability of your volume of work and rates. If you are on a scheduled run and nothing will change in the next 5-6 years, you should be fairly safe to buy a new truck. But if you can’t guarantee your miles or rate/volume, the risk is probably too high for a $200+k purchase. I have a client who got a new truck 26 months ago and was ok till about January of this year. His miles went from 12-13,000+ down to 10,500-11,000 or less. With his fixed $4500 truck payment, his take-home dropped down to below zero. He started racking up personal debt, month over month. He has been my client for over 10 years, and he has always worked an average of 275-285 days per year, which is considerably more than the national average of 240-250 days. However, even with working that many days a year… he now runs a deficit. He traded in a paid for truck for a brand new one at a very wrong time in history. He overpaid just before a downturn. It will take him 4-5 years to recover (if all goes well). Obviously, our volumes and rates are critical to our survival.

If Canada wishes to continue working with the very lucrative US freight market, they will need to be instantly compatible to the new US EPA standards. One month’s delay would be inconsistent with survival. The last thing we want is something like a Mexico/USA border standard where travel is restricted. Shutting out the US trucks because of “non-compliance” will guarantee a separation/divorce with our high-margin neighbors. The last thing we need to show the US market is more elbows. I hope the elected officials in our country understand our dependence on uniformity. Like it or not, we flow where the US flows. We can’t have European EPA Standards… we don’t truck there.

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.