Trucking Fleets Manage Costs
In today’s tough economic times many sectors of industry are feeling the burden of a slow moving economy. However, some divisions are more optimistic than others. According to a survey by GE Capital, those in the transportation industry have some of the more positive projections. The first quarter 2012 study indicated that 47% chief financial officers (CFOs) for trucking companies predict increased profit margins. Both increased revenue per mile and increased shipping volume from existing customers were the main contributors to this encouraging outlook.
Although transportation companies may be better off than other industry sectors they still have their share of concerns. These include, but are not limited to, the increasing cost of new equipment, regional differences in recovery status, lack of eligible drivers, and difficulties staying profitable. GE Capital’s president and general manager of the Transportation Financial Services group, Dan Clark, and his senior vice president of sales, John Conkin, spoke at length about each issue.
Gambling on New Equipment
The benefits of having new trucks are easy to determine. "New engines are getting better mileage in most cases, for example,” says Clark. Other advantages of newer equipment include the retention/attraction of drivers and a reduction in vehicle downtime. Although the initial invest on a new truck may be quite steep, the boon to the company may be worth the risk. As Clark sums it up, “"The net cost may work out so it's cheaper to have new equipment.”
Varying Business Environments
Another problem that is easy to overlook is the varying economic conditions of different regions and industries. Since trucking companies typically operate over large areas and diverse interests, it can be challenging to maintain service where there is reduced revenue. An example of a weak region comes from the Southwest. Clark states, “"California continues to be weak as far as the transportation business goes.” However, the south central United States is still doing quite well due to the profitability of energy production.
Dwindling Pool of Drivers
Manpower is in short supply when it comes to trucking. One of the reasons for this comes from the United States Department of Transportation’s (USDOT) Compliance, Safety, and Accountability (CSA) score system. Since each individual driver has a publically-available score more people are being refused driving jobs. As these older individuals get pushed out, less young people are entering the industry. “If you think about it, there aren't that many parents that want their children to grow up to be truck drivers. It's a culture change,” Clark summarizes. These two factors, combined with the fact that 80% of CFOs surveyed claim to be hiring within a year, could pose a problem for the transportation industry.
Hard economic times have spurred most in the transportation industry to make some hard decisions. According to Clark and Conkin, companies tend to drop the 10% least profitable contracts when push comes to shove. Clark says, “"There is really nothing that's sacred. If they're not profitable, then they're willing to walk away from it."
Fleets are also doing the best they can to squeeze the most profit out of each mile driven. In the past, fuel surcharges caused by volatility in the market were typically negotiable. Now companies are more rigid on these prices to make sure they do not lose any additional revenue. Many in the industry are also using modern routing software to ensure the most efficient routes. These programs not only reduce the need for dispatchers, but also optimize lanes based on many different conditions.
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