by Ray Smith, Exhibit City News
If it means saving $500 or $1,000 in broker fees, Hank Duran, president of Las Vegas-based HD Team Transport, is not in the least averse to knocking door to door at warehouses searching for shippers in need of his trucking service. After a 40-year career, the wave of rising freight transportation costs combined with plummeting shipping rates is crushing Duran’s business and has him gasping for air.
The freight transportation industry is dealing with soaring fuel prices and insurance premiums, disruptions to the supply chain that hinder equipment repair, an excess of tractor-trailers awaiting orders, and fierce competition that’s driven shipping rates down 40 percent. You can throw in higher fees, taxes and increased regulations.
“It’s really tough to make it out there,” Duran says in his warehouse office, a bare-bones operation tucked amongst houses built around the industrial complex. “I wouldn’t recommend someone green going into this business.”
He shares his 12,000-square-foot warehouse with DCE, a London-based exhibition design and production company, and splits the $15,000-monthly lease.
“Nowadays, to be honest, you’ve got to team up with people. You get two or three companies that intermingle, they have different names, but you work together and share the bed with them,” Duran relates. “It’s the only way you can do it.”
INFLATION BUG
Blame it on the post-pandemic economy. Blame it on the presidential administration. Blame it on American capitalism. Whatever you blame—there’s no getting around rampant inflation that has crippled small businesses, as well as corporate giants.
Prices have increased significantly on nearly every product and service—except shipping rates—which have fallen back to 1970s and ’80s prices. Just a few years ago, Duran was getting $1,200 to $2,000 for a one-way load from Las Vegas to Los Angeles. Now it’s $850 to $1,200.
Business was great until the middle of 2023, when it started “going down the dumps,” Duran says. “2024 is horrific.”
Shipping rates have dropped dramatically, largely due to the surplus of trucks and trailers availability. “You have an abundance of truck drivers fighting for the same load, so shippers are taking advantage of it. They’re having a blast,” Duran, the owner of two tractor-trailers says. “There’s no regulations in the trucking industry to regulate prices.”
Navigating today’s inflationary economy is really quite simple, says Jeff Cribbs, president of Orange, Calif.-based Fairgrounds Transportation.
“Basically, we use predictive technology based on the capacity of carriers,” he explains. “When a carrier’s transit time fluxes off their anticipated schedule, we have alternative choices to keep the freight off that provider’s truck. There are also a couple of other small integrations used to speed up processes.”
Fuel surcharges also fluctuate with industry trends, based on the Department of Energy fuel index. “In heavy contract negotiations, companies will often implement their fuel (surcharge) or set a gap that is broader than the DOE,” Cribbs adds.
ALG Worldwide Logistics uses the government’s weekly fuel surcharge report to keep up with inflated fuel costs, says Dwight Boutwell, ALG station manager in Ontario, Calif. Also on the rise: labor, taxes and rent.
“But I would imagine all businesses incur these costs and pass along the increases as best we can to our clients,” he says.
STIFF COMPETITION
Unless you’re backed by sufficient capital to purchase 30 tractor-trailers at about $200,000 each, it’s going to be tough to compete with the likes of Yellow Freight, Knight-Swift Transportation, England, J.B. Hunt, FedEx and UPS, Duran says.
They’ve got a fleet of 2,000 to 3,000 trucks, they’re self-insured, and they are their own broker. Smaller companies need millions of dollars in liability insurance and lack economies of scale for parts and service.
That’s why freight transportation has seen a number of mergers, acquisitions and space-sharing agreements in recent years. It’s changed the structure of competition, with larger companies acquiring smaller ones and middle-market lines growing through acquisition.
Freight consolidation streamlines logistics, making operations more efficient and effective. Cutting down on shipments can reduce costs and speed up delivery times, giving a company an edge over competitors dealing with higher costs and slower deliveries.
Companies are racing to stay ahead of competition, continuing the consolidation trend. From 1996 to 2022, the top 20 carriers’ share of container capacity skyrocketed from 48 percent to 91 percent, according to a report by Unicargo.
“While the benefits of freight consolidation are clear, tackling logistics can be overwhelming, especially for inexperienced businesses,” the report states. “This is where teaming up with a seasoned freight forwarder is helpful.”
“Many freight transportation brokers are closing their doors,” add Cribbs. “We are continuing to grow by creating a competitive advantage as it relates to cost and faster transit times. Putting the right carrier on the right lane at the right cost is something we are experts in.”
MONEY PIT
Wear and tear can take its toll on big rigs making long hauls, and repairs are part of the business. “You’re constantly replacing hoses, brakes, alternators, and flat tires. A semi-truck owner-operator can expect annual maintenance and repair costs to weigh in at around $15,000,” Duran says.
A Diesel Exhaust Fluid (DEF) filter system costs about $700, and Duran notes that his trucks aren’t running like they did in the past. “We get 350,000 miles, versus a million miles before,” he says.
A new tire will cost him $600, and an oil and transmission fluid change and lube job run another $600.
In addition to maintenance, he has to plan for these other expenses: fuel and highway tolls, Department of Transportation annual registration, state licensing and business permits, insurance premiums, cost of finding loads, heavy vehicle use tax, International Fuel Tax Agreement, vehicle inspection fees, and various unplanned expenses and unexpected downtime.
LOOKING AHEAD
What does the future hold for the trucking industry?
Artificial intelligence and automation are changing the game in the complex landscape of logistics. Cribbs of Fairgrounds Transportation recalls spending hours planning routes manually. “Now it’s like having a digital copilot,” he says.
“Just, basically, tasks we used to do manually. Amazing how simplified it can be with AI automation. We have a lot of improvements here in store as well,” the logistics expert foresees.
Automation has already improved efficiency in the warehouse. Robots are handling inventory, eliminating mistakes and working tirelessly with no complaints or company benefits.
Boutwell of ALG Worldwide has witnessed technological improvements in electronic logs, satellite tracking, and anti-theft mechanisms.
“I believe technology will be extremely beneficial for our industry, even though as a 50-year veteran of the business, I struggle mightily trying to keep up with the ever-changing technological world,” Boutwell admits.
There may also come a day when self-driving trucks hit the highways, providing a safer and more efficient means of transportation. Testing is already underway. “A bit scary if you think about it,” Cribbs says.
Duran can see that happening. He doesn’t place much faith, however, in the green energy movement. For one, he believes the electrical grid remains incapable of handling high demand for recharging millions of electric vehicles. Then there’s opposition to lithium mining, essential for EV batteries, from environmental groups such as those combating Thacker Pass Mine in Nevada.
Boutwell, in agreement with Duran’s line of thinking, says, “I certainly hope we aren’t mandated to fully electric vehicles because I personally don’t believe they will be efficient and cost effective.”
As for fuel prices, Duran would prefer to see the U.S. government open drilling in states like Pennsylvania and Texas, instead of shutting down the Keystone Pipeline and buying oil from Venezuela and other countries. “Prices will come down when we’re energy-independent,” he asserts.
HOPE REMAINS
Trucking companies adhere to a myriad of regulations, including emission standards, hours of service, and safety standards. While it’s costly and inconvenient to comply, they’re subject to fines and penalties for not adhering to them.
Duran claims to lose money taking a load to San Francisco in 10 hours, having to sleep (or at least rest) for 10 hours, by law, before his next drive. That means he can’t make it to Los Angeles in time to pick up another load. Still, the biggest hit on his balance sheet are fuel costs and labor. Drivers want $25 to $30 an hour now—the days of $20 an hour are gone. Meanwhile, he’s paying around $5.30 a gallon for diesel fuel in California, a little less in the east, though prices have still doubled from this year in places like Louisiana.
Insurance has skyrocketed. What was once $1,200 to $1,400 a month for liability coverage is now $3,000, plus cargo insurance and workers compensation.
Despite all these challenges, Duran tempers his somewhat lugubrious outlook on the industry. He wouldn’t advise young entrepreneurs to start a trucking business, not with behemoths like Yellow and Swift gobbling up smaller operators, but there’s still a niche for someone willing to work hard and build a private customer base.
It’ll take flexibility and adaptability and coming up with creative alternatives to standard business practices.
“You have to have your own contracts,” Duran says. “Physically go dig up your clients. Go to warehouses and ask if they need a truck. Your invoice goes straight to the shipper.”
Without a doubt, the road ahead looks rough and filled with potholes for the trucking industry. But in the end, stores need products to fill their shelves. Heavy equipment can’t be delivered by a drone. Amazon isn’t the ultimate shopping solution for every consumer. The industry is projected to experience a continued rebound in shipping demand with significant advancement in logistics technology.
This story originally appeared in the Q4 2024 issue of Exhibit City News, p. 52. For original layout, visit https://issuu.com/exhibitcitynews/docs/ecn_q4_2024/52.
