Post-Recession Revenue Plan

Outside of short term survival, the biggest risk to a trucking company operating in a recession is how it is positioned when freight levels return. 

 

Recessions create a magnetic-like attraction between trucking companies anxious to secure additional revenues and shippers anxious to bid their business to lock in low rates for long periods of time.  As a result, truckers looking for top line solutions to bottom line problems bid too low for too long.

Here’s the question CEOs should ask themselves that best frames the issue:  “When the economy rebounds and capacity tightens - how much available fleet will I have uncommitted to capture freight at higher rates?”

The economy and related freight levels will improve gradually and that creates a dangerous temptation – fill up all the idled trucks as soon as possible.  Success with this strategy will only keep a trucking company’s rate structure low during the anticipated upcoming boom years of under capacity and higher rated freight.  

 

The solution is to have a formal revenue plan and the fist step in developing that plan is to map existing freight businesses on a timeline that includes how many trucks are associated with each piece of business and when those contracts expire.  That will provide insight into how much capacity will be available at specific times in the future.

 

Bid new business carefully, particularly when it comes to a time commitment.  For longer term contracts, continue to bid aggressively but insist on adding a truck tonnage escalator to your annual CPI increases that kick in when freight levels exceed a certain ceiling.

 

Finally, bid out your uncommitted capacity in layers with each layer providing higher revenue per mile.  If, for example, over the next year-and-a half you forecast 175 trucks will be available, offer the first 75 at $X/mile, the next 50 at $X + 5% and so on.

 

Our economy will bounce back and when that happens, trucking capacity will be in high demand.  After months, possibly years of depressed earnings, reducing the temptation to grab as much freight as possible as quickly as possible will require a lot of discipline.  Truckers able to muster that discipline will be rewarded with years of possibly record breaking profitability thanks to the insight of their CEOs and their commitment to long term revenue planning.

 

-- Joe White -- TruckExec Publisher / CEO-CostDown Consulting

Comments

[Aaron Huff]

Good article Joe. I think that's a good approach that fleets can take now to position themselves for the future.