The year 2018 saw a boom for trucking companies that experienced a steady influx of revenue and had their fleets always busy. However, by the end of 2019, these companies found themselves in the red, and some have to close shop.Why do trucking companies fail? The top reasons are:
- Poor management
- Trouble with finances
- Charging the wrong rates for your services
- Not being compliant with federal or state regulations and rules
- Not getting professional help when needed
- Industry-wide problems and a floundering economy
- Not meeting customer expectations
- Not investing in technology
Knowing the top reasons can help you avoid making the same mistakes and point you to the things that you should be doing instead. Trucking companies can be very profitable, but only if you know what you’re doing.
The Reasons Why Trucking Companies Fail
So what are the things that business owners in the trucking space avoid?
Bad managers scare off good employees and cause them to leave. Analytics and advisory company Gallup found that one in two employees left their jobs because of a bad manager. Zooming out, poor managers cost the economy at least $319 billion a year, according to Arcos Advisors.
In the case of truck drivers, they often leave a company because they don’t like the fleet manager or dispatcher. In the trucking industry, the problem is exacerbated by personality differences. Drivers spend a lot of their time alone on the road. They’re patient, but they don’t receive criticism well. Plus, they need more structure.
Managers, on the other hand, are more outgoing, and they thrive with less guidance and structure in a fast-paced work environment.
Excellent and honest drivers are hard to find, so it’s a waste to lose them just because your fleet manager is a pain in the backside. What’s more, the trucking industry has been experiencing a shortage of drivers.
According to the American Trucking Associations, the industry lacked 60,800 drivers in 2018. That number is poised to rise by at least 160,000 by 2028. You might not find a suitable replacement if you lose a driver.
Without drivers, a trucking company’s business will be severely hobbled. You will not be able to fulfill orders, and it will put a strain on your other drivers, who will have to work longer hours just to cope with the demand.
Bad Managers Make Bad Business Decisions
Let’s face it–even good leaders make bad business decisions for a variety of reasons. But poor managers continually make disastrous decisions one after the other.
According to an article by Forbes, poor leaders push their own agenda and make decisions based on what they think will help them advance. They’re disengaged from employees and are often out of touch with the big picture.
Small Business Chronicle points out the damage wreaked by bad managers is far-reaching. Not only do they scare away good talent but they also:
- Make employees question senior management for supporting a bad leader.
- Don’t build relationships with people under them, causing the employees to lose morale and motivation.
- Cause overall performance to decline.
- Tend to mismanage resources.
- Miss opportunities.
What You Should Do to Avoid Hiring or Promoting a Lousy Manager
As you can see, having a bad manager can really break your trucking business. It’s very important that senior management should:
- Define and communicate their expectations. These expectations should take both the business and the employees into consideration.
- Choose the right manager. Admittedly, this is a challenging task. Only one in 10 people have a natural ability to lead, while two in 10 will have the potential that a company can develop. When promoting people, senior management should always screen potential managers rigorously like they would when they hire employees from outside.
- Train and educate managers on what high-performance is and what it entails. New leaders need training in what the workforce needs. Senior management should also equip them with the skills they need in order to fulfill those needs.
Not Planning Your Finances Carefully
This might be more applicable to smaller trucking firms, but believe us when we say that there are larger companies that make this mistake. Most trucking business owners don’t know their business and how much it would cost to profit. More critically, some have failed to learn about it fast enough.
Not Knowing Your Finances Is an Excellent First Step to Bankruptcy
Do you know how profitable you are going to be for this year? Or do you just pray that your revenues will be enough to cover all of your costs and then have some extra as profit? Are you sometimes surprised that you earned anything at all?
Or how well do you know your industry? Did you know that according to the latest American Transportation Research Institute’s report, the average cost per mile for trucking companies is $1.69?
This figure includes driver wages and benefits, as well as vehicle-based costs, such as:
- Lease and purchase payments
- Repair and maintenance
- Truck insurance premiums
- Permits and licenses
Of course, your own operational costs will differ from the average. Using the same cost consideration outlined above, you should come up with your own operational costs. A thorough tutorial like this one will help.
Saving on Fuel
A trucking company is heavily reliant on fuel, which accounts for 25 percent of your business expenses. As such, you should try to find cheap fuel. You can get deep discounts from fuel cards, as well as use tools or apps to find the lowest priced fuel along your route.
Of course, it helps to buy fuel with the lowest base price out there. This lets you avoid the higher fuel taxes levied by the International Fuel Tax Agreement.
Cash Flow Problems
Sometimes, trucking businesses encounter problems in cash flow. These issues are often a mix of several factors, such as not having enough customers, high operational costs, low-paying freight, unpaid invoices, and having too many accounts receivables.
You should check out how to ensure that you have excellent cash flow. Hire professionals if you cannot do these measures on your own:
- Measure the cash flow. You should prepare cash flow projections for the future. Having an accurate projection will help you anticipate trouble.
- Improve receivables. Your goal should be to have your customers pay you as soon as possible. You can offer discounts to those who pay their bills on time or ask customers to make a deposit. You should also invoice promptly and follow up on payments that are due. If you have customers who don’t pay on time, institute a cash-on-delivery policy.
- Manage your payables. Watch your expenses carefully and make sure that your revenues are keeping up. Make sure that you take advantage of payment terms, paying only when it is due. You should also take advantage of early payment discounts and choose suppliers with flexible payment terms.
What else should you do to manage cash flow problems?
- Expect the shortfalls. Cash flow problems are natural for any business. The trick is to anticipate these shortfalls so that you can get a line of credit from your bank to cover it. If the banks are of no help, you can ask your suppliers to extend the due date.
- Use factors. Factors are businesses that pay you for your receivables for a discount. So let’s say you have $1,000 in your account receivables, a factor will pay you up to 15 percent less than that amount but will recover the original amount when your customer pays.
- Prioritize your expenses. If you have problems with cash flow, you should choose the bills that you want to pay first. Employees and suppliers should come first. You can also ask other suppliers if you can skip one payment or make a partial payment.
Not Knowing How Much to Charge for Your Services
No business has ever flourished giving out its products and services for free. The same is true if you undercut your pricing.
Once you have figured out your own cost per mile, you should figure out how much to charge per mile. How do you calculate your rates?
- Choose your freight lane.
- Once you have your freight lane defined, you can look up load boards. Find 10 loads going to one direction in your preferred freight lane and see how much they pay.
- Get the average of these quotes.
- Add something extra. Choose a range of 10 to 15 percent, which is what a brokerage firm will charge you. These companies will be helpful in finding load to haul if you somehow find your trucks idling. Even when you use their services, you will still have enough to cover your costs.
- To make sure that you cover the cost of a round trip freight, do the same steps in the opposite direction. This way, your per-hour rates will be enough even if you don’t have a load going back from your deliveries.
A more detailed tutorial is found here.
Freight Lane: What Is It?
A freight lane is a route that you work on. Most starting trucking companies have one customer that they service and have no need for freight lanes. Others rely on ad hoc orders, and they don’t have established routes that allow them to plan their trips better.
Having a well-defined freight lane will help you make sure that revenues are constant, and earnings come from multiple sources. When you get a haul, you can get more loads along the way, thereby maximizing your earnings on a single trip. You can also establish relationships with repair facilities.
But the biggest advantage is that you can profit from cheap freight if you have the right customers and rates.
Violating Rules and Not Minding Compliance
As a trucking business owner, you should know and follow the various regulations and compliance requirements. That is because violating these rules can cost a lot of money, and, in some cases, the U.S. Department of Transportation can order the closure of your business.
For instance, the Federal Motor Carrier Safety Administration has recently increased fines for violating federal trucking regulations. Fines now start at more than $300 and can go up to more than $191,000. The fines will depend on the violation that you have as well as the nature of your trucking business.
If you choose not to listen, the DOT can suspend you or tell you to close the business. If you continue operating during a suspension, you get another $24,017 bill.
The full list of violations and their penalties are found in this post from the Commercial Carrier Journal.
The good news is that there are checklists that can help you ensure compliance with various regulations. But these tools don’t excuse you from reading up on the laws.
What Else Can You Do?
Other than these checklists, what else can you do to help ensure compliance with regulatory laws?
1. Get to Know the Hours of Service and Other Related Regulations.
The FMCSA has a specified number of hours of service for the trucking industry, and this applies to commercial motor vehicles that do interstate transport. Go over the criteria to know which of your vehicles are considered CMVs. You should also know the documentation that you need for your drivers.
Not only that, but there are cases when part-time or seasonal drivers, as well as mechanics, are covered by HOS rules.
There are also state equivalents of the HOS regulations. These rules change from one state to the next.
2. Monitor Your CSA Score and BASICs Status.The FMCSA has a safety measurement system that determines where you fall on the Behavior Analysis and Safety Improvement Categories (BASICs). This status is based on inspection results and your history of violations.
You will get a Compliance, Safety, Accountability (CSA) score from this process.
There are seven categories listed:
- Unsafe driving, which includes speeding, inattention, reckless driving, improper lane changes, and seatbelt violations
- Crash indicator, which includes any history of getting involved in crashes
- Hours of service compliance, which includes inaccurate or incomplete logs
- Vehicle maintenance, which includes a failure to make repairs and any defects that are found on your vehicle
- Controlled substances or alcohol, which entails the use and possession of drugs, alcohol, and other controlled substances
- Hazardous materials compliance, which includes improper packaging, placards, or the use of leaking containers
- Driver fitness, which includes medical issues and invalid licenses
To check your BASICs status, you can go to the FMCSA safety measurement system website. If you have safety concerns, you will be alerted to these there.
Why is it important to monitor your BASICs and CSA score? For one, it will give you an idea of how you’d compare to competitors and other trucking companies in terms of safety both on and off the road. It will also help you know the areas of improvement and make compliance a whole lot easier in the future. Furthermore, you can avoid safety hazards.
What’s more, when you monitor compliance issues using the FMCSA SMS website, you can easily spot the non-compliance trends among your drivers. As such, you can design a much more effective compliance and safety training that your drivers will definitely benefit from.
Drivers should always understand the HOS regulations and keep accurate and complete logs. They should also understand every portion of Driver Vehicle Inspection Reports.
One-time training is not enough, and you should always have drivers undergo a refresher course, which will cover not only the basics but also the updates on new regulations.
3. Use tools to help you streamline inspection and logging.
Drivers may already know why they need to log their hours, but they may find the paperwork overwhelming. If this is the case, they may not be in compliance because they keep pushing the task off.
Thankfully, there are technologies that can help you automate logging. For example, fleets are now required to have electronic logging devices as of December 2017.
These devices automatically record your hours of service and drive segments. You get electronic logs that are updated almost in real-time.
There are also telemetrics that can help make inspections easier. Sometimes, these sensors are able to alert you of an issue before it becomes a problem.
Not Getting Help When You Need It
Smaller trucking companies often have a slim organizational chart. The owner is also the dispatcher, the accountant, the safety manager, sales and marketing head, and the list goes own. We tend to wear many hats because let’s face it, the cost of running a trucking business is nothing to sneeze at.
As the business grows, however, you might find yourself juggling too many things at once, and you can make a lot of mistakes this way. Consider hiring competent talent to help you out.
If you don’t see the need for full-time employees, you can also hire professional services that can take care of certain business matters. For instance, you can get an outside accountant to handle your finances or a lawyer to help with regulatory compliance.
Problems with the Economy or the Industry
Sometimes it’s not your fault. There are times when your industry experiences rough times. The year 2019 is a rough time for the trucking industry.
In 2019 alone, at least eight trucking companies closed down as of August. The closures led to unemployment for more than 2,600 drivers.
Some of the trucking companies that closed in 2019 include:
- Carney Trucking Co. with 25 drivers
- Terrill Transportation with 36 drivers
- LME with more than 400 drivers
- Starlite Trucking with 28 drivers
- ALA Trucking with 41 drivers
- Williams Trucking with 48 drivers
- Falcon Transport with 585 drivers
- New England Motor Freight with 1,472 drivers
If you are having a hard time imagining how bad it is, just think about this: In 2018, a total of 310 trucking companies ceased operations. And in the first half of 2019 alone, the number of trucking companies that folded up more than doubled to 640.
What’s causing the downtrend? One reason that was mentioned is that trucking companies needed to hire more than 60,800 drivers, and they couldn’t. The problem is that with the legalization of marijuana in some states, trucking companies are finding it difficult to find drivers who could pass a drug test: one of the requirements for the job.
What’s more, fewer people are applying for the job. It is challenging to be on the road for an extended period of time, and people want cushier jobs.
Fewer Class 8 Orders
Class 8 orders, or those involving heavy-duty trucks, increased all throughout 2018, peaking in August with more than 53,000 orders. With such a good year for class 8 orders, trucking companies hiked drivers’ salaries and upgraded equipment.
But the bubble was about to burst. From the peak, the demand for heavy-duty trucks slowly declined. It hit its lowest in two years in August 2019. The waning demand is fueled by a slowdown in the manufacturing industry, with a 22-percent decline expected for 2020.
Trucking companies are stuck with higher financial obligations with a lot less revenue.
However, experiencing rough times should not be an excuse. Planning your business correctly, studying your cash flow, knowing the ins and outs of the trucking industry, and other things we have suggested above will help you weather the storms that cross your path.
Not Meeting Customer Expectations Correctly
It would seem that for you to get customers, you should offer the lowest price among your competitors. But this scenario is actually a no-win for both you and your competitors. If you don’t earn enough, then there is no way that you can maintain your vehicles and hire and keep excellent drivers. Moreover, operations will be hampered in the long run.
So, instead of going into a price war with your competitors, you should be looking at what your customers really want. What are these?
- On-time deliveries. The last thing your business customers want is to have too many stocks in their inventory. Not only does this take up too much warehouse space, but it also impacts the taxes that they pay. They want products delivered to them on demand, rather than spending too much time on their shelves. Trucking companies help them achieve this if they make their deliveries on time.
- Safe and secure transport. Customers want their shipment to arrive safe and sound. If you have to call to tell them that their cargo has been stolen or was lost in an accident, then you are not providing the best customer service there is.
- Reasonable rates. While you should be wary about undercutting your competitor’s price, you should offer reasonable rates for your service.
Addressing these expectations will take you a long way to ensuring success.
Not Investing In Technology
One of the biggest mistakes that a trucking company can do is not to pay attention to technology. New tools and technologies often cost money, but they do bring about some benefits for your business.
As we have already discussed above, new technologies such as ELDs and telemetrics can help you automate and streamline logging and inspection. What other technologies should you be paying attention to?
1. Dynamic Routing
On a normal day, you are moving products and people from one point to another. Dynamic routing helps you find the best routes possible. Your deliveries get there faster, and your drivers are able to avoid getting into traffic jams. It can also do trip planning in the most efficient way possible.
Because of this, your drivers can cut down on both fuel use and time spent on the road.
2. Driver Scorecards
These technologies will help you know how your drivers are performing while on the road. Driver scorecards will look out for bad driving behavior, factor in the miles per gallon used, and give your drivers a score.
This will help you know which drivers need more coaching and what bad behaviors need to be corrected.
3. Technologies That Help Your Drivers Avoid Collision
There are now devices that are equipped with sensors that can detect whether you are going to crash into something and then take action to avoid a collision.
For instance, the Wingman Fusion uses video and radar to keep track of the vehicles and the road ahead. It also comes with an electronic stability program that helps your drivers avoid loss of control or rollovers.
4. Trailer Trackers
GPS technology can help you keep an eye on the location of your truck. Trailer trackers allow fleet managers to trace a stolen track, or even warn drivers if they are in an area where theft is common.
Having a Profitable Trucking Business: Knowing What Not to Do
Now that you know the eight top reasons why trucking companies fail, you have a clearer idea of what to avoid if you want to keep those doors open to customers. If you are still deciding on whether to start a trucking business, then this article should serve as your roadmap to success.