As U.S. Truckload Rates Drop, Small Carriers Feeling the Squeeze

Posted on: Apr 18, 2019

Lower freight demand and tumbling spot market truckload rates so far in 2019 have many smaller US trucking companies feeling squeezed. More than half of all the carriers said they were threatened by new competitors. An even larger group, 66 percent, said they had lost business to competitors charging "unsustainably low prices" within the past year, most likely in the second half of 2018, rather than earlier last year. More than half, 55 percent, said customers have requested price cuts.
 
If they continue to intensify, those market pressures could put the brakes on capacity growth, as smaller carriers cut back on expansion plans in a weakening market.
 
A survey conducted by Bibby Financial Services states that smaller trucking operators - defined as those with 1-100 trucks - are also running afoul of increasingly complex contracts, with 37 percent of the motor carriers surveyed paying penalties for not meeting contractual terms of delivery, most often for late delivery. One out of three carriers surveyed said they accepted contracts "as is" without reviewing terms.
 
Transportation contracts are becoming more complex, with added charges and penalties, as Amazon and Walmart fulfillment and delivery expectations spread throughout commercial shipping. Many smaller carriers don't have the staff or time to adequately review contracts.
 
37 percent of respondents felt they had to accept the terms and conditions of new contracts or lose business. That was especially true for owner-operators, 40 percent of whom said they felt they were in a "take-it-or-leave-it" position when negotiating a contract.
 
The results from a survey of more than 250 trucking companies in January and February underscores the fragmented nature of the US trucking industry, as well as the growing separation of the largest for-hire carriers to more than 100,000 smaller operators.
 
Since 2003, more than 20 trucking companies have surpassed $1 billion in annual revenue, bringing the total number of carriers in that "billion-dollar" club to 32. The number of one-to-six truck fleets rose 69.3 percent from 2012 through May 2018 to 184,555 carriers, according to an analysis of Federal Motor Carrier Safety Administration (FMCSA) data by Tucker Company Worldwide and QualifiedCarriers.com.
 
But most owner-operator companies rarely grow beyond five trucks, Bibby Financial Services said. Insurance topped the list of business costs for the survey respondents, with 79 percent calling it their highest cost, followed by fuel and maintenance. "When owner-operators get into the business it all sounds great, but when you get to a certain number of trucks your insurance costs go higher, fuel costs go up, you need advances. They realize they need to keep up with insurance and fuel and it becomes overwhelming."
 
One advantage the smallest fleets reported was an easier time finding and holding onto drivers. "Retaining good drivers" ranked fifth on the list of top challenges for carriers with one to four trucks, while the fleets with five to 100 trucks placed retention third on their list.
 
Among the midsized carriers surveyed, 46 percent had one or more driver quit unexpectedly in the last 12 months, compared with 19 percent at the smallest carriers. Those drivers likely weren't leaving the industry but going to another carrier with higher wages and benefits.
 
Bibby Financial Services concludes that many smaller carriers may lease with larger companies as the cost of operating a business gets higher, especially if the pricing trends already seen in 2018 continue.