General Economic Conditions

[ATeam]

When considering a new business opportunity, like expediting, wise people gauge, as best they can, general economic conditions, general industry conditions, and their own financial health.

At present, general economic conditions are poor and may well grow worse before improving. The economy moves in cycles known as expansion and contraction. It seems that with the economic slowdown (slow growth) of recent months, we are about to move into an extended period of contraction (negative growth).

Recent headlines:

Dollar Hits New Low Against Euro on Recession Fears

Oil Hovers Above $105

Homeowner Equity Below 50% for First Time Since 1945

Payrolls Plunge by 63,000, Biggest Drop in Five Years

Consumer Spending Flat in January

Prices Rise 3.7% in January

Falling Home Prices Weigh on Consumers, Lenders

Foreclosures Rise

Notice that these headlines are showing up AFTER the Federal Reserve Bank has been lowering rates and after Congeress and the President approved an economic stimulus package. I have written before that the economy is more powerful than the government. While government action may help some people, it will not stop the larger trends. The fact is, a recession is underway, brought on by economic excesses, that must be wrung out of the mix before a period of economic expansion can begin anew.

What does that mean for someone considering a jump into expediting as a self-employed, independent contractor, who either owns a truck or drives a fleet owner's truck? It means proceed with great care.

Right now, millions of Americans are struggling under the debts they got themselves into. Many no longer find the joy they once did in owning the things the debt enabled them to have. If they had it to do over again, they would do things differently.

With its wide varations of income, even in good times, and especially in bad times, expediting is not a business that supports a paycheck to paycheck lifestyle.

If you are struggling now and are looking at a new career in expediting as a possible way out, making that leap may well be a jump out of the frying pan into the fire.

Yes, there are expediters that somehow make it intact through both good and bad economic conditions. I believe it is fair to say that one of the things they have in common is the ability to financially deal with the setbacks that ALL expediters experience. Financial reserves make that possible.

Successful expediters also do what they can to stay ahead of the game. They live their lives and manage their money such that when a preventative maintenance item comes due, they get it done. They don't put it off because of today's fund shortage and hope the truck will keep running until money somehow appears tomorrow.

Short story: If you are thinking about jumping into expediting in today's unfavorable economic environment, be certain you can support yourself and your business, not with hoped for expediting revenue, but with money you already have in the bank.

 

[greg334]

Phil,
I agree with you to a point, there is a lot that you said that should be on the minds of many newbies and vets alike, but I am of a different school because I don’t see a recession I see a depression on the horizon. I see with all the indicators, we are repeating the late 1920’s leading up to the depression.

Many of us look at the list that you posted and know that the feds lowering interest rates and the stimulus package are what is going to lead us to more problems. I see lowering the interest rate, lowers the value of the dollar which in turn lowers our ability to attract businesses to our county.

But what is more disheartening is the fact that people just don’t get it and remain on a steady course of debt. My wife has a friend from her work place who is really struggling to make ends meet. Her friend’s the husband works for sears as a repairman and make more than I do but they barely make their house payment. One day after hearing my wife’s friend cry about things are so bad and say she hopes the government helps her, I turned to her and said “sell your house” she was shocked at that – how dare someone say that. She went into the same crap I hear that they worked so hard blah blah blah but she needs to get on a budget, get rid of her car and take as much overtime as she can but refuses to do any of that. Well they bought the place for $160k ten years ago, it is now worth $240k and she owes $175K. So my solution is to stop crying about it, sell the thing for what you owe and get out but instead they are falling more and more behind in the house payment and other payments and don’t want to face reality. She and her husband are so concern that they will lose the money between what she owes and what the ‘market value’ is that they can’t see what problems it would solve.

What does this have to do with Phil’s post? A lot, read on…..

I strongly feel that what is as important as your valuable advice is the advice not to enter this business until things actually shake out. I don’t mean the guy/gal who wants to get into this as a driver for extra cash, but the person who wants to buy a truck and think that they will be independent.

Going into a new business, even though you have driven for someone is not a wise thing to do at this time. We are faced with a number of issues that may only take strong people or survivor types to weather. Many of the ol’ timers or vets of this industry know what to do but a lot of us newbies may not.

Phil, your advice touches just briefly about the debt people have accumulated and about a reserve. I want to add to that because I see most of the problems is not a reserve problem but a two fold issue of not managing the money with a attitude to be frugal (cheap as some would say) and the selection of the company that one chooses. Even drivers for fleet owners have problems fitting into the company, which I recommend when asked that to interview the fleet owner AND to talk to a recruiter.

Now money management is so critical to any success (remember success is defined by the person, not any other way). The truth is watching everything is critical, even knowing how much food you buy. I see many, like me, who struggle with this issue and I see that many don’t understand that comfort and ease of operations are truly secondary to business ownership and making a success at things. What I guess I am driving at is budget things, everything you can. Plan on PM, plan on using the Aircraft owners idea of operating (meaning have that repair fund and then schedule things like fan belt changes and filter changes and replacing things before they break).

One thing that I learned a long time ago was; owning a business is hard work, it is really hard work to be successful. A lot of people make it look easy while others are plain lucky.

Many people are totally emotional about being in business. Many look at things through rose color glasses and don’t or refuse to recognize when to cut the loses and sell out.

Phil, you mentioned reserves but truthfully what I worry about is that others don’t know when to limit the use of those reserves and park the truck. Many, like my wife’s friend fail to see that no one should help them out and they need to give up what they have gained in order not to lose everything. In this business, especially this business, the best thing that you can do is learn that this is a business, this is not a hobby or a paid tourist gig but a business and IN all businesses there is a risk and you have to mitigate the risk by planning and budgeting and especially learn when to just say no more. I harp on getting an accountant, many think that it has to be a trucking accountant but in truth it has to be someone you trust and you know would tell you “it is time to sell the truck and get out of it because it if not working”.

 

[davekc]

I think it was only yesterday that I read a post that said that the return on investment (ROI) didn't matter or couldn't even be calculated.
Umm??? What a difference a day makes.

 

[ATeam]

My views of ROI remain the same. Any changes you may perceive are just that, changes in your perception, and not changes in my views.

 

[davekc]

Nothing really about perception. Only comparing what was wrote.

 

[ATeam]

So, you can compare things without perceiving them? Good trick! Other readers would conclude that my first post in this thread has NOTHING to do with ROI. But you see what you see, and there is nothing I can do about that.

How long do you wish to quibble about ROI? I said what I said about it, and so did you. Is that not good enough? Readers have minds of their own and I am content to let them take each of our comments for what they are worth.

If you really wish to make the case that what I wrote in this thread is inconsistent with what I wrote elsewhere, you will have to do more than toss out cute remarks.

If you think it is important for readers to buy into your ROI views, don't take cheap shots at my views. Instead, start a new thread and explain yours. I will give you a free pass. I will offer no rebuttals. In fact, I will stay out of any new ROI thread you start.

 

[davekc]

No cheap shots intended. Just a clarification of the facts.
Yes, mine differ greatly from yours.

In finance, rate of return (ROR) or return on investment (ROI), or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment

Return of Investment
Rate of return - Wikipedia, the free encyclopedia

 

[ATeam]

OK. Your points have been made. Are we done now?

 

[Paul56]

Short story: If you are thinking about jumping into expediting in today's unfavorable economic environment, be certain you can support yourself and your business, not with hoped for expediting revenue, but with money you already have in the bank.

Shorter story: Now isn't the time to jump in.

 

[davekc]

Almost.
This is an example of your perception of getting picked on.
That has nothing to do with it.

When I read comments like "return on investment means nothing", or return on ones investment can't be calculated", I single those kinds of remarks out.
Why? Because the new folks are generally entering this business seeking a return on the dollars they put in. Nothing more, nothing less.
Assuming that is your position since they are your quotes, that is fine.
I am not aware of anyone or a business that has subscribed to your theory. I have been involved in several other businesses over the last 20 years, and I can't say I have ever heard it there either.
They can view the link I provided for accountability on the subject.
Again, nothing personal, but new folks entering our industry in a tight economy, do have to have a realization of simple business economics without them getting clouded
Plus it will save me from responding to PM's and emails.
Please, no justification needed on your position.

 

[ATeam]

Please, no justification needed on your position.

OK. I don't feel my position needs further justification. I am content to let it stand as is. But your position could use better justification than a link to a dictionary definition provides.

Out of curiosity, I just did a search of the annual reports of FedEx, UPS, J.B. Hunt and Panther's Form S-1 registration statement. These companies own or contract for more than a few trucks. I searched for the term "ROI" and "Return on Investment" to see how they use the term relative to trucks and/or assets.

J.B. Hunt did not use the term even once. "ROI" and "Retun on Investment" does not appear in its annual report. UPS and FedEx each the term, but only one time, and not in their financials. FedEx used it in the sales-pitch part of the annual report, in the same sentance that talked about providing customers with increased sales and market access. UPS used the term in a chart that compares its stock performance to the Dow 30; which is exactly the way I described ROI in my post on the subject.

Panther used the term in a single sentance, repeated twice in its Form S-1, which says, "We believe our business model results in increased productivity, enhanced operating flexibility and a better safety record, and also improves our return on invested capital and cash flow generation." While detailed financial statements for Panther were provided, ROI was not mentioned in them relating to Panthers assets. It was used in only the most general of ways in the sentance above.

So, DaveKC, if ROI is of such great importance to investors and companies that run trucks in one fashion or another, why is it not talked about in documents (annual reports) that are of great interest to investors and managers?

Let me put it another way. Can you provide some real-world examples (not dictionary definitions) of real people in real businesses (other than yourself) who are using ROI in a way that is meaningful to expediters? I tried to do it for you with the above searches, but failed.

I really would like to know. Who out there in the real world is using ROI as a meaningful indicator of anything? (Actual names and/or examples would help justify your position.)

Here, too Dave; nothing personal. I view this as a healthy debate.

 

[davekc]

Again,
The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment.
Dictionary explanation. Not mine. But...one I agree with.

They may have used or replaced ROI with the word profit, asset, capital, or net income.
We still arrive at the same place whether a business or owner operator starting out.
Your company (Fedex) has referred to it on several occasions on the stock information they send out to their shareholders. If you are one, then you will see it in their mailings.

Don't complicate the simple. I bet those words are used in your provided examples.

 

[ATeam]

Thank you for your response.

 

[RichM]

Dave is correct in his interpatation of ROI and A Team has once again contradicted himself.

 

[ATeam]

Right on, Rich!

 

[mrgoodtude]

This is all I got to say about that...

 

[greg334]

Let me put it another way. Can you provide some real-world examples (not dictionary definitions) of real people in real businesses (other than yourself) who are using ROI in a way that is meaningful to expediters? I tried to do it for you with the above searches, but failed.

Yea, Phil I can - Pfizer.

In discovery they look for compounds that do two things, one is make money and the other is cure problems. The first is the most important.

When a compound is discovered that does both, it goes through a process to determine;

the viability of an positive impact on a large demographics of sick people

the saleability of the product in the more than one market

AND the return on investment over the life of the patent from the development side of the compound.

They have a process called R2D2 which is somewhat of a committee process that only focuses on the ROI of that compound up to that point and going forward and from the committee determination, three things happen;

the compound moves forward through research then to development and then with the FDA either becomes a drug or get killed off depending on the results from the testing

the compound is put into the vault and may never see the light of day again

the compound is sold off to a smaller firm sometimes with some recovery of cost through the sales from that other firm.

What does this have to do with ROI and an expediter - a lot.

An expediter has to look at his ROI in the investment of his tools and time to get established and produce revenue, just like Pfizer looks at the investment of the scientist, equipment and software to discover and test the compounds as part of the ROI on the drugs it markets.

Just because revenue is being produced, the return on the capital investment may not be justified in a set amount of time and both Pfizer or an expediter need to look at how long will the recovery of the investment take place to determine if they can actually make money with those tools.

For example, with a soft market in expediting, would there be a justification in buying a $200k truck opposed to a $100k truck if there is an ROI that is diminished by more than 60%? I would think that the person with the professionals behind them would be able to see that the $100k truck would give much more advantages over the $200k truck unless the $200k truck has some special feature that will capture more freight more that 50% of the time. Make sense?

Phil, if you want to know how Microsoft looks at it, or how the banks, like Citi look at it, I can also expalin that to you. Every company does this internally, they have ACCOUNTANTS that create reports to give to management to make decisions. I know you never worked with upper management because if you did, you would not be trying to find words in S-1s or Annuals but digging through financial profiles and articles.

And Phil, my recommendations of newbies to get an accountant and lawyer to cut through the BS seem to be more justified every time you post a defense - thanks, keep it up.

 

[Paul56]

Interesting. Phil, first you said this:

"Short story: If you are thinking about jumping into expediting in today's unfavorable economic environment, be certain you can support yourself and your business, not with hoped for expediting revenue, but with money you already have in the bank."

And then this:

"Other readers would conclude that my first post in this thread has NOTHING to do with ROI. But you see what you see, and there is nothing I can do about that."

I'm one of those "other readers". I can see how ROI has everything to do with this thread even though you may not have mentioned it in your original post.

Obviously if someone new to the industry is going to be supporting themselves solely on funds they had *before* entering the business then the ROI is a big fat ZERO.

In strict accounting terms a truck can be considered an asset. The decisions and labour combined with that asset will result in a certain ROI. Business decisions are an investment just as is bringing aboard labor to get the work done.

Running a custom rig generally has more to do with comfort than sound business decisions, unless you want to fuzzy up the dollars & cents world of business & accounting with the "ROI" of personal comfort.

 

[ATeam]

Running a custom rig generally has more to do with comfort than sound business decisions, unless you want to fuzzy up the dollars & cents world of business & accounting with the "ROI" of personal comfort.

Fleet owners run different types of rigs. Some spend around $200.000 on those full-featured SST-100 trucks (sold by Jeff Jones, Stoops Freightliner, Fort Wayne). I am told they build personal comfort into the custom trucks they buy because they believe it helps them attract and retain high-quality, productive teams. Are they making sound business decisions?

 

[greg334]

Fleet owners run different types of rigs. Some spend around $200.000 on those full-featured SST-100 trucks (sold by Jeff Jones, Stoops Freightliner, Fort Wayne). I am told they build personal comfort into the custom trucks they buy because they believe it helps them attract and retain high-quality, productive teams. Are they making sound business decisions?

So let me get this straight Phil, we are talking about fleet owners now?

(Are you getting paid for the endorsement? )

and now here is the belief that the only way to attract and retain high-quality, productive teams are to have an apartment on wheels?

Ok I guess you want to dilute the meaing of ROI even more and deflect the issue, so be it but the $200k truck is part of the newbies problem, as are vendors who promote them and as far as I am concern owning one does not equate into high-quality, productive anything when it is outside of the fleet ownership world.

So let me summarize -

in order for one to be a high-quality, productive team member or even a high-quality, productive solo driver, one must use the Fuzzy Logic ROI, calculating into the equation the comfort factor while at the same time looking at annual reports of companies for words that have nothing to do with real life budgeting issues or making payments on an apartment on wheels that some company said one must have to be a high-quality, productive team or even a high-quality, productive solo driver.

Did I get it right?

Wow if I did, I got to go back to Financing 101.

Newbies, just go get someone who you can trust to help you explain things and help you make decisions...

By the way Phil, there are a lot of high-quality, productive team members or even a high-quality, productive solo driver that don't have apartments on wheels and seem to be getting along fine without the need for one.