. . .
Taking it a step further, how is my business run also matters a great deal, I can't control the company things but then again the question is again raised what is cheap freight - or in other words, is my inflexibility preventing me from producing revenue during some changing times?
Good Point.
We all have varying degrees of inflexibility based on our capital investments along with operating costs. As you mention, it does matter how we run our business, but in the end fixed costs can determine our level of inflexibility.
The big Carriers are not unaware of these inflexibilities and I can only imagine that when they glance outside of their window and see the impressive rolling hotels in their parking lot they may feel that some of that inflexibility is due to some frivolous spending.
That may or may not be true, but one thing is certain. Carriers are very adept at implementing certain recruitment strategies that bring owners into the fleet with lower costs and expectations that will make the moving of "cheaper" freight easier.
Here are a few of the strategies that my Carrier uses to bring certain trucks and drivers on board that will be willing to run freight at rates that other less flexible contractors would have to refuse:
* Lowering the standards and requirements of both new trucks and drivers. Substandard equipment can be run at substandard rates. Example: I recently met a new owner with my Carrier that bragged that he only paid $5,000.00 for his truck and it looked like it. He had obviously passed the Carrier inspection because he was getting his decals put on. This rolling dumpster will do nothing to enhance the image of my Carrier but, he will be able and willing to run for peanuts until it falls apart.
* Recruiting inexperienced business people. Look at any good Franchise prospectus and you will see investor requirements such as “liquid capital requirement” or “initial investment requirements”. These requirements help to weed out those people who are undercapitalized and unprepared and they contribute directly to the higher success rates that Franchisees have over other independent business owners. These type of requirements are conspicuously absent from the recruiting efforts of the Expedited Freight carriers.
Recruiting less experienced and ill prepared truck owners who will unknowingly accept rates below their operating costs is productive in moving “cheap freight”. They will eventually lose their business but there will be another owner in class that day to replace them.
* Recruiting Husband and Wife teams. There are many advantages to recruiting H/W teams and one of them is the ability to move freight at a cheaper rate than a two household team may be willing to run it for. Carriers realize that married couples are often willing to sacrifice some revenue because they only need to support one household.
* Recruiting retirees. This may be the gold standard of recruitment. They often have other income and do Expediting in order to put away some “extra” cash. Since they do not need the money for living expenses, they can easily run freight at a lower cost than someone who needs to cover all of their living expenses.
* Recruiting recent foreign immigrants. The learning curve for new immigrants adapting to American business is difficult. The Carriers believe that many of these hardworking immigrants are able and willing to work for less money. They can also be more willing to accept without question what the Carrier offers.
So, if the question is: Who’s killing the rates?
I would say that the Carriers not only set the rates but also find ways to get the lower rates covered. There are many other players in this game so this is just one aspect of how low rates are promoted.
Disclaimer: The preceding statements are based on actual observations and conversations with Carrier decision makers and are not the opinion of the author.
