Dollars & Sense
16 Overdrive SEPTEMBER 2009 Dollars & Sense Kevin Rutherford Kevin Rutherford is an accountant, small-fleet owner and the host of ATBS Trucking Business & Beyond, which airs on Sirius XM Radio's Road Dog Trucking Radio. Contact Rutherford through his website, www.cdlofit.com . Many economic indicators show the economy may have hit bottom during the summer. Most analysts seem to agree. However, history shows that bot-toms can be long and rocky, as I expect this one will be. Once at the bottom, we usually see spikes that look like a recovery and then things drop back off and the bad news starts again. We are seeing that in the economy and in our industry. I predict some pickup in freight and rates in this fourth quarter, but the real upward climb will not begin until the second quarter of 2010. For you, that means it will get harder to survive before it gets easier. Here's why. Only 480 fleets filed bankruptcy in the first quarter of 2009. That is low, given the environment. We are currently sitting at about 76 percent capacity of truck utilization, near record low levels. It's so abnormal that the term zombie truck-ers has been coined to describe fleets that can't make their equipment pay-ments and are being kept afloat by lend-ers who don't want the equipment back. So whenever freight volumes pick up, there will be more than enough equip-ment to move it. The worst part is that rates will lag far behind as fleets put their excess capacity back to work. As volume increases, fuel prices will rise further. There are the three keys to surviving this transition: 1) Cut costs. 2) Cut costs. 3) Cut costs. Clear enough? Here is a plan of attack. Make sure your profit and loss statement includes percentage of income. List your costs in order of percentage of income. Create a plan to lower your highest three costs  often fuel, maintenance and taxes. When I review P&Ls for owner-operators, I find as much as 5 percent to 10 percent sav-ings in those areas, which can add up to as much as $10,000. FUeL COSTS. Examine these three key areas:  Lower average cruise speed. One mile per hour slower equals $1,000 per year in your pocket.  Improve aerodynamics. Something as simple as moving stacks from in front of the sleeper to behind the truck and adding a flow-through muffler can improve fuel mileage by as much as half a mile per gallon.  Idle less. Seize every opportunity to turn off the engine. If you're not using some type of auxiliary power unit, do research and find one that fits your operation and budget. MAiNTeNANCe COSTS. Sometimes a couple of investments up front can lower overall costs. For example, a good bypass filter system that extends drain intervals to 150,000 or 200,000 miles can lower costs by as much as $1,500 a year. TAX COSTS. Partner with a good trucking-specific accountant and review your tax return and your operational data. Chances are you're missing out on some deductions. Owner-operators who are successful riding out this economy will be those who can survive low freight rates and rising fuel costs the longest. Those who can cut costs to the bone will have a huge advantage. n While waiting for the recovery I'm getting a lot fewer miles. Should I switch carriers? Think long and hard before you do. Miles have dropped off everywhere. If you switch, you are now at the bot-tom of the list and in a new, unfamil-iar system. Is this a good time to get my own authority? Now is not the time to make that jump. The customers you would be counting on might not be in busi-ness three months from now. Take the time to learn all you can about operating independently. Put your search for possible customers on hold for now. Trucks are ridiculously cheap now. Should I grab the best deal I can find? Don't worry  the bargains will be here for quite some time. Because fleets have so many trucks that aren't being used, the truck surplus and its accompanying low prices will not vanish right away. Study the truck market. Wait for the recovery to lock in before rushing to jump on a bargain. expect more pain before any gain January June 2004 2009 95% 90% 85% 80% 75% Heavy-duty truck capacity utilization Because fleets have more parked trucks than normal, owner-operator demand will lag during the early months of a rebound. FTR Associates