The trucking industry operates with a unique balance of stability and volatility. On one hand, an estimated 70 percent of U.S. goods are moved by carriers, providing solid demand for trucking companies, freight brokerage businesses, and transportation and logistics firms. On the other hand, trucking business owners must contend with increasingly fickle fuel costs. In the six months between October 2011 and March 2012, for instance, fuel prices grew 41 percent.
Gas prices have always caused problems for truckers because they can’t be accurately predicted. But while the numbers may be unexpected, their upward trend is not. Small operators who don’t make changes to counteract fuel costs may eventually be forced to put their trucking companies for sale. Businesses that figure out a way to manage costs, be it by implementing new technology or expanding through a merger, will be in a better position to handle fuel fluctuations and other obstacles down the road.
Passing on Prices
Because rising fuel costs quickly eat into profits, most trucking companies have no choice but to pass them on to customers through rate increases and subcharges. Unfortunately, there’s no way to pass costs on completely. Trucking companies aren’t the only ones affected by a surge in diesel prices. Expensive fuel increases the cost of supplies needed for manufacturing while simultaneously pinching the wallets of consumers. As a result, the industry could experience decreased demand for shipments as fewer goods are produced and retailers decrease inventory.
Rising fuel costs are bad news for transportation companies of all sizes. However, larger businesses are better equipped to swallow costs because of economies of scale. For instance, companies with sizable fleets may qualify for a significant discount from wholesale vendors and be better able to afford cost-saving technologies like GPS tracking. Meanwhile, they are less affected by industry rules, regulations, and taxes.
According to the American Trucking Association, 90 percent of trucking companies currently operate with six trucks or fewer. Many small trucking companies have already been driven out of the market during the recession. Now, with diesel prices expected to continue rising through summer, some of these remaining independent carriers could be forced to sell or shut down. Smaller carriers who are able to grow by acquiring or merging with a bargain-priced trucking business for sale may be able to take advantage of reduced operating costs.
Fuel Efficiency Changes
Government requirements aside, fuel-efficient technology is increasingly becoming mandatory for keeping up with the competition. While expensive solutions like GPS and green engines may not be an option for smaller carriers, there are other methods for reducing fuel costs. Successful companies are employing devices to monitor speeds, discourage idling, reduce wind resistance, and calculate more efficient routes. Companies that can’t afford to purchase these upgrades may be able to enjoy strategic benefits by purchasing a company for sale that is already equipped with new technology.
Natural gas remains an intriguing alternative, with some companies using a blend of natural gas and diesel. Natural gas engines cost more money, but when you factor in a tax credit and the lower price of the product, the gap begins to close. Of course, because few fuel stations provide natural gas, it may not be the most realistic option just yet.
From rising fuel costs to increased regulation, the problems facing the trucking industry are largely out of business owners’ control. However, solutions are not. For some, purchasing the right trucking business for sale can provide a fresh start.