More than a third of owner operators surveyed said they're leaving the industry, if the second half of the year doesn't improve. The current market is tough enough for brokers and carriers. But, what will it look like if 30% of the owner ops go belly up this year? In this blog we'll dig into what's going on and how that will effect the market and your brokerage. Make sure to stay with us until the end when we provide tips on using this information to increase your business.
The current market is tough enough for owner-ops that a significant number of them are considering folding their businesses or hiring on with a larger fleet. At least according to a recent survey done by FreightWaves. When asked which situation applies to them, 35% said, "if the market does not rebound significantly by 2023, they will leave the industry." Meanwhile, about 20% said they had trouble finding loads to haul. Less than 8% said they were considering signing with a larger fleet carrier.
It's not surprising that owner-operators are having a difficult time keeping their heads above water. Last year saw sky high fuel, equipment and insurance costs, along with a crashing spot market. Now the average owner operator did see their revenue increase by 7%, but their expenses increased by more than 22%.
The results make sense with the fact that the demand for carriers has decreased in the last year, from it's all time highs in 2021. This has hit smaller carriers much harder since they have less ability to let their trucks sit idle while waiting for demand to increase. The other very large contributor to this was the inflated cost for a used truck during the peak. Some of the owner ops were purchasing power units for 25-30% above the normal cost. That's fine during a period of extremely high rates we saw in 2021. But, if you are relying on the market to stay above $3 per mile to make those payments, you're in for trouble. This is a very important lesson for carriers out there. Make sure that your expenses are low enough that you can make money in both the good and bad market cycles. It is a cycle or circle, and over the life of that truck loan, you are definitely going to experience both ends of the market. Because they typically cycle every year and a half.
Now It's difficult to determine how much and how quickly capacity will leave the market, but this is certainly trending toward a tighter market over the next year. And that brings us to our good news for brokers out there. And quite frankly it's good news for the carriers that are able to weather the storm. On the other side is brighter skies. The cycling of the market is necessary for it to flex with the demand for shipping services in the overall US economy. There are periods of growth and expansion. But, there are also needs to be the flexible when the economy needs to contract. Like it does now to fight inflation.
As more of the capacity leaves the market, the less of the supply is available. As long as there's not a steep drop off in the US economy, and most analysts believe that won't happen. The second half of the year is predicted to be a much better market for carriers and brokers. We're seeing this play out in this year's bids. Many of the shippers are reverting back to annual or 12 month bids. A shift from the mini-bids that became prevalent during the peak of demand and lack of capacity in 21. Many carriers and brokers are reluctant to commit to a rate 7-12 months from now. The main reason is that most experts believe we'll see a much better market for carriers and brokers. Meaning higher rates for shippers.
From a brokerage perspective, a great tip would be to only offer your shipper rates for the next 2 quarters. When you're doing this explain that you don't want to offer rates that are fair now, but won't be enough money to secure the same capacity in 7 or 8 months. And what good is a rate if you can't provide the service for that price any longer? The same goes for carriers. Most know that they won't want to run lanes for current rates if they are significantly higher later this year.
Keep this in mind not only when working on bids but in your prospecting calls as well. The market is a circle. If we are at the bottom, we'll soon be on our way up to the top. And then eventually back to where we are again. As the old saying goes, "this too shall pass." A great strategy is to prospect the next market, not just the current one. The best way to execute that strategy is to have longer term conversations with your prospects and customers. Be the broker that adds valuable information by providing these insights along with servicing lanes and providing capacity. Be a consultant, not an order taker.
