Good Morning.
Belated Merry Christmas and Happy New Year to everyone.
To the topic at hand: Normally, I would be onside with the “oh the cheap, sneaky bastards” camp. However, we are not enduring normal times, and frankly, even though it doesn’t make the issue right, I simply feel sadness, and pity, for the vast majority of these carriers.
As most of you know we play in the Amazon Logistics market space as a middle mile carrier, and have been there for three years now. I am also a firm believer that Bob Costello of the American Trucking Associations is an economic God. Between Bob’s economic address at the Isaac Instruments user’s conference in the late fall, and my knowledge of the Amazon space, I have come across some staggering statistics that will blow your minds.
First, let me set the scene; back in the pandemic days, when no one could, or would, leave their houses, services like Amazon’s increased their logistics footprint by somewhere in the order of 300%. For every partial load that moved before the pandemic there were now
at least 3 full loads that had to move, and Amazon was committed to keeping their customer delivery promise as defined by their Amazon Prime subscriptions.
During this period, it was common to have loads, for a single driver, that went from Toronto to Vancouver for $18,000.00 per, and if you waited 24 to 36 hours, you could get a load back from Vancouver to Toronto for $10,000.00 to $12,000.00 per. Toronto to Montreal paid $2,750.00 per, and Montreal back to Toronto paid another $2,750.00 per. If you were ever going to make bank, this was the time to do it. Amazon needed those trucks, and they were more than willing to pay exorbitant rates to get them. This market lasted for about 18 months.
At this point you should keep in mind that Jeff Bezos is one of the wealthiest persons in the world. He did not get there by good looks and luck, nor is he stupid, nor does he hire stupid people. Also, keep the “If it sounds too good to be true, it probably is.” saying in mind.
Most likely you will all note that I have never made mention of this episode before. There’s good reason for that … why would I invite competition? There were a limited number of carriers exposed to this phenomenon, and had it been kept amongst themselves, many of them would not be in the situations they are in today. The going broke situation.
However, a particular segment of this carrier base, that segment that has no business acumen, cannot read a financial statement, and has no fundamental grasp of the industry within which they participate, just could not keep quiet, for each of them told two friends, and they told two friends, and they told two friends ….
This siphoned a significant amount of equipment off the traditional spot market, and to some extent the contract market, and that is why many of you saw a bump in revenue at the same time, but not nearly what the Amazon space was doing.
Also, during this period of time, there were no new trucks or trailers to be had, so all of these Amazon carriers, from that particular segment of carriers, went to the used equipment marketplace where they began competing against each other for equipment. According to ATA economist Bob Costello the average, across the U.S., paid for used equipment was 205% of normal, top-end, equipment values. Here in Canada, it was worse. It was not uncommon for carriers to pay $200,000.00 to $300,000.00 for 5 year old used tractors, and $125,000.00 to $175,000.00 for 5 to 7 year old used dry vans.
I have it on good authority that it was not uncommon for individuals and small carriers to max out 3, 4, and 5 credit cards just to make the down payments on these purchases. The rest would be financed by the loan brokerage segment of the industry that most of us here do not have to do business with.
Now, anyone, with any common sense at all, has to know that this freight market cannot last. The freight market will do one of two things; 1) The pandemic will continue, and the trucking industry will normalize with higher rates, albeit not exorbitant rates, or 2) the pandemic will end, consumers will redirect their spending habits to services instead of goods, and the trucking industry will have too many players chasing too little freight.
I, like many of you here, bet on scenario #2. Almost all of those carriers from that particular segment of the industry, bet on scenario #1.
Here’s where the collective “we” are today:
Consumers, having spent their pandemic money on goods during the pandemic, were spending their money on services after the pandemic. Now, they are not buying anything because interest rates are high, and there is very little confidence in the Canadian economy.
That particular segment of carriers, alluded to above, have bills to pay, and no freight to pay them with. Amazon rates are down to about $52.00 an hour for a tractor using an Amazon trailer. Amazon contract lane rates range between $0.90 and $1.50 per mile, depending on the lane, for a tractor and carrier trailer. Amazon has 2,000 carriers registered with them for their Canadian business. There are 800 of those carriers that actually want to work for Amazon on a regular basis. There are only 200 carriers that actually get work. Amazon is in the driver’s seat.
Shippers and load brokers are well aware of the condition of the marketplace. Shippers are renegotiating contracts at more “reasonable” rates, and load brokers are doing exactly what they should be doing, pillaging the carrier community just as they were pillaged only so many months ago.
Given the current conditions, with so many carriers of that particular segment simply trying to make payments, let alone prosper, is it any wonder that these carriers would go to whatever lengths necessary to keep their heads above water?
It is to be expected that when there is blood in the water, sharks will appear.
No one ever said “My friend the shark”.
Sharks are not nice.
Fortunately, or unfortunately, depending on your point of view, many, if not most or all, of these carriers will inevitably fail. The hurdles to keep going are just too large. The economy will come around with a change in government. And, our world will return to normal. Eventually.
Disjointed as it is, that's my soap box oration for today
