Bill Gates (Microsoft) And Jeff Bezos (Amazon) Crushed By Trucking!

There are more metrics that go into freight rates. One of the big ones is capacity. IE: How many trucks are available compared to number of available loads. Capacity soared during the pandemic and hasn’t gone down a great deal since, so there are alot more available trucks than loads.

Fuel prices play a part, but capacity is a bigger part.

The number of brokers has increased dramactically causing much more competition. It is a cut throat business and shippers look for the best price possible. Also brokers try and get the best price possible. Some will take 10 percent, others more. I quit using a very large broker because I figured out they were taking 40 percent. That is just crazy.

The country is divided into freight lanes. They all pay different. Example freight going to FL usually pay higher because freight out is very minimial and pays very low on average.

Same applies to the NE part of the country. Alot goes in, little coming out. That all effects the rates.

My wife talked with a broker yesterday about a backhaul from VA. The rate they offered was insanly low and she hung up on them. The rate they quoted was barely enough to pay for the fuel.

I have found shippers turning to brokers more lately because they are getting a better rate than going directly with a trucking company.

I have also found the past few months that some brokers are having trouble getting trucks to cover loads. It seems more O/O’s are starting to quit pulling the real low priced stuff. The closer the deadline gets the more brokers are willing to pay.

Interesting. Hopefully more and more o/os continue that trendit also makes me wonder why the brokers are virtually unregulated. My guess would be that they benefit large retailers and commerce, so they lobby for policy that keeps them unregulated.

Stock brokers, real estate, car brokers, equipment brokers, all heavily regulated....yet freight is a free for all. Is that accurate?

Brokers are regulated by FMCSA. The basic requirements are pretty simple and FMCSA is responsible for oversight. FMCSA themselves admit they lack the manpower to provide adequate oversight, therefore unless a broker really goes off the rails they are unchecked.

There have been transparency regs enacted, but brokers find loopholes and craft their contracts using the loopholes to their benefit. Congress has been trying to rein some of it in the last few years but without any success.

why do we hear so much of the time that it's a bad time to be an owner op due to the fuel costs

The first question you might ask before starting a business is, "Would someone be willing to pay more money for my product or service even if someone else can produce it cheaper?"

If there is no reason to pay more for a product or service than the cheapest provider, then you're in a commodity business. Some examples of commodity businesses are:

• oil and other energy commodities
• corn and other agricultural commodities
• car and truck washes
• hauling freight
• the airlines

People will mostly buy the cheapest available version of those things. You can always pay more to upgrade a service, like buying a first-class airline ticket or buying organic produce, but overall the price is still all that matters. First class on American Airlines is no different than first class on United or Delta. Organic corn from one farmer is no better than organic corn from another.

These decisions are primarily driven by price.

Trucking is the same way. If I need freight moved from New York to Los Angeles within 10 days, I want the best price. Why would I pay more to ABC trucking if XYZ trucking can do the same thing cheaper?

On the other hand, automobiles are not a commodity because there is a vast range of qualities and features available. People will, in fact, pay far more for a luxury car than a cheap car. They are not the same.

The key differentiator is this: there are rarely worthwhile profits to be found in a commodity business.

If you want to make a worthwhile profit as a business owner, you must have a "secret sauce" that is extremely difficult to duplicate. It could be a copyright, trademark, patent, intellectual property, or skills.

The secret sauce is what allows you to charge enough money to make a worthwhile profit.

My family used to own a pizzeria in Florida, where pizza is terrible by New York standards. So we could charge far more for our food than most pizzerias because no one could produce the quality we could. If they were a mom-and-pop place, they simply didn't know our secret sauce (literally). If they were a chain, they used inferior ingredients and processes to keep prices low.

So people had an option: get cheap pizza or pay up for better quality.

If you were to become an owner-operator, what would be your secret sauce? It's extremely difficult to differentiate yourself in trucking. Other owner-operators can do what you do, and large carriers can do what you do but with even better services and prices. There really is no secret sauce that will last. Even if you find an edge, someone else will quickly discover it and your edge is gone.

The economics of a business will determine its potential. The economics in trucking make it extremely difficult to produce worthwhile profits as an owner-operator. In fact, the competition is so fierce and the environment so unpredictable that it's difficult to make worthwhile profits at almost any scale.

People who don't understand the complexities will look at fuel prices and say it's a good or bad time to be an owner-operator, but they're not considering the flexibility in rates and other factors that go into those final profit numbers.

Another simple example is interest rates. If you financed your vehicles when interest rates were super low, you have an advantage over anyone who enters the market now with higher interest rates.

Running a large carrier is extremely complex and requires more advanced skills like hedging for fuel costs, freight rates, inflation, and interest rates. Hedging properly can mean the difference between staying in business for the long term or going broke at the first sign of a downturn.

If someone said to me, "I'm thinking about starting a business doing XYZ!" my first question would be, "What is your secret sauce? What is your superpower?" You better have something powerful that's hard to duplicate. If not, you'll never make worthwhile profits.

Trust me that Im certainly not entertaining the idea of starting a business in trucking. I still have a hangover from 3 decades of contracting. Its all I can do at times to pick up the pouches and hammer when the wife wants the never ending projects done on the house. At the level and area that I was last involved with, production (tract housing) work is a commodity business as well, quality is irrellevant as long as it met minimum standards. the only thing that wins bids is speed and price.

What I mean by the question about fuel though, is in a nutshell, On the whole, are carriers able to collectively and incrimently charge more as the fuel prices rise? Outside of the fuel surcharge. I have a hard time wrapping my brain around it.

It just seems in general that trucking companies, big and small have very little leverage on most types of freight. Ive been labeled as a conspiracy theorist type of guy before, because I question everything. So perhaps Im bias and I could just be overthinking it, but it sure seems like even as big as some carriers are, the retailers are bigger, the shippers are bigger and that between the government, the shippers and the brokers, they have arranged a system that the carrier is at their mercy. It baffles me.

On the whole, are carriers able to collectively and incrementally charge more as the fuel prices rise? Outside of the fuel surcharge. I have a hard time wrapping my brain around it.

Fuel surcharges are normally written into freight contracts, and they're one of the ways companies manage fuel costs. So, a contract to haul freight at $2.00 per mile might be based on fuel prices averaging $4.50 per gallon. As fuel prices vary, the price of hauling freight will vary with it.

Another interesting way trucking companies maintain their profit margins is by changing the length of the haul. An operations manager described the process to me. He said, "We don't like lowering our mileage rates because our drivers make a predetermined amount per mile. If we reduce our rate per mile but pay the driver their predetermined rate, we lose some of the profit margin. So, instead, we keep the rate per mile the same but reduce the number of miles we charge the shipper. We then pay the driver the same number of "paid miles" as we charge the shipper.

Ever wonder why drivers normally get paid maybe 5% - 10% fewer miles than the run shows on the odometer? Now you know! The company charges a certain rate per mile but varies the number of miles they actually charge the shipper for the run.

The goal for the company is to keep their rates high so they have some profit margin baked in, then pay the driver the same number of miles (or less) than they're charging the shipper.

There are various ways of negotiating rates, but the company must maintain its profit margins and adjust its prices for the cost of fuel.

This is why hedging fuel prices can be a huge advantage for a savvy company. If you can lock in lower fuel prices before prices rise, you have a huge advantage over those paying current prices.

It just seems in general, that trucking companies, big and small, have very little leverage on most types of freight

This is true, and it's purely a matter of fierce competition. There are no big players in trucking when you look at the size of the industry. The 10 largest companies combined only make up a tiny percentage of the trucks on the road. They don't have real pricing power because the competition is so high. Therefore, efficiency is the key to maintaining profit margins. You simply must find a way to operate at a lower cost per mile and hopefully provide better service than most of your competitors over the long run.

Ive been labeled as a conspiracy theorist type of guy before, because I question everything

Intelligent, insightful people with good awareness always question everything. There are no bonus points for rushing through decisions blindfolded and ignorant, but it sure is fun to watch from a safe distance!

I think the answer to your question about pricing power in the industry is simply competition. Good, old-fashioned competition.

Interesting information about mileage charges and how the driver kinda gets caught in the middle.

As with most paid-by-the mile drivers, I know that I almost always drive more miles than I get paid for. One of my recent trips was actually 845 miles but I only got paid for 789 miles. I knew that this was, in part, due to the zip code to zip code system of calculating miles. Now, this adds a new aspect to the mix. Companies can actually manage their profit margin by “volunteering “ the driver to contribute some of their miles to make the numbers work out for the company.

I’m not railing against the system, but this practice is very disingenuous. When hiring drivers the company states that the driver will get say, .55 per mile but the unwritten fine print says that the number of paid miles will be manipulated as the company sees fit, thereby effectively reducing the actual pay per mile.

So it’s a little like false advertising. If I hired a subcontractor to do a job but my costs were greater than expected, I couldn’t tell the subcontractor that he was getting paid less money than the original agreement was for. That would be a good way to lose subcontractors and make them angry.

I really want to see my company make a profit, partly because I want my paychecks to keep coming, however I’d also like to get paid for all my miles. I guess that is why driving jobs that pay hourly or pay hub miles are so attractive.

It's getting rough out here. Brokers continue spiraling out of control, and now shipping behemoth Maersk reveals a 94% plunge in 3rd quarter profits.

Hang on tight - we're nearing the bottom of this mess.

but the unwritten fine print says that the number of paid miles will be manipulated as the company sees fit, thereby effectively reducing the actual pay per mile.

That's true, but don't forget:

• The company doesn't get paid for those miles they've shorted on the run
• The company knows it's a practice their drivers do not appreciate
• The company still has to pay for the fuel for all miles driven

So, the company certainly doesn't get off scot-free. Money is coming out of their pocket, too.

If you ever find you're shorted more than about 5% of the miles on a run over 1,000 miles or 10% of the miles on a shorter run, say something to dispatch. I didn't say anything too often, but when I did, they would increase my mileage for the run almost every time.

shipping behemoth Maersk reveals a 94% plunge in 3rd quarter profits.

Yap, and they're laying off 10,000 workers

Almost nothing in the economy is as good as the rosy picture the politicians paint for us.

Almost nothing in the economy is as good as the rosy picture the politicians paint for us.

Very true.

I'm seeing layoffs in other industries too. Lucent, a very solid communications company, is also planning layoffs of about 10,000 workers.

Car loan defaults are on the rise, and consumers keep going into debt to do simple things like dining out. When you are willing to pay 28% interest on a cheeseburger combo meal, you are headed for trouble.