Over the last two decades most bankruptcies have been related to the price of diesel fuel. When fuel prices go up at the same time demand drops then more fleets close their doors, explains Donald Broughton, managing director of Avondale Partners.
Many in the transportation industry know Donald Broughton for his quarterly tracking of trucking bankruptcies. The 28 years of data he has collected show a very predictable formula: bankruptcies increase whenever fuel prices go up.
Speaking at CCJ magazine’s Summer Symposium recently, Broughton said company failures for the most part are tied to cash flow, big operating expenses and also follow seasonal patterns.
However, last year a new trend emerged as bankruptcies increased while diesel prices and freight demand remained steady. Broughton said he dug a little deeper and found that many of the most recent closures were related to compliance. At some point during the past 12-18 months, many were audited by the Federal Motor Carrier Safety Administration.
The results forced carriers to increase their costs of compliance, including using electronic logs. In turn, turnover increased and fleets saw their “utilization” drop eight to 10 percent.
However, the other side of the story is capacity tightened and those who are managing their compliance costs properly and boosting efficiencies “are going to get paid and get paid now,” says Broughton.
And while fleets absorb some immediate costs when introducing e-logs, Broughton said they become more productive and efficient over the long run. He collects data from a number of fleets that have implemented the technology and finds that after an initial dip in utilization during the first quarter of use, utilization surpasses previous levels by at least three percent after six quarters of use by giving fleets an opportunity to use real-time data to operate more efficiently and remain in compliance.
Broughton discussed a number of economic and transportation trends that cause him to be optimistic about the future: Capacity shortages are raising pricing power for carriers. He predicted a return to manufacturing to North America during the next 20 years due to its supply of energy and superior technology.