After trucking outpaced GDP with approximately 3% industry growth from mid-2017 to mid-2018, carriers needed to prepare for slower growth while protecting the operational and financial gains of the surge.
KSM, KSM Transport Advisors, and the Truckload Carriers Association convened a TCA Profitability Program session on Dec. 4, 2018, to discuss the market, freight-network economics, transactions, planning, tax, and accounting.
Peering Into the Future
Jack Porter repeatedly framed 2019 as a year of “selling driver services, not trucking.” The market had peaked after strong 2017 and 2018 results, and top-line revenue had grown 14% to 18%, but driver pay and retention costs were rising.
Porter suggested that hourly or salary pay might eventually replace mileage-based compensation. Thom Albrecht identified industrial production as a key indicator and expected growth of as much as 2.5% before leveling off.
Karen Smerchek emphasized diversification. Veriha Trucking's largest customer represented less than 10% of revenue. She also distinguished customer-based service from commodity service: when a carrier cannot differentiate, price becomes the deciding factor.
Albrecht urged carriers to seek exposure to e-commerce, energy, and startup disruptors as auto, housing, and aerospace slowed. E-commerce represented almost 10% of total sales.
Porter also warned that younger generations were not starting trucking companies. The industry needed early career visibility, training, incentives, transparency, and room to fail if it wanted future managers and owners.
A Short Look Back
Chris Henry reviewed TCA Profitability Program forecasts for 2018. Most had proved accurate:
- Organic revenue growth of 8% to 22%
- Gross-margin improvement from 0% to 14%
- Higher driver and non-driver payroll
- Shorter length of haul
- Continued driver-retention problems, moderated somewhat by higher wages
Automation was expected to reduce administrative overhead, even as driver pay pressured gross margin.
Building a Profitability Model
Kirby McLinn described trucking as “a business of pennies.” Profit begins with the revenue model, but carriers must focus on margin rather than revenue alone.
Time is critical. Measures were shifting toward margin per day and network yield. A single lane does not reveal the full economic result because yield and margin are meaningful only within the carrier's network.
Carriers should use data to value customers and lanes from a network perspective and bring that analysis into pricing decisions and negotiations. With agreed actions and execution, a carrier can outperform the market.
Company for Sale?
Spencer Tenney addressed unsolicited acquisition offers. Buyers were seeking drivers, capital was available, and interest rates remained reasonable.
Money was not the only reason to sell. Family and employee security, community legacy, and future opportunity also mattered.
He recommended:
- Set rules for confidentiality, information sharing, valuation range, expectations, and timing.
- Obtain an offer and compare it with the owner's goals.
- Identify gaps and tools for closing them.
- Improve the offer rather than choosing convenience.
Closing the Knowing-Doing Gap
The Knowing-Doing Gap Survey highlighted mission, values, onboarding, training, competitive intelligence, incentive compensation, and transparency.
Jack Porter's strategic-planning framework focused on customer demands, profitability and efficiency, cost reduction, and talent growth. Strategy requires market and competitor analysis, an execution framework, defined goals, systems, and measurement.
His closing question was direct: if every other aspect of the business stayed at its current performance, what single change would have the greatest effect?
Tax and Accounting Updates
The session concluded with tax questions, new revenue-recognition rules effective in 2019, and operating-lease recognition changes scheduled for 2020.
The mood remained optimistic. Participants did not expect trucking to repeat the previous year's peak, but they believed disciplined carriers could continue improving.