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SAN DIEGO — With some economists predicting around a 50-50 chance of the U.S. economy sliding into a recession in the first half of 2023, a panel of experts at American Trucking Associations’ Management Conference & Exhibition urged trucking companies to prepare now for a possible economic downturn by maintaining strong levels of cash flow and — above all — avoiding panic if a recession takes hold.
Bloomberg Intelligence Senior Freight, Transportation and Logistics analyst Lee Klaskow said he believes the economy will be classified as in a recession early in 2023, but he is forecasting a truncated downturn that will yield to signs of growth by the end of 2023.
“I was very much an optimist, and I thought we were going to avoid a recession until probably four or five months ago,” said Klaskow, moderator for the Oct. 24 session, in his opening remarks. “Now I think we are going to be in a recession, but I’m very bullish on the U.S. consumer. Because of that, I think the recession is going to be short and shallow.”
Lee Klaskow (from left), Steve Smith, Chris Henry and Zack King by John Sommers II for Transport Topics.
Still, all three panelists urged trucking companies to prepare early to avoid being forced into scattershot decisions if the economy starts to contract. Above all, maintain liquidity, be transparent with employees about the company’s financial position, and be ready for an economy recovery in late 2023 or early 2024.
“The knee-jerk reaction is, ‘Oh my God, I have to start cutting,’ ” said Smith Transportation Consulting Services President Steve Smith. “You can’t cut your way to profitability. You have to have a plan. You have to follow the plan and teach your people what that plan is.”
He added, “I think the biggest thing that I’ve witnessed in the time I’ve been in the industry is, when times get tight, that people know their goals and they know what the plan is.”
Smith stressed that employee layoffs must be the last resort, noting that in previous economic downturns he has maintained his staff. That said, he did so by securing employee buy-in for temporary salary reductions of between 2% for lower paid workers and up to 50% for C-suite executives until the conditions improved. Health insurance and other benefits remained at the same level, and salaries were restored when the company returned to profitability. He said this plan built employee loyalty and kept everyone employed.
Ensuring reliability of equipment is another key consideration, said Zack King, former CFO of USA Truck. He said keeping newer equipment in a fleet ensures better efficiency and less maintenance, especially when older tractors and trailers start needing repairs. He noted that while some companies might balk at the effect a new tractor might have on a capital budget when times are tight, other options exist.
“Leasing is a bit more expensive, but it also gives you more flexibility and you can always restructure out of it later,” he said. “Don’t be afraid to think out of the box.”
Chris Henry, the chief operating officer at KSMTA Canada, added that unless a company has a network of repair facilities, maintenance on used equipment will typically be substantially more harmful to cash flow and liquidity than keeping newer trucks in the fleet.
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Henry also urged attendees to put a high priority on retaining drivers during a recession. While he said some figures suggest it costs about $11,000 to recruit a new driver, he pegs the actual cost at between $20,000 and $25,000 once the time a truck sitting idle and not generating revenue is factored in. Plus, he noted, the onboarding process for a new driver often takes weeks.
“The best drivers are typically the ones that you already have,” Henry said. “We’ve tracked this number over time ... and it has evolved. Subtract that from your bottom line. Your company made $100,000 that week, but you had a driver leave, now it’s $75,000. It makes your people understand the real costs of turnover.”