Monday, January 31, 2022

Wind in The Sails


Transportation and logistics service providers are enjoying an unprecedented freight bonanza.  Around the globe there is more stuff to be moved than there is capacity to move it.  And with the law of supply and demand still alive and well, rates have gone up…way up.  Up to rate levels that could not have been imagined a couple of years ago.  

To be sure costs have gone up as well.  For example, on as percentage basis truck driver pay has gone up even more than freight rates.  Other costs are up as well, but overall freight rates have shot up to levels where even the most inefficient, marginal service providers are now making money. If you can turn the lights on and find a way to move freight, you should be making money these days.

But why is it that some companies are doing so much better than others?  You may say, well they were more profitable before the big freight bonanza so it just stands to reason.  Fair enough.  But how does one explain the sizeable differences in profit improvement among carriers.  In fact, one would think that those companies that were doing better before the freight bonanza had less room for improvement than the laggards who were always saying if we just had more freight, if we could just get the rates up.

It's been said that “a rising tide lifts all boats”.  But perhaps a better analogy for this freight bonanza would be that “a strong wind fills all sails”.  And guess what, the better boats with the better sailors separate themselves even further from the pack.  Today we may not truly know just how well the better carriers are performing.  I promise you that their executives are using this opportunity to build up reserves, expense rather than capitalize wherever possible and pack bags throughout their financials.  They know that this bonanza won’t last forever and they certainly don’t want to report results they know they can not come close to matching in the future.  Yet still, it’s clear that some are reaping a bigger harvest than others.

My guess is that the real numbers would show that the better carriers’ profitability has improved at least twice as much as the average carriers and perhaps three or four times more than those who were losing money before the bonanza.  

More volume and higher prices are certainly better than low volume and low prices.  And more business and better prices can cover a multitude of problems.   But in the end, the best operating companies do even better in times like these.  Those who are just along for the ride may enjoy it for now, but what they do with this opportunity will determine if they survive when the bonanza is over and the tailwinds are gone.

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