Uphill battle for small business

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“For too long, American businesses—particularly small- and medium-sized businesses—have been fighting against systemic imbalances that make it tough for them to compete and create new jobs.” –Gary Locke, Secretary of Commerce

If there’s any segment in the small business community today that knows exactly what Gary Locke, head of the Commerce Department, is talking about in his comment above, it’s small to medium-sized trucking companies.

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To say it’s been a brutal couple of years in trucking is an understatement. Transcore’s 2009 Broker Benchmark Survey laid out in stark figures how bad a bloodbath it’s been for truckers. According to the survey, which covered 2008, year-over-year tonnage declined 12.5% from December 2007 to December 2008 and some 3,065 trucking company failed in 2008 alone, removing 137,650 trucks from service.

But a key indicator in this survey is the slip in gross margins: a drop of 5%. That 5% doesn’t sound like a lot, but it could mean the difference between making a profit and losing money. And it goes against expectations, in a way, as if there are fewer trucks to haul the freight, the marketplace would logically dictate more competition for loads and therefore higher rates.

Yet so it goes: there are still too many trucks chasing too little freight, with a variety of cost pressures putting the squeeze on truckers – especially those on the smaller side of the scale. For it’s the small guys that can rarely cope with high costs, especially when they come on multiple fronts increasing the price of everything from equipment (due to compliance with emission regulations) to healthcare.

Secretary Locke touched on cost pressures like these facing small businesses in a more general way during a speech before the 2009 National Minority Enterprise Development Conference in Washington D.C. back on Aug. 27. He talked about how all small and medium-sized businesses – trucking and non-trucking alike – are feeling the pinch from many quarters, both in the short haul and in terms of future development. While Secretary Locke focused his remarks on the plight of minority businesses, much of what he said speaks directly to the concerns of almost all small and medium-sized American companies today.

“My father was just like many of you,” he said. “After serving in the Army in World War II, my father came back home [and] opened a small, family-owned grocery store. I grew up in that place, stocking shelves, making free deliveries and making sure our customers had everything they needed. My father put everything he had into that grocery store. It was his little piece of the American dream.”

But today, the secretary noted, that dream is slipping away for far too many small businesses. “It's become uncomfortably normal to turn on the news and hear about massive layoffs at this automaker or that financial firm,” he said. “But hit hardest of all has been America's small- and medium-sized businesses. Through the third quarter of 2008, half of all private sector job losses had occurred in companies with fewer than 20 employees. For too many American businesses, the bills have kept coming while the payments for products delivered or services rendered have not.”

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Going forward, Secretary Locke said, America must end its dependence on economic bubbles for growth. “To put our economy on a sustainable path, we've got to make fundamental changes like we haven't seen in America for decades,” he pointed out. “[Because] for too long, American businesses—particularly small- and medium-sized businesses—have been fighting against systemic imbalances that make it tough for them to compete and create new jobs.”

What are these issues? Secretary Locke named these three: An education system that isn't preparing our kids or retraining workers for the jobs of the 21st century; Decades of mismanaged energy policy that puts our environment in peril and leaves American businesses – especially manufacturers – vulnerable to unpredictable price swings in the oil markets; and a healthcare system that leaves almost 50 million Americans without care, millions more with too little care, and is riddled with inefficiencies that pile what he termed “backbreaking” costs on governments, citizens and businesses alike.

“There is plenty of room for honest debate on this issue. But let’s be clear about one thing: Those who advocate continued inaction are not only guaranteeing that tens of millions of Americans will continue to be uninsured or underinsured; they are also consigning American businesses to a less competitive future because of unsustainable health care costs,” he said. “Insurance premiums have gone up nearly 10% annually in the last decade. And they’ll likely do the same in the next ten. The average family’s annual premium will jump from $13,000 to $25,000. We can’t let that happen.”

The impact on small businesses is even bigger, Secretary Locke said. Small businesses pay up to 18% percent more per worker than large firms for the same health insurance policy – and as a result, many small businesses are getting out of the health coverage business altogether. “Less than 50% of firms with three to nine workers offered any type of health insurance to their employees in 2008—compared to 99% for firms with over 200 workers,” he noted.

Now, full point of disclosure – as Secretary Locke is a member of President Obama’s cabinet, he’s carrying water for the president’s version of health care reform. You may agree with the president’s vision for healthcare reform or disagree vehemently, but what Secretary Locke stressed is that the cost of health care – much like diesel fuel prices – is projected to head but one way in the future; up. And those rising costs will significantly hobble the efforts of small- and medium-sized businesses to innovate and grow.

“The thing that people need to understand about healthcare reform is that this is a competitiveness issue for our businesses,” he said. “The longer we wait to do something, the worse off we'll be.”

At the same time, though, there’s something else to consider: American business needs trucks to get things done. So while it’s been tough and is going to stay tough for a while in trucking, truckers need to remember that they provide a necessary and vital service – one American business cannot do without.

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“With the economic outlook for the next year or two not looking real bright, running a trucking company is going to be challenging. It is going to require a dedication to detail not seen for many years,” noted my editorial compatriot Timothy Brady in a recent post on his Blog4Truckers site.

“The good news is, America runs on trucks, and small motor carriers – those with fewer than 35 power units – haul a vast majority of the freight,” he explained. “Over 80% of American manufacturers are small businesses with fewer than 25 employees, meaning these small business owners are going to be facing the same dilemmas and problems as the small trucking company owner. The small business owners are going to need a hauler who understands what they’re dealing with … and who better than the owner of another small business? That’s YOU.”

Something to remember as small truckers battle to survive until freight revives.

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Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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