Henry Ford thought so, but he hadn't gone through 9 or 15 business cycles. The current negotiations in Washington over the federal budget are generating a pretty eerie feeling. Either Congress and the President think the public has no memory, or they have no memory themselves. It's hard to know which is worse.
Haven't we heard this boasting about the budget many times before? Haven't we heard Congress brag about putting together a great budget package, only to find out that we'll need five straight years of high growth and low inflation to reach the planned targets? Haven't we heard about budgets where every spending increase is immediate, and all the tax increases are deferred? It must be nice to be in Washington and be able to ignore anything that hasn't happened within the last three months.
For motor carriers, remembering the ups and downs of the industry is crucial for their success. For-hire carriers are having good times now, but it's been spotty over the last few years. Truckload carriers enjoyed about a year and a half of healthy profitability back in 1993-1994, before a traffic downturn and industry overcapacity ended the party and slammed the industry with two years of slowdowns. And even during the good times, carrier managers were bedeviled by the driver retention problem and equipment shortages.
Overall, truckload general freight carriers should enjoy the next couple of years. The driver retention problem will again be a major headache, but at least getting equipment shouldn't be such a problem this time around.
And that makes the next few months a perfect time to remember lessons from the past:
Don't overextend operations. Expand for profitable freight. Expect carriers to spend more time analyzing their operations, and their cost structures in particular. If carriers can't allocate costs accurately, and identify which shipments are profitable, they will expand their capacity indiscriminately and suffer as soon as the growth in traffic levels off.
Determine the exact costs of driver turnover. Is driver retention largely a personnel issue, mostly unsolvable, and best handled by professional managers? Or is this a significant drag on carrier profitability that must be reduced? The evidence from the last few years indicates that some carriers can live with high turnover better than others. Carriers need to find out how they are affected, and how that determines the compensation they offer drivers. Carriers can't afford to play "follow the leader" on wages.
Save up while you can. The flush times are great, but they won't last forever. Given the history of the industry, it's only prudent to plan for a downturn every three years or so.
An accurate recollection of the last few years is just as important for LTL carriers. It wasn't all that long ago that we heard the refrain "the national LTL carriers are obsolete" from quite a few industry analysts. But just as the conventional wisdom was premature in announcing the death of the industry, it's premature to bless the LTL industry now with permanently growing profits. Throughout the economy, inventory build is currently pumping up shipment volume. When that build is over, traffic will be back to 3-4% growth annually, which is what should be expected for the long run.
Again, it's only reasonable and prudent to expect an economic downturn somewhere along the line. So the national LTL carriers need to make enough money during the 1997-1998 period to cover the losses from 1994-1996 and the potential losses in 1999 or 2000, and provide for a decent rate of return for the whole 1994-2001 period. It's not enough to focus on a couple of good years, or a couple of unprofitable years, to evaluate the industry's ultimate success.
We aren't just contrarians trying to spoil the party. That's the job of the Federal Reserve Board. We hope that carriers have a great year, or two years, or however many years it will be. They deserve it. But even though the good times won't last forever, there are some very important things carriers can do now to keep the downturn from whacking them quite as hard as in the past.
