Freight brokering is a crucial aspect of the trucking industry, which plays a vital role in keeping the economy moving by transporting goods from one place to another. Brokers are responsible for managing truckers, who are the backbone of this industry, delivering everything from groceries to machinery. However, with the current economic downturn and the looming trucking recession 2023, many brokers are questioning the stability of their profession and whether freight brokering is truly recession-proof.
In this article, we’ll start by looking at current trucking news and then delve into the impact of recessions on the industry, the various factors that affect it, and the steps freight brokers can take to protect themselves during uncertain times. Let’s get started!
Trucking Industry News 2023
As the industry entered into 2023, trucking news headlines highlighted enduring challenges. Driver shortages persist with only a handful of potential solutions on the horizon. Rising diesel fuel costs continue to put pressure on operational budgets. As of January 30, 2023, the average price for diesel fuel in the United States was $4.62 per gallon, according to data collected by Work Truck Magazine.
Thankfully, the EIA announced that they expect on-highway diesel prices to decrease to an average of $4.23/gal in 2023 before decreasing further to $3.70/gal in 2024. These forecast price decreases are based on our expectation of lower demand growth for diesel and motor gasoline with continued high production of those products.
Regulatory changes in the industry have also continued to be a challenge for businesses looking to stay afloat during uncertain times. Despite the negatives, new technology and engineering have revolutionized many parts of the trucking industry – from improving safety standards for drivers to increasing efficiency through digital tools. As such, members of the industry remain hopeful that more advances will arrive in due course and provide much-needed relief amid these trying times.
The Impacts of a Recession on the Trucking Industry
Recessions can have a significant impact on the trucking industry, as a decrease in consumer spending leads to lower demand for goods and therefore lower freight volume. During recessions, many businesses cut back on their transportation spending, leading to lower shipping rates and a decline in trucking revenue. This can make it difficult for your truckers to earn a living, as they are often paid based on the number of miles they drive and the weight of the freight they carry.
The 2008 financial crisis serves as an example of the impact of recessions on the trucking industry. During this time, the global economy experienced a sharp slowdown, leading to a decrease in consumer spending and lower demand for goods. This resulted in a decline in freight volume, as businesses cut back on their transportation spending. Many trucking companies faced significant financial difficulties during this time, as they struggled to maintain profitability in the face of lower shipping rates.
However, it’s important to note that the impact of recessions on trucking is not always negative. In some cases, recessions can lead to an increase in demand for trucking services, as businesses seek to reduce their overhead costs by outsourcing their transportation needs. For example, during the 2008 financial crisis, many businesses turned to freight broker factoring as a way to keep their businesses running smoothly.
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The Factors That Affect the Trucking Industry During a Recession
There are several factors that can affect the trucking industry during a recession:
Consumer spending
During this trucking recession 2023, you will likely notice a decrease in consumer spending. This is typical for a recession and is one of the key factors that can affect the trucking industry. When consumer spending decreases, businesses tend to cut back on their spending, including the number of goods and products they order. This can lead to a decrease in the demand for trucking services, as businesses require fewer deliveries of goods and products. As a result, your truckers may find that they have fewer freight deliveries to make, leading to lower income for them and reduced demand for your services.
Shipping rate decrease
Also during a recession, shipping rates tend to decrease due to a variety of factors, including increased competition for available freight, decreased consumer spending, and lower fuel costs. While lower shipping rates may seem like a positive development for freight brokers, the decrease in rates can actually have negative effects on the industry. When shipping rates decrease, trucking companies may struggle to cover their costs, leading to reduced profits and financial instability. Your truckers may also see a decrease in their income, as they are paid based on the rates charged for their services.
Freight volume
The volume of freight being transported is an important indicator of the health of the trucking industry, and it can be greatly affected by the economic conditions of a country. It’s inevitable that, during a recession, people slow their spending down in an effort to save money and stay afloat. This often includes cutting back on their transportation spending, which can result in a decrease in the volume of freight being transported.
Fuel costs
This one is actually a positive! During a recession, the price of crude oil often decreases as a means of encouraging increased travel and boosting consumer spending. Although travel tends to decrease during tough economic times, lower fuel costs can offset some of the negative impacts. Fuel expenses are a major component of the operational costs for truckers, and reduced fuel prices at the pump can significantly lower these costs. This provides much-needed relief for the trucking industry during a difficult economic period.
Competition
An increase in competition in the trucking industry can result from a declining pool of freight, particularly during a recession. As businesses cut back on their transportation spending and the volume of freight being transported decreases, trucking companies compete for a smaller pool of available freight. This can lead to a decrease in shipping rates and lower profitability for trucking companies, as they struggle to maintain their margins and win business by offering lower prices.
Protecting Yourself as a Freight Broker During a Recession
If you’re a freight broker, it’s important to take steps to protect yourself during a recession. Here are a few strategies that can help:
Consider freight broker factoring
Freight broker factoring is a financial tool that can provide brokers with quick access to cash. By selling their invoices to a factoring company, brokers can receive payment for the freight deliveries within a matter of days, instead of waiting weeks or months for payment from their customers. OTR Solutions is a company that offers non-recourse freight factoring and other tools for brokers, which can help them to manage their finances during a recession.
Diversify your income streams
While freight brokering can be a stable profession, relying solely on one source of income can be risky during a recession. Consider diversifying your income streams by starting a side business or investing in other ventures.
Cut costs
During a recession, it’s important to educate your drivers on how to be mindful of their expenses. Teach them to look for ways of reducing their costs, such as negotiating lower rates or finding more fuel-efficient routes.
Stay informed
Stay informed about the latest developments in the trucking industry, such as changes in shipping rates and freight volume. This will help you to make informed decisions about your profession and prepare for any challenges that may arise.
Network with other freight brokers
Networking with other brokers can be a valuable resource during a recession. You can share information and resources, and support each other during this difficult time. Joining a trucking association or participating in trucking forums can be a great way to connect with other brokers and stay informed about trucking news and the latest industry trends.
Protect Your Freight Brokering Career During Economic Uncertainty with OTR Solutions
So, IS trucking recession-proof? Well, it can be a stable profession, but it is not immune to the impact of recessions. By understanding the factors we went over that can affect the trucking industry during a recession and taking steps to protect yourself, you can ensure that your freight brokering career remains strong and secure, even during uncertain times.
Whether you’re a seasoned freight broker or just starting out, it’s important to be proactive and take control of your finances, so you can stay on the road to success. That’s why you should never go without a partner like OTR Solutions. Freight broker factoring keeps your cash flowing and gives your drivers access to all the best loads. Contact us for more information on how to recession-proof your trucking business.