Now is not the time to isolate your business

Now is not the time to isolate your business

With the ongoing freight recession and the chaos triggered by the COVID-19 crisis, you have to wonder how many more blows Canada’s trucking industry can take.

Experts who said the pendulum would swing back into truckers’ favor this summer are now washing their hands of those predictions. Vigorously, with soap and hot water.

Tough times expose the strengths and weaknesses of your fleet that tend to get hidden during the good times. Here are some things to consider if you are looking to take advantage of a very difficult climate.

Success is attainable

Bain and Company analyzed 700 firms over a six-year period and found that economic downturns can be “intense crucibles of opportunity.” During a recession (a fall in GDP for two consecutive quarters), competitive landscapes get shuffled more than any other time.

Companies that increased their revenue or profitability in the ugly times were able to sustain those gains through the next boom. They stayed focused on their core competencies, paid attention to early warning signs in the economy and among their customers, and reacted quickly when they saw opportunities to grow.

Early action

The Bain study concluded that many companies will tolerate poor results during a recession because they believe they’re unavoidable, and besides, everyone is in the same boat.

Don’t fall into that trap.

Some leaders react tentatively when things get bad. Unfortunately, this can bring about a drastic overcorrection after it’s too late, putting the company in a bad position when the economy resets.

The key is to assess your vulnerabilities early, keep your eyes on improvement, and move quickly so you can take advantage of opportunities to transform the company.

Opportunities abound

Don’t underestimate the number of good trucking companies with loyal, well-paying customers that are struggling because of circumstances beyond their control. Acquisition opportunities abound when the dung hits the fan, as valuable assets (and customers) can often be picked up for cents on the dollar.

In early March, the ongoing concerns about COVID-19 prompted the Bank of Canada to cut its trend-setting interest rate by half a percentage point. Recessions prompt an increase in seller financing, vender take-backs, and stringent earn-outs.

Serial buyers understand how to take advantage of OPM (Other People’s Money) to protect their balance sheet when making acquisitions. And newbie purchasers can gain M&A experience as lower valuations increase the margin for errors.

Warren Buffett put it best: “Be greedy when people are fearful.” Deals made in a weaker economy create greater shareholder return that those made in a stronger economy.

Great Recession experience

My only experience with a severe downturn was in 2009 when MSM Transportation was hammered by the Great Recession. Fortunately, we had a solid balance sheet and owned our real estate, but we were bleeding cash and it was hard not to panic.

Our first action was to slash partner salaries to make a statement to our employees. Then we culled bad customers and unprofitable lanes.

Once things stabilized, we focused on scaling our core competencies: expedited LTL from Canada to California, and freight brokerage.

Down to a loyal base of customers, we focused on their needs and found ways to increase their transportation spend. We started three new divisions: trailer storage, air freight, and an LTL service from Los Angeles to New Jersey.

Proud to say that by acting quickly and decisively, MSM came out of the Great Recession smaller but more profitable (and I had a lot more grey hair). Hoping your fleet has the same fate.

Published at Wed, 11 Mar 2020 13:19:32 +0000