State of the Trucking Industry and Optimism for DTL from Dale Decker, CEO

January 16, 2025
 
Re:  State of the Trucking Industry and Optimism for DTL
 
Dear Team,
 
I would like to take this opportunity to write an “Opinion Piece” sharing my thoughts and feelings about Decker’s current state and the trucking industry as a whole. I haven’t done this before, but I believe today presents a good chance to share my insights and analysis of our industry’s trajectory and our strategies on how to address it. I want to go beyond just describing the industry’s cycle; I’ll also discuss our approach and why I remain optimistic about our bright future ahead.
 
With the announcement of the Missoula, Montana Terminal closing, I understand how rumors spread rapidly within our company and this industry.  These rumors are often fueled by limited or inaccurate information. Let me set the record straight: Decker is not being sold, and the company is not facing financial difficulties. This decision was made after careful consideration and analysis, and it aligns perfectly with our long-term goals and strategic objectives. We made the decision to close the Missoula Terminal based on asking ourselves these questions: Would we build a terminal there now? The answer was no. Can we use the capital in a different location for a terminal that brings more value to our network? Yes. That being said, we had our answer; and making good business decisions is crucial for the survival and success of a good organization.
 
To offer some insight behind the scenes, I want to share with you some of the approaches we have taken in the past, and how we are adapting to this downturn to not only weather these frustrating times, but also take advantage of this time to develop a strategy to build a solid foundation for sustained growth as the market recovers.
 
For years, our business practice has been one of caution to avoid excessive debt and the volatility of interest rates on the cost of doing business with a high debt load. While we may have missed some growth opportunities by taking a risk-averse approach, we have consistently practiced a slow and steady business model that has enabled us to withstand the ups and downs of this industry. This approach has allowed us to overcome many downturns and tough markets in the past, and this one is no exception. However, there are a few key differences, primarily the length of this downturn and the extended period of time that it is taking to turn back around.
 
This approach has been a blessing during this downturn, though it’s not over yet, and I expect a slow recovery. However, we are seeing some encouraging signs coming from both the external freight demand and the internal initiatives that we have implemented and are continuing to work on.
 
I am looking at the cycle in this basic way that makes me feel optimistic - Yes, rates and demand have fluctuated over the past few years; but overall shippers realized about a year ago that rates had reached their lowest point. This realization prompted shippers to try and lock in these rates. Therefore, the industry witnessed a significant increase in shippers issuing RFPs to obtain rate quotes and volume commitment bids from carriers to lock in the low pricing. This strategy benefited some desperate carriers seeking freight by offering low-price quotes. 
 
We did lose some volume with customers during this period. However, my optimism stems from our actions since then. We recognized the need to rebuild our network and seized the opportunity to do so more effectively than before - with a stronger focus on analytics to truly comprehend what constitutes good, okay, and bad loads.  Through this process we price loads accordingly and will continue to do so as we bid freight in the future.
 
Our strategy aimed to optimize freight lanes and volume by minimizing gaps between “good” loads. One approach was to reduce deadhead, and the other was to minimize the need to accept cheaper broker freight to reach our next “good” loads. Part of this process involved reviving an underutilized aspect: good old-fashioned new customer sales (business development). We aimed to expand our network not only with our existing customers but also find better freight options with new customers. These initiatives have proven highly valuable in rebuilding our freight network, and we continue to pursue this strategy.
 
Another source of optimism comes from the feedback we’re receiving from shippers. As I mentioned earlier, shippers often go through the process of requesting for proposals (RFPs) to secure contract rates. However, this can lead them to award contracts to carriers who bid low but may not be able to provide the necessary services or realize that the price is too low. Consequently, shippers are forced to revisit their options and often end up paying higher prices than the initial bid.
 
We are currently witnessing this phenomenon in the market, and it’s where we’re positioned to win awards. In the past few months, we’ve been actively participating in more RFPs than ever before, and we’re securing more awards with both new and existing customers than we’ve ever achieved. This success is a testament to the effectiveness of our new approaches.
 
These initiatives have put us on the right track to recover from the freight market downturn. We’re building a much improved and quality foundation for sustainable growth. I feel an increasing sense of relief that, from both the overall market and internal initiatives, we are headed in the right direction.
 
One statement that accurately portrays the past few years is, “Good times can hide poor practices.” When things are going well, it’s easy to overlook areas that need improvement. This downturn in the market has forced us to examine ourselves more closely than ever to ensure our survival after 94 years. Honestly, we should have addressed some issues earlier. This experience has taught me valuable lessons about navigating one of the toughest times in our industry’s history. Many companies are struggling to survive, and a significant number are not making it due to the strain this has put on them. The situation we are in, stemming from our long-held business practices of avoiding excessive leverage and maintaining good financial health, has been a lifesaver during these times. I feel incredibly fortunate that, among the decisions, changes, and initiatives we implemented in the past couple of years, especially last year, none were made out of financial desperation. Yes, this downturn has been painful and has had a significant impact on us, forcing us to confront many aspects of our business. However, when viewed with an optimistic mindset, I believe it’s the silver lining to “the great freight recession”. It has prompted us to address those areas that were previously overlooked and adopt effective business practices to address the challenges we face. By learning and implementing what we can and should do to be most efficient and effective, we have positioned ourselves for long-term success, as any good business should strive for.
 
As I mentioned earlier, I feel more optimistic now that we are on the right path, with a stronger foundation, due to the changes and initiatives we had to address during this downturn. Now, as the market seems to be recovering and we are beginning to feel the positive effects of not only the general market but also our own improvements, I am confident that we will continue to thrive in the future.
 
In the past few weeks, I have written a few letters to you, our Decker Team. Doing this has always been a challenge for me, especially since communicating through writing isn’t one of my strongest traits. This year, especially with all the changes and initiatives we’ve been through, I feel it is my duty to reach out.  I was humbled by the feedback I received regarding how much you all appreciate hearing from me through my communications and sharing company updates. So, as I said earlier, this is a time of learning and adapting more than ever. And honestly, in writing these letters, I really feel good about being able to share my thoughts and appreciation with you, albeit through a letter.
 
Moving forward, I want to share more communications with all of you. We have some exciting strategies in the works for our growth and how we plan to achieve them! I’m excited about the positive future that lies ahead. There will, no doubt, be struggles and challenges, but I’m confident that after 94 years, we’ve weathered these ups and downs many times. I’m just glad to be riding them with such a great Team as we all work together.
 
One Team, One Goal – “Driven To Be The Best”!
 
Dale Decker
CEO



COMMENTS ON THE TRUCKING INDUSTRY RECESSION:
 

• Coming off the pandemic and all the chaos it caused, we found ourselves in an unprecedented freight market. It was completely unique and unlike anything we had ever seen before. As a result, we had no historical comparison to guide us in understanding what to expect.
• Manufacturing facilities closed, and then they started ramping back up, but slowly. It was a rollercoaster of a situation, with pullbacks followed by upswings, all while facing numerous hurdles along the supply chain. From demand surges to stockpiling of products, from chip shortages for truck components to transportation challenges, the supply chain was in a state of utter chaos. 
• Consumer demand skyrocketed, and companies found themselves in a race against time to meet the growing demand for products that people were eager to buy, even at high prices. Manufacturers and shippers were unable to keep up with the pace, and their products couldn’t get on shelves quick enough. 
• Transportation emerged crucial, with a high demand for our services. Shippers were desperate to get their products onto the shelves and were willing to pay exorbitant freight rates to expedite the process. This surge in demand created a thriving spot market, and many people saw an opportunity to capitalize on the situation. 
• Trucking companies and individuals flocked to the market. However, this influx of new players created a shortage of trucks, as truck manufacturers struggled to keep up with the rapid increase in demand. The truck supply was further exacerbated by chip and other component shortages for trucks, further exacerbating the shortage. 
• With the shortage and the high demand for trucks, prices for both new and used trucks skyrocketed. It was a lucrative market for truckers, and many people were able to justify the high prices by securing loans and making substantial profits. This period of prosperity lasted for a while, but as with all things in our industry, it eventually came to an end. The market slowed down, and the trucking industry faced new challenges. So many people entered the industry that we now had an overcapacity of trucks competing for freight. At the same time, the amount of freight was declining. These two factors combined to cause significant rate reductions. Additionally, many factors related to our business costs continued to rise due to inflation and remained high for some time, leading to the “great freight recession.”        
• Now why is this “great freight recession” continuing for so long? My general opinion on this is - there was a slowdown in demand for shipping but …
  • The Small Business Administration (SBA) provided a substantial $37 billion in small business loans to a select group of small “logistics & warehousing” companies, each employing only a few individuals. For a more comprehensive understanding of this initiative, I recommend referring to this article, which provides further details.
  • “In just under two years, the SBA injected approximately $390 billion of inexpensive credit into the economy, bolstering small businesses’ balance sheets and allowing them to survive the pandemic.
  • FreightWaves asked the SBA how much money went to transportation companies. The answer came back: $37 billion was lent to the transportation and warehousing sector (NAICS Sector 48-49) across 419,500 loans for an average loan amount of $88,200. In sector 48-49, there are 723,573 total businesses employing a total of 726,238 people. Of those people working in the sector, 539,702 work at firms with only 1-4 employees. In other words, the majority of the sector is composed of small businesses, and 58% of them received COVID EIDL loans.” 
• Those who purchased those trucks to capitalize on the peak market freight rates were paying substantially more for both new and used trucks than they reasonably should have. While it seemed acceptable at the time, the market’s subsequent decline caused used truck values to plummet. Consequently, the loan balances for that equipment easily exceeded their current worth. Combining these factors with the decline in freight rates and other business costs made it challenging for borrowers to keep up with their loan payments. Banks found themselves in a precarious situation. They were reluctant to accept the losses on these loans by defaulting and repossessing trucks that were worth far less than the outstanding debt. Instead, they preferred to assist borrowers by offering reduced payments, interest-only periods, or payment deferrals, hoping these options would be the most advantageous for them. 
• My point here is that the capacity that would have naturally left the market during a downturn and then allowed for a recovery to occur was artificially propped up. This advantage is not evenly distributed across the industry. It gives an advantage to those who should have left the market to survive on lower rates, thereby keeping all rates lower for longer across the industry for everyone.

Above is a general overview of the past few years in the trucking industry. Of course, there are numerous smaller issues within the broader industry economic cycle, but this is my perspective.