The next time you are out on an interstate, have a look around at the rigs out there with you. You may notice some bigger names - larger companies whose names you know because they’re so big or they're publicly traded. But after a while you’ll be surprised by just how many different operators and trucking companies there are out there on the road.
So why are so many trucking companies small fleets? First, it’s hard to turn a few trucks into many trucks. The costs of owning a few trucks are huge, and the profit margins are tiny. Large insurance premiums and fuel costs only compound the problem. It takes serious business savvy and lots of luck to become one of the big players in the trucking industry.
Let’s take a closer look at the trucking industry and find out what factors are keeping so many trucking companies from growing beyond 4 or 5 trucks.
What is a Small Truck Fleet
A small truck fleet is considered 6 trucks or less. Over 90% of trucking companies in the US are officially small fleets. Out of the nearly 1.2 million trucking companies in the country, that makes nearly 1 million small truck fleets.
As well, 1 in every 9 truck drivers - and there are nearly millions of truck drivers in the US - is an independent operator. That means in addition to companies with small fleets, there are also hundreds of thousands of drivers operating independently aside from the small companies.
Let’s take a look at what makes companies with small truck fleets keep from getting larger.
The cost to insure a small fleet of trucks is significantly greater than insuring a large fleet of trucks. Fleets with 26 or fewer trucks face triple the insurance costs compared to larger fleets.
When smaller fleets begin to roll the dice with more risk, the ability to grow larger as a company shrinks as even one accident or large deductible hinders their bottom line significantly.
The Used Truck Market
It’s no secret that a smaller fleet is less likely to splurge on brand new trucks - they’re simply too expensive. Scooping up used trucks at bargain prices used to be a winning proposition.
However, one area that larger fleets are beating smaller fleets in is fuel economy. New trucks have much better fuel efficiency than older trucks. That leaves small fleet owners using older technology that is less efficient, and more costly. Yet another reason small fleets stay small.
Even worse, fast forward to 2021, where a global pandemic has seriously upended the global supply chain. New trucks are scarce, which has driven up prices for used semis significantly - up 40% from 2018. Used trucks at auction are particularly inflated with prices up 20% from a year ago.
When used trucks begin to mirror the prices of a new truck, it forces small fleet owners to buy older trucks in worse shape, which is also less efficient. This increases repair and maintenance costs, as well as fuel costs.
All fleets need trailers to meet demand. Currently, demand is through the roof, but the supply of trailers is holding fleets back from meeting that demand. Once again the global supply chain is at fault, held up by the pandemic and creating gaps between manufacturers and suppliers. One of those gaps is the manufacture of trailers.
Larger fleets have more buying power. If they need trailers, they have the purchasing power to negotiate deals that smaller fleets simply cannot. When scarcities arise, larger companies are not forced to delay or stop booking loads.
That leaves smaller fleets in a desperate circumstance - plenty of demand from customers without the ability to deliver loads on time due to a lack of trailers.
We know insurance costs are through the roof for smaller fleets. One of the reasons is the increase in insurance claims over the last few years. There are several reasons for this.
First, there are more new drivers on the road than ever before. New drivers mean more accidents and more insurance claims. And it’s not just drivers - there is a need for everything from a dispatcher to maintenance people. Having an inexperienced staff of any kind will lead to more accidents. More claims drive up insurance premiums.
Similarly, the increase in distracted driving incidents has increased drastically. Whether it’s new drivers or simply the inability of drivers to stay away from technology of all kinds, accidents involving distraction are rapidly rising amongst truck drivers.
Increasing claims driving up insurance premiums hurt smaller fleets the most. They are less able to withstand an increased insurance premium and are thus less likely to hire new drivers or buy new equipment.
The landscape of the oil industry was upended during the pandemic when demand for gas plummeted. This drove many tanker drivers elsewhere as work disappeared.
Fast forward a year later to 2021, and demand for fuel is ramping up. The only problem is that there are not even tankers to carry it where it needs to go. There are plenty of tankers, just not enough tanker drivers. This has resulted in a fuel cost spike.
Can’t tanker companies just hire new drivers? It isn’t that simple. There is a lack of new drivers due to the pandemic - truck driver schools weren’t allowed to operate. This has created a perfect storm for high gas prices.
Once again, high gas prices hurt smaller fleets first. With less cash to throw around than the big fleets, margins shrink even lower as much of that profit is consumed by gas.
Hope for Small Fleets?
There is always a silver lining for smaller fleets. First, small fleet truck companies are growing faster than large fleets by double - 4% to 2%. Finding freight for these small fleets isn’t an issue.
As mentioned above, small fleet owners are assuming more risk and paying less for insurance. Secondly, there are many niche markets that smaller fleets can cater to but that isn’t as profitable for large fleets. Livestock, produce, meat, and flatbeds are all specialty markets that smaller fleets are using profitably.
While small fleets can thrive, growing is another issue altogether. As costs only increase, the small fleets that adapt to a rapidly shifting marketplace and establish a market presence in specific markets will survive.