Opinion: Small Trucking Businesses Face Challenges
This Opinion article appears in the Dec. 7 print edition of Transport Topics. Click here to subscribe today.
By Donald Barrick
President & CEO
RMP Capital Corp.
This is an interesting period in terms of the latest business challenges that truckers face — especially for “small-business” independent truck enterprises. At first glance, it appears that lower prices have provided notable relief, giving truckers some additional cash that they may not have previously had.
Depending on which oil futures expert you follow, how long this benefit will last is arbitrary. For example, if some war suddenly breaks out, there is some stock market panic or some created shortage erupts on diesel and grades of oil, the prudent trucker should be prepared for the return of higher prices.
A number of factors have entered the truck financing marketplace in the past several years. This is based on the abundance of cash in the sector, combined with extraordinarily low interest rates, where lenders are under pressure to place money and make transactions to show a return.
The economic data for truckers have improved considerably when compared with what was going on in 2007-2008. Projections in trucking for growth and increased financial strength look positive going forward.
According to a recent report by American Trucking Associations, freight volumes are expected to increase 29% over the next 11 years. Trucks transported 9.96 billion tons, 80% of the $700.4 billion of 2014 freight revenue.
Therefore, new factoring entrants — some proactively backed by banks — along with more banks willing to make direct financing deals in this sector has meant competitive, lower rates. At one point — in 2007, for example — factors would buy invoices at a discount, giving the trucker 90% of the invoice amount, charging the trucker a 2.5% fee for every 30 days until the invoice was paid. Compare this to today, where factors are now advancing as much as 95% of the invoice amount — and charging only 1.5% fees on 30 days until the invoice is paid. As part of this, the “backroom,” the software and the matrix for processing trucker invoicing finance has become much more efficient and cost-effective.
By 2007, there was a wave of truckers who literally abandoned their trucks because the debt and economics became so distressed. Within the past year or two, the rejuvenated trucking activity has attracted both newcomers and returnees who are easily able to access leasing terms.
Amidst all of this optimism, there are new concerns and pressures that can adversely affect the bottom line, which truckers should take into account.
The volume of traffic and congestion has increased significantly, especially in major urban hub regions. This translates into increased hours of travel time and an added cost to a job. Given today’s crisis concerning the deterioration of roads, bridges and tunnels, this additional cost is a valid issue.
It becomes even more complicated as many business operations today have become more restrictive on the times when truckers can make deliveries and pickups. If a truck operator does not use realistic travel times and is unable to fulfill the pickup and delivery criteria, all of this can impair profitability on an invoice.
Within the past few years, many municipalities have become much more aggressive on fees, tolls and taxes for truckers. When compared with the very modest 2% inflation that our nation’s economy supposedly experiences annually, increases of 10% to 50% for using highways, bridges and tunnels becomes a threat to a trucker’s profitability.
Several related elements include:
• Increased vigorous law enforcement where municipalities are assessing higher fines for traffic violations or using increased inspections to levy fines even for minor infractions.
• In urban centers, abusive parking fees and fines for loading and unloading are getting to be an appealing revenue stream for municipalities. Truckers, who get hit with a $100 summons, or perhaps even several in a day, find their profits in jeopardy. Some truckers have resorted to using two drivers to avoid receipt of tickets. Of course, then paying for two drivers where only one is necessary becomes expensive.
• Municipalities are raising the costs for licensing, certifications and the production of documents within their respective motor vehicle departments.
• A consequence of the latest increased number of trucks on highways is a serious national shortage of authorized rest stops. Truckers should expect to wind up paying more for rest-stop use.
• There has been a general increase in vehicular accidents and the corresponding liabilities within the past year. Truckers probably should expect a new round of insurance premium increases in the range of 3% to 6%.
These are a few of the many concerns and threats truckers must address. Remember that under the Obama administration, government policies have favored consolidation and the larger unionized truck corporations.
However, comparatively speaking, truckers are enjoying a much improved financial picture in 2015.
Barrick was chief financial officer at CTA Industries, formerly American Rockwool Acquisition Corp. He also was a principal in Barrick and Barrick Inc., a real estate financing brokerage. RMP Capital Corp., headquartered in Islandia, New York, is an international provider of factoring services for small to medium-size businesses.