Top industry analysts are expecting a very strong market and an improving environment for trucking companies to achieve greater profitability in 2021. The rollout of vaccines marks the beginning of the end of the COVID-19 crisis. Trucking experts are anticipating a surge in freight volume as retailers restock depleted inventory and manufacturing ramps up. Forecasts are predicting TL contract rates to rise close to 10% and spot rates to increase as the economy rebounds. Shippers are bracing themselves to pay similar rates as in 2018 when freight demand was high and capacity was tight. This is all good news for truckers – or is it?
Despite market conditions being ideal, trucking companies have barriers to success they need to overcome. Increased competition from an explosion of new owner-operators onto the market, a worsening driver shortage and rising fuel costs are some of the most significant obstacles to navigate. This article is intended to help you ready your trucking company for a busy year with high profits. Following are 7 of the most common barriers to success trucking companies need to manage and overcome:
- Poor Cash Flow
Establishing financial stability by creating sustainable cash flow is the foundation of longevity and growth. Having easy access to working capital to support operations and pay bills is a monumental advantage for trucking companies struggling to keep up with expenses. In most cases, it’s not the lack of revenue that threatens a company’s financial stability, its delayed payment of invoices that causes the most harm. In an industry known for having slow paying customers, maintaining steady cash flow is nearly impossible with huge daily operating expenses and aging receivables. A simple, fast and convenient solution to this problem is freight factoring. This mainstream financial strategy is being utilized by a growing number of trucking companies to convert accounts receivable invoices into immediate cash. This ability to deliver a load, invoice the customer and receive cash payment within 24 hours is the quickest path to positive cash flow and financial stability.
- The Driver Shortage
To grow and prosper, trucking companies need to recruit and retain good drivers. In order to pay well and build company loyalty, trucking companies must be able to faithfully meet payroll on time and without issue. To do this company owners need sustainable cash flow and a robust driver program to incentivize safe driving and good customer service. Partnering with a specialized factoring company for trucking will ensure positive cash flow and enable the uninterrupted distribution of driver wages each pay period. Few incentives for company loyalty speak louder than a regular and reliable paycheck, whereas a missed payroll is the fastest path to mass resignations. Pay your drivers their market worth on time, treat them with respect and your company will attract good drivers and maintain a strong driver pool.
- Rising Fuel Costs
The coronavirus pandemic had at least one positive effect that helped trucking companies manage costs better – fuel prices plunged by over a dollar per gallon since its high point in 2018. Now that the economy is turning around, fuel prices are coming back with a vengeance and predicted to keep going up right through to summer. As the cost of diesel is the largest operating cost for any trucking company, controlling fuel expenses is critical. Truck company owners depend on the powerful savings and ease of use fuel card programs provide to lower expenses and monitor usage.
eCapital provides a convenient to use fuel card program for one truck companies, 300 truck fleets and every fleet size in between. Providing significant discounts on the cost of diesel at major truck stops across North America and Canada, the eCapital fuel card is the ideal solution to save cost, track expenses and prepare for tax reporting. Fuel cards will benefit your trucking company with huge savings each month to bolster your bottom line and credit terms to help manage cash flow.
- Underutilized Equipment
To maximize profitability, trucking companies have to maximize equipment utilization. An idle rig is eating up costs as lease payments, insurance, and depreciation continues to suck money out of it. Aggressively seek out new customers and lanes to service. This will establish reoccurring revenue that becomes your bread and butter and help to improve cash flow. Ideally, you want to have dedicated lanes to cover the back haul, but if you’re like most operators you’ll need to utilize load boards for this purpose. Use slip seating, teams and any other strategy you can think of to get maximum use out of each truck your company operates.
- Loads, Loads, Loads
Despite all the good news with high expectation for growing freight demand, booking a steady stream of loads is no small feat. Competition is stiff as a record number of new entrants to the market are registering for their authorities every day. Don’t think short term when approaching this task, think long game – you should be focusing on looking for clients and relationships rather than trying to book one load at a time from load boards.
Identify shippers in your territory and start contacting potential customers directly. Call or email them to get more information about new opportunities. Stock yourself with a supply of promotional pens having your company’s logo and phone number on it and visit the shippers you want to haul for. Talk to them, start a relationship and leave your pen behind – before long you will start hearing back from a few of your perspective clients and start building a customer base.
- Affording Your Next Truck
When it comes time to replace your existing truck or add new trucks to your growing fleet, consider the benefits of leasing over buying. Few truckers have the cash reserves to purchase a power unit outright. Try getting a commercial bank loan to manage the purchase and be prepared for a flat out rejection of your loan application. Banks are tightening credit even more and for the most part are only accepting loan applications from large corporations. Small business needs to find alternate sources of credit. Asset backed equipment loans from alternative lenders is an option, but today’s fleet managers are opting more towards leasing. Finance leasing and full service leasing options provide a more flexible strategy for keeping up with quickly advancing equipment technologies. Combine leasing with freight factoring and trucking companies have an easy to manage acquisition strategy with reliable cash flow to back it up.
- Failing to Watch The Numbers
Owning a trucking company involves greater skill then simply knowing how to drive a truck and keeping customers happy – attention to detail is an absolute necessity. Maintaining regulatory compliance, controlling costs, maintenance upkeep, finding loads, keeping drivers – all these are top of mind concerns to occupy a business owner’s head. But failing to watch the numbers can be the silent killer that sneaks up on you without warning to sink your company. Here are a few of the most important metrics to monitor:
Cost per mile: One of the most important things you can do before you negotiate a rate per mile with shippers and brokers is to calculate your company’s cost per mile (CPM). After all, you cannot possibly expect to turn a profit if you have no idea how much it costs to deliver a load. Knowing your cost per mile means knowing every single cost that is expensed as you pick up and deliver. Every mile (loaded or empty), every repair, tire purchase, even every cup of coffee while on the road is accounted for. Only with this level of detail can you calculate your cost per mile and establish a freight rate that’s competitive and profitable.
Key performance indicators: to reach success, your trucking company should have a business plan with goals and targets to achieve. Establishing and monitoring key performance indicators (KPIs) is the best means to monitor progression towards your strategic goals. Like following GPS directions, KPIs will tell you if your company is on target or if you will miss the goal. Regular monitoring will provide the information you need to foresee your company’s success or failure.
Collect invoices faster: You deliver on time, make sure you get paid on time. Accounts receivable invoices are your company’s most valuable assets, yet they are doing you no good at all until they are paid. To get your invoices paid faster, set up an invoicing system for issuing, tracking and prompting early payment. Perhaps you’d prefer to be paid immediately without hassle or worry – use freight factoring to convert invoices into same day cash.
2021 and 2022 are shaping up to be two great years in trucking. Be sure you are well positioned to keep your trucks rolling and maximize profits on every haul. For more information on freight factoring and how a specialized factoring company for trucking can help your business succeed, visit eCapital.com.