Top Three Financial Challenges Trucking Companies Face This Summer – and How to Manage Them
Fact-checked by: Bruce Sayer
2023 has already been another challenging year for the trucking industry. Hopes of a year of transition — from oversupply to a balanced market – haven’t materialized and short-term forecasts don’t look promising.
Current market conditions are wearing down trucking companies’ ability to turn a profit and stay ahead of financial obligations. Many are on their last legs, trying to hold on till more favorable rates and demand return to the market. Carrier bankruptcy is rising and is expected to increase even more during the second half of the year. To successfully navigate the final phase of a down cycle, trucking companies need to be efficient and disciplined, but above all, maintaining financial stability is paramount!
Learn the top three financial challenges facing trucking companies this summer and how to maintain financial stability through continuing market turmoil.
The top three financial challenges for truckers this summer
Until the freight market steadies, trucking companies must focus on managing the following top three financial challenges:
1. Insufficient working capital:
One of the most common reasons businesses fail include a need for more working capital or funding. A lack of working capital makes it hard for a company to pay for day-to-day operations leading to service issues and failures.
Trucking businesses that rely on external financing to support operations and meet financial obligations must ensure they comply with the terms of their loan agreement to maintain funding. For those that use bank financing, this means honoring the loan covenants that govern continued qualification and regularly reporting financials to provide the lender with business oversight.
If the bank recognizes increased risk due to poor financial performance, it may act to restrict further credit or, worse, recall credit and terminate the loan. A sudden withdrawal of bank financing can lead to bankruptcy if no other funding is available. This is especially true in low-growth economies like the one we’re experiencing so far in 2023.
To ensure continued funding, many trucking companies will convert to the more flexible terms of alternative financing. Alternative lenders deliver easy-to-manage cash flow and working capital solutions with minimal lender oversight and few loan covenants. Freight factoring is a mainstream financial strategy commonly used to improve cash flow. Equipment refinancing is a method used by asset-based carriers to leverage the equity tied up in working equipment to obtain a significant injection of working capital. Both funding options are easy to qualify for.
Even with marginal profit levels, carriers can maintain funding to meet financial obligations and avoid bankruptcy.
The difference between bank financing and alternative funding solutions will significantly impact the financial stability of trucking companies over the remaining months of 2023. Trucking companies with bank financing are well advised to monitor loan covenant compliance carefully, plan and execute turnaround strategies if needed, and prepare to quickly transition to flexible alternative lending solutions in the event of a credit recall.
2. Lagging profits:
Weak demand, low rates, high competition, and inflated costs are battering carriers’ profit levels. Long durations of low-profit levels are wearing down trucking companies – many are on their last legs! Despite the enormous challenges, trucking companies need to improve contributions to their bottom line.
To improve profit levels, trucking companies must focus on the only three actions that affect the bottom line:
Establish profitable rates:
Now is the time to micromanage your business. Know every dollar you spend to operate and watch the market closely for competitive rates.
- Know your cost-per-mile and recalculate it regularly. Your company’s unique cost-per-mile represents the combined fixed and variable costs your business pays to perform services, cover overhead, and pay for over-the-road expenses. Knowing your cost-per-mile is essential to establishing a rate-per-mile that will produce a profit.
- Use load boards to monitor competitive rates.
If you can’t produce margins, you don’t have a business! Your freight rates must be balanced to be higher than your company’s cost-per-mile but low enough to be competitive.
Reduce costs:
A dollar saved has more value than a dollar earned. Every dollar saved directly contributes to your bottom line and gives you more runway to be more competitive with lower rates while maintaining margins. Manage costs carefully and find ways to reduce expenses.
- Plan routes carefully to minimize miles, traffic congestion, idle time, and over-the-road expenses.
- Improve fuel economy by coaching drivers on fuel efficiency, maintaining proper tire pressure and equipment maintenance. Integrate fuel-saving technologies and implement a fuel discount program.
Drive more paid miles:
Every loaded mile driven adds more revenue. Maximize equipment utilization by hauling more loads, covering the backhaul, and avoiding deadhead miles. Use a load board that features quality loads, work your network of freight brokers, contact shippers, and sell, sell, sell!
3. Erratic cash flow:
It is a capital-intense industry with excessive daily operating expenses. Maintaining regular cash flow is essential to paying bills, driver salaries, over-the-road expenses, and the multitude of unexpected costs that always seem to appear. When the stream of incoming cash is insufficient to meet the outgoing cash needs of your business, daily operations get bogged down, suppliers become less responsive, and budgeting becomes unpredictable.
Make all efforts to establish regular, dependable cash flow you can count on. Resilient trucking companies ensure steady cash flow by using freight factoring to convert freight bills into immediate cash.
Efficiency and discipline are needed to sustain financial control
Access to working capital, healthy profit margins, and establishing regular cash flow are foundations of financial stability, but more is required to ensure the success of your trucking business. Efficiency and discipline are needed to sustain financial control.
Efficiency:
From increased productivity to simplifying your administrative tasks, efficiency on all levels of business is vital to reducing waste and maximizing returns. You may be hearing more and more about transportation management systems (TMS). These logistic platforms leverage technology to help trucking companies plan, execute and optimize freight movements. Take the time to research these time-saving administration tools. Then start using a robust yet easy-to-manage TMS software to manage all aspects of your loads, from pick-up to delivery, to ensure the shipment is compliant and proper documentation is available. Whether you’re on the road or in an office, use a convenient TMS app to:
- Stay informed of load status
- Pay drivers
- Invoice customers
- Factor freight bills
- Perform customer credit checks
- Manage IFTA reporting
Create habits, routines, and automatic mechanisms to support efficiency by doing the right thing repeatedly. Lean on trusted partners to provide guidance and resources. A leading invoice factoring company specializing in transportation is one of the most resourceful service partners available to trucking companies. Their expertise, technologies, products, and tools help to streamline tasks and save time, allowing truck company owners to focus on their core business.
Conclusion
Until conditions improve, trucking companies must focus on financial survival to make it to the next upcycle.
Ensure your trucking company performs at maximum operating efficiency and from its optimum financial position. Focus on maintaining competitive rates, reducing costs, and driving as many loaded miles as possible to improve revenue and profits.
Work with a flexible alternative lender experienced in transportation financing to maintain reliable cash flow and maximum access to working capital.
Manage finances carefully, be efficient, and work hard but safely to stay profitable and survive a rocky season of the freight market
For more information about how freight factoring supports your trucking company through changeable conditions, from economic uncertainty to business growth opportunities, visit eCapital.com
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
eCapital Corp
eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.