How Gas Prices are Steering Truck Owners Off an Economic Cliff

  • March 29th, 2012
  • Dan Bischoff

Note: This is a guest post by James Dicamillo, executive vice president of RMP Capital Corporation, a 10-year-old national factor that handles about $70 million in annual deal flow focused on the transportation industry and public works construction.

How Gas Prices are Steering Truck Owners Off an Economic CliffEvery time there is a jump in gasoline prices, small independent truck owners and entrepreneurs seek our help because higher fuel costs destroy their profitability and wipe out their cash flow. RMP Capital Corporation is one of the few national factors in America with a niche for factoring the receivables for this class of truckers.

Unfortunately, the latest episode of galloping increases in the cost of fuel, along with the last such occurrence in 2007, are forcing more of the small independent truckers to either sellout to the large conglomerates, or to shut down and liquidate their assets.

The Federal government has been no friend of the small independent trucker, or entrepreneur here. All of the rules, regulations, and tax issues promoted by Wash, D.C. especially in the past four or five years, are tilted to favor the large national carriers and unionized operations.

Beyond the shrinking sector of independents, it has been a retail buyer’s market based on the miserable economy the last three or four years. Retail corporations and those businesses which are dependent on delivery by trucks, from their perspective want to strike the most cost effective, advantageous deal. And often these load engagements come at the expense of the independent trucker. For example, retailers put deliveries on a tight, ultra-efficient schedule with penalties for missed deadlines and unreasonable demands.

Truckers in financial bind

Today’s truckers are caught in a financial bind because they want the work to justify their capital investment in a truck. Due to ruthless competition and financial pressures which most retailers face today, this sector has become vigilant in holding down their costs on delivery and transport, wherever, whenever (Savings for retailers or manufacturers on delivery/storage can make a difference in their bottom-line and profitability).

Many of these truckers are operating “out of their shirtpockets.” A number of them drive loads themselves while attempting to do management and administration “from the road.” It leads to an owner/entrepreneur making hasty decisions rather than an analyzed approach on whether or not said load or “one shot” delivery is actually going to be profitable.

It is risky for a small trucker to come under the undue influence of a freight broker. A broker with a history of slow or non-payment, or who distorts the scope of a shipment, could be ruinous to the trucker.

Truckers getting business financing

For the smaller trucker, factoring invoices, receivables and bills of lading generated to distributors and retailers, is one option to navigate cash flow and working capital issues. The factor takes on a back office function which then enables the trucker to focus on bringing in more business to handle navigation and operations. These functions which can be performed by a factor focused on trucking include: access to fuel cards and rebates at discounted prices, debtor credit reports, detailed reporting systems which monitor accounts receivable and expenses, collections of past due accounts, and bond filings as needed.

If a trucker goes the factoring route, check the factor’s past experience in truck transportation which includes its memberships in recognized trade organizations like the International Factoring Association or the Commercial Finance Association. They have subscribed to a code of ethics established by the organizations. Also, factors in this niche will typically make themselves known among the various state truck owners’ associations. It is wise to verify a factor with two of their recent clients who can provide references.

The modest decline and stability of gas prices the past three years did offer a little relief, but a false sense of security and optimism. Right now, it is becoming extremely tough for the trucking industry as a whole and the giants are much better prepared with their cash flow to weather this inflation storm. The little independent is in a fight for survival.

About the Author

  • Dan Bischoff

Comments

  1. “It leads to an owner/entrepreneur making hasty decisions rather than an analyzed approach on whether or not said load or “one shot” delivery is actually going to be profitable.”

    This statement is the crux of why smaller companies are at great risk- in general they operate on the spot market. This is controlled, for the most part, by brokers who tout expertise and knowledge of the marketplace to shippers (the real buyers of the services) effectively being a gate keeper between small and individual trucking companies and the loads they haul for revenue. Brokers have become large, sophisticated entities that give a price to the shipper recieve the largest profit by negotiating the smallest price for the movement of goods. The result is shippers are getting poorly maintained equipment showing up at their dock- the broker further digs into the pocket of the trucker by charging for fuel advances, quick pay and fining these companies for any broker rule not followed.

    Brokers are causing thier own demise by reducing the number of small trucking companies and owner operators that they use for filling orders on the spot market. They are getting a lot of help from the Department of Transportation who target such companies for onerous inspections and incredibly difficult to follow rules and regulations that are tough to decipher. This imbalance is primed for someone to level the playing field for owner operators and small trucking companies…

  2. My comment is a solution to high gasoline prices please read. I need your readers to join.
    Before I tell you what action to take let me talk of some basic facts in the game of oil prices.
    1. The price of a barrel of oil is determined in the commodity exchange where hundreds of traders mostly small buying barrels of oil for their customer. The major oil companies do not get involved. (Bill O’reily learns something). Most traders are looking for outside news to determine the direction of the market. Large traders buy tanker’s full and keep it on high water until the price reaches the level of profit when they sell it. Since the Middle East is unstable news could be used to drive oil prices up and down. Supply and demand are a small factor, political news make a much larger forces in determining the price of oil.
    2. Major oil company have their own production and whatever they don’t send to refineries they sell on the open market to whoever is buying at the market price. Since the average cost of production is around $20.00 per gallon, any price above that cost is a profit. And since the price of oil hanged over that figure for the last 15 years, the 5 majors making a huge profit in the billions.
    3. The majors have agreement with the refineries as to the quantity of gasoline they are willing to buy on a weekly, or daily or monthly. Even if the refineries belong to the majors those numbers are very important as they control the cost of production, (number of employees, how many refineries machine are working, over time and others) The major do not make much of a profit on refining, there profit is based on the price of a barrel of oil. They need the refineries because that is the outlet for their oil by distributing it to the stations and the public by gasoline. (Not raw oil)
    4. Each refinery has a storage area to contain the gasoline available for distribution. Trucks are continuously load gasoline and distribute the gasoline nationally.
    5. Using these factors in working a plan to reduce the price of gasoline is what I suggest we do.
    6. We start with EXXON/MOBIL, at $2.00 per gallon Exxon would still make about 10 Billion profits a very nice figure to show around. So we enjoy a reduction in the price of gasoline and Exxon still is very profitable. We are not asking Exxon to drop the price. We are forcing Exxon to drop the price. HOW? By not buying from Exxon in the next 5 to 10 days. We buy from the others but not from Exxon. What happened to Exxon? Beside lack of revenue, they are going to have problems with storing the refine oil that cannot be distributed. What are they going to do they going to drop the price to attract us again. When they do that we stop buying from Chevron, the same thing is going to happened to Chevron and they too going to drop the price below Exxon, so we do the same thing to Shell and then to Citgo and then Valero. We start all over again, until we arrive at the $2.00 per gallon. If they try to move prices up again we do not wait but start all over again to bring it back to $2.00.

    • Sorry YIGAL, that’s not how it works, you will only hurt the most likely independently owned gas station. The reason it cannot work, is because the refined product is sold on the open worldwide market, so it doesn’t matter much if you go to a different gas station, they will still sell their gas somewhere.