How Gas Prices are Steering Truck Owners Off an Economic Cliff
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.
Every 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.