Overcapacity: Maintaining Cash Flow During Low-Demand Periods

A good portion of the trucking industry is currently in a state of overcapacity. While demand has snapped back from the high-capacity demand from last year, revenue cycles have been slowing. To maintain a healthy cash flow, trucking companies are staying away from loans in favor of freight factoring.

What is overcapacity?

In the past year, the trucking industry has experienced a textbook example of overcapacity. One year ago, demand for trucks was high because shippers were trying to move products ahead of tariffs. The sudden uptick in business meant more revenue for trucking companies and owner-operators.

Projections last fall were extremely positive, and many fleet owners started purchasing more trucks and hiring more drivers because this seemed like it was going to be the “new normal.” Now, as we’re in the middle of Q3 2019, the demand is diminishing—or rather, it is going back to a normal pace.

However, the effects are still being felt. Trucking companies are still paying for the vehicles and equipment they ordered at the end of 2019. Revenue targets have been missed due to a decline in demand from shippers.

Despite the strong economy, gas prices and insurance premiums for the trucking industry have not lowered. This has left some trucking companies readjusting their financial projections and trying to maintain a healthy cash flow in this period of lowered demand.

These factors came together to create the current state of overcapacity felt throughout the trucking industry.

Maintaining Cash Flow

With lowered demand, trucking companies are experiencing slow cash flow. Expenses still need to be covered, but with receivables staggered at 30, 60, or even 90 days, that can place a big strain on finances.

Taking out short-term loans to smooth our revenue cycles is dangerous, and the added debt does not help cash flow in the long run. While many trucking companies are avoiding debt-based solutions, others are having great success with freight factoring.

Freight factoring eliminates the wait between client payments, so trucking companies can maintain a healthy cash flow without needing to rely on loans to smooth out revenue cycles.

Express Freight Finance offers the most comprehensive factoring services designed specifically for the trucking industry. We factor freight receivables, provide cash within 24 hours, and offer a whole suite of tools to help manage your accounts. Don’t get caught off-guard in a period of overcapacity.

Contact Express Freight Finance today.