If your trucking business is experiencing what most carriers are seeing, you’d probably say 2021 has been a solid year. Scratch that, it’s been an extraordinary year. This is because most carriers are having no trouble keeping their trucks loaded and their cash flowing. In fact, some shippers are even paying their most reliable carriers to run empty on the return. Why? Because it alleviates deadhead miles. And this ensures the shipper has available capacity to move their next load.
Riding the Wave of an Incredible Freight Market
For now, the trucker appears to have the upper hand which as history tells us, is very unusual. Many carriers acknowledge this won’t last forever. While the trucking industry is smooth sailing, however, individual carriers are going to ride the wave.
On the other hand, many fleet owners and owner-operators are taking this moment to prepare. After all, the time is now to avoid getting caught on the wrong side of a freight market shift.
A good bet is to put safeguards into place now to protect your trucking business in the future. Ask yourself, what happens when we start to see widespread slipping in freight volumes and freight rates?
We’ve Seen This Before
As we’ve experienced in the past, a market downturn can happen fast, giving the trucker little time to prepare. This phenomenon is so common that it has a name: freight recession. According to the Convoy director of economic research, the freight industry has experienced 12 recessions since 1972. Twice as many as the overall economy.
Knowing that volatility can creep in at any time, here are a few tips a trucking business owner-operator can do to be prepared for the inevitable.
How to Protect Your Trucking Business from a Market Downturn
A simple place to start is by considering all the areas of your business that are mission-critical. Think about your operations and longevity, such as:
- Cash Flow
- Sourcing Freight
- Cost Saving Strategies
- Equipment Financing
This list can certainly go on. However, here are a few priorities that should be addressed immediately to shield your business from becoming vulnerable.
Let’s begin with the obvious. Cash flow is the lifeblood of every business. Without it, you simply can’t operate. In many cases during a freight recession, truckers will continue to carry loads. The issue is their cash flow is set at the pace of the company they’re carrying for.
One way to avoid this vulnerability is by using a factoring service. A reputable factor acts as a middleman between you and the company you’re carrying. This allows you to get cash in advance, rather than waiting until the job is done (and then some).
Right now, finding freight is easy. Carriers are in a position of strength when it comes to bargaining power. The freight market functions very closely to the law of supply and demand.
When freight is plentiful and truck capacity is tight, the carrier has a major advantage. But, when the table is turned, things go back to advantage broker/shipper. Remember 2019? What a miserable year that was for freight rates and freight availability. Many owner-operators noted that freight rates were not even covering their operating costs. As a result, some carriers simply closed up shop.
In this environment, it’s crucial to avoid deadhead miles if you can. MarketFIT can help you find the best markets or lanes to help ensure you can keep your trucks rolling. Direct Freight is another tool to find nearby loads and see the number of days to pay before you take a job.
Aside from reducing deadhead miles, every carrier should have a way to cut down on their largest annual expense: fuel. By using a fuel card, you can receive discounts of up to 60¢ per gallon, depending on the fuel stop.
When the market is lean, these savings can be the difference between breaking even or making a small profit. You can also save on costs through program perks. These include discounts on tires, maintenance, and an online portal to make managing card usage simple. This account also makes it easy to look back on to assist you with fuel tax reporting. A fuel card and account are fantastic tools to reduce expenses and create process efficiencies.
You can also protect your bottom line against a rise in pricing with a loan to purchase or lease equipment. A loan will reduce your cost per unit and boost margins. And truckers are at no shortage of options to finance. When looking for an equipment loan, you can expect an interest rate between two and twenty percent, so choose wisely.
A high credit score can help reduce the loan interest you’ll pay either now or during a market downturn. If your credit score is lower than 650, now is the time to consider ways to improve it.
During your equipment leasing process, it’s best to get a few different quotes and plan in advance. The last thing you want is for your equipment to break down and be unable to finance it. You also want to avoid getting stuck in a cycle of debt with the wrong lender.
While another freight recession is inevitable, you don’t have to go it alone.
Express Freight Finance was founded by truckers who have felt this pain. We’re here to offload any stress when it comes to running your business efficiently.
For instance, we don’t require you to factor all of your invoices. In fact, as a carrier, you are free to pick and choose which customers you want to factor.
Whether the trucking industry tailwinds are blowing in the right direction, a factoring service provides security to your bottom line. You can also use it to take on new customers that were previously slow to pay.
Now, you’re free to kick off a factoring relationship and be prepared to weather the next freight market downturn.