If your trucking business is experiencing what most carriers are seeing in the industry, 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. In fact, some shippers are even paying their most reliable carriers to run empty on the return, alleviating some of those deadhead miles just to ensure the shipper has available capacity to move their next load.
Riding the Wave of an Incredible Freight Market
Right now, the trucker appears to have the upper hand, which as history tells us, is very unusual. Many carriers acknowledge this likely won’t last forever, but while the trucking industry is smooth sailing, individual carriers are going to ride the wave.
So, what is the best approach to ensure you don’t get caught on the wrong side of a market shift?
A safe bet is to put safeguards into place now to protect your trucking business. 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 for continual business. In fact, 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 any time, here are a few tips a small or mid-sized carrier 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 to your operations and longevity, such as:
- Cash Flow
- Sourcing Freight
- Cost Saving Strategies
- Equipment Financing
This list can certainly go on, but these are a few of the most common priorities that should be addressed immediately to shield your business from becoming vulnerable.
Cash Flow
Let’s begin with the obvious. Cash flow is the life blood of every business. Without it, you can’t operate. In many cases, truckers will continue to operate, but their cash flow may come through at the pace of the company they’re carrying for. One way around this is to use a factor that can act as a middleman between you and the company you’re carrying for to provide the cash in advance.
Sourcing Freight
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. Express Freight’s MarketFIT can help you find the best markets or lanes to help ensure you can keep your trucks rolling.
Cost Savings
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 via program perks such as discounts on tires and maintenance, and an online portal to make managing card usage simple. Not to mention, having an account you can look back on at year’s end to assist you with fuel tax reporting. All in all, a fuel card is a fantastic tool to reduce expenses and create process efficiencies.
Equipment Financing
Getting a loan to purchase or lease equipment can help protect your bottom line against a rise in pricing. This can help 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 a loan interest anywhere between two and twenty percent, so choose wisely.
One way to reduce the loan interest rate you’ll pay now, or down the line in a market shift, is to be sure your credit score is in good shape. 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 well in advance. The last thing you need during a market downturn is for your equipment to break down and be unable to finance it, or be 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, founded by truckers who have felt this pain, is here to offload any stress where it comes to running your business efficiently.
With our program, there is no requirement that all invoices are factored. In fact, the carrier is free to pick and choose which customers they want to factor.
Whether the industry tailwinds are blowing in the right direction or not, you’re able to set up a freight factoring program with us and only use it on the shippers and brokers that pay slower. This could also be a way for you to take on new customers that were previously out of reach due to slower pay terms.
With no requirement to factor all of your loads, you are free to kick off a factoring relationship now and be prepared to weather the next freight market downturn.