In 2014, trucking was in pretty good shape. An increase in shipping demand, combined with a shortage of trucking capacity, helped boost load rates and drove more revenue for most carriers.
Today, the trucking industry is in the middle of a slowdown. A mild winter in early 2016 did nothing to increase freight tonnage from shippers who are skittish about the economy. Today, instead of a capacity shortage, there are plenty of trucks and equipment available, fuel is still cheap and load rates have taken a hit.
Business might be slow right now for your trucking company, forcing you to make some tough decisions. Fortunately, there are many tactics you can implement to get through the tough times and prepare for a friendlier market. Here are nine strategies you might consider:
Devise a Backup Plan
Veteran fleet owners and independent owner-operators who have lived through a few cycles in the trucking business know that the good times do not last forever. To protect your company and your employees, you need a Plan B that you can put into action during the lean times. What kind of work can your people and equipment do when rates and traffic are down in the lanes you usually serve?
In coming up with an effective backup plan, you need to pay careful attention to the market. What areas of the country are seeing better growth and freight movement? Could your fleet benefit from serving different shippers and population centers that have higher demand? If you lease most of your fleet’s equipment, would now be a good time to shift into a different trucking mode that is moving more tonnage at better rates?
While most of the trucking industry is experiencing a slowdown, there are still good opportunities. Big fleets are outsourcing as much as 42% of their freight to smaller carriers. Short-haul and parcel carriers like UPS and FedEx are thriving from the expansion of ecommerce. Can your fleet play a role in one of these expanding areas of the market? While times are tough right now, this might present a chance to retool your fleet while putting your drivers and power units to work.
Find New Income Streams
Using your connections and familiarity with the trucking business can help you generate some cash on the side. One way of doing this is by becoming an agent for RTS Financial. When you refer a friend or a business contact to RTS Financial’s factoring services, you receive a commission each month for as long as your referral remains an RTS Financial client. It is an easy way to generate steady income with very little effort on your part. To learn more about this opportunity, visit our Agent Program page.
Analyze Your Cash Flow
You need to know how much money moves through your company and if that cash flow is going to be enough to sustain it. Do you have any money left over after paying your bills and one-time expenses? If your company is not yet profitable, you need to know your break-even point. Your company is breaking even when revenue equals all of your fixed and variable costs. You need to determine a profit margin that funds your company while also allowing you to put some money away to get through the lean times. For more information about financial statements and cash flow, read our guide, Financial Management for Trucking Companies (link to guide page).
Set Realistic Revenue Goals
One mistake some trucking fleets made two years ago was trying to grow too fast. Today, some of those businesses are cutting jobs or closing their doors. If your company is still new to trucking, study your market and develop some revenue goals that are ambitious but achievable. Have a plan for how you will handle that growth through available cash, headcount and assets. Likewise, plan to have some cash on hand when new business opportunities dry up. Growth is good, but it will initially drain cash and other assets. Be careful when planning your company’s growth.
Stay Liquid
When times are good, it is tempting to pump all of your profits into buying new equipment and adding headcount to your company. The smarter play is to put a portion of that money into investments that can be liquidated when your company needs the cash. Work with a certified public accountant (CPA) or a financial planner to build a portfolio of stocks, bonds and mutual funds where your money will grow until you need it. Another approach is to invest some earnings into real estate, though it is not as liquid as the stock market. Volatility in the real estate market might mean you have to cash out when your holdings have lost some of their value.
Reduce Costs
Now is a good time to explore areas where you can cut spending without damaging your business. Take a critical eye to fixed costs like office space, payroll, equipment agreements and service providers. Can you lease less-expensive office space? Can you outsource some of your back-office functions to companies that specialize in that work? Even something as simple as switching telecom providers can potentially save your company hundreds of dollars per month.
Consider doing away with anything that is not essential to your business, from the copier you never use to the breakroom coffee machine. For contracts that are up for renewal, try renegotiating terms that are more favorable. Finally, as an alternative to layoffs, consider implementing a temporary, across-the-board salary reduction. Your employees will appreciate your keeping them on the payroll. That goodwill may pay off for your business when the market improves.
Know When You Need Financing
The right time to seek outside funding is before the point when your company desperately needs it. Avoid the mistake that many business owners make by waiting too long to get financing.
Understanding your company’s strengths and weaknesses, your available cash flow and your market are essential. Do you need capital to survive a downturn or to purchase equipment and trucks? Different stages in your company’s life can call for different forms of financing. Factoring, or accounts receivable financing, may be a good fit because you incur no debt and there are no limits to the amount of funding (link to “What is Factoring article).
At other times, you may be willing to take on debt to fuel your company’s growth. It is important to plan your debt so that it follows the life of the asset it is financing. For example, taking out a five-year loan for equipment that fully depreciates in three years is a bad financing strategy.
Manage Risks
Calculate the benefits of financing for your company (growth, sustainability) against the risks (debt, default). Can your company afford to take on debt? How much should you borrow? Are you comfortable putting property, equipment or even your own home up as collateral? Could your company survive if you default? Explore all your financing options, from alternative lenders to banks, to find the right fit.
Also, take a strategic approach to managing your assets. Does your company really need brand-new trucks and equipment to operate effectively? New equipment often requires big down-payments and interest that can eat up your cash flow. Equipment lease agreements are more flexible and require less working capital.
Seek Advice from Reliable Sources
Building a first-rate company that endures ups and downs in the trucking market will require some outside expertise. You need to assemble a team of advisors who know your industry and have more than just a monetary interest in your company’s growth. This team can include bankers, CPAs, financial planners, legal counsel and other lenders like a factoring company.
Not all of your advisors need to come from the legal or financial community. You can benefit from friendships with other fleet owners who are veterans of the industry. Seek out mentors and consider forming an advisory board of entrepreneurs. You will need some outside help in building a business that will last in the challenging trucking industry.
Sources: Entrepreneur.com, SBA.gov, OpenForum.com, FleetOwner.com, The New York Times