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Business Credit for the Trucking Industry: Part One

Overcoming Common Trucking Small Business Challenges

Trucking companies face a multitude of challenges, from skilled labor shortages to cash flow problems to intense regulations. Small business trucking companies often struggle the most and are being pushed out of the industry by larger entities.

Demand for trucking is driven by consumer spending and manufacturing output, and the profitability of individual companies often depends on having efficient operations. Large companies have advantages here – in account relationships, bulk fuel purchasing, fleet size, and access to qualified drivers. Because of this, the US trucking industry is fragmented: the 50 largest companies account for 40 percent of revenue.

50 of the largest US trucking companies account for 40% of the industry’s revenue.
 

However, small trucking companies can still find ways to compete. In addition to offering fast turnarounds and servicing smaller, local markets, small trucking companies can build their business credit files to help win lucrative contracts, better manage cash flow, and get higher credit limit recommendations.

 

Business Credit for Trucking Companies

Business credit can help solve for some of the biggest challenges facing the trucking industry, especially small business trucking.

Challenges:

  • Customer Concentration – Many trucking firms receive a large portion of business from just a few big customers or customers all in the same industry.
  • Driver Shortages – Hiring and retaining qualified drivers is a consistent challenge in the trucking industry. Many of the industry’s workers are approaching retirement age, but long hours and relatively low wages have made it difficult for companies to attract new employees.
  • Freight Theft – Every year transportation providers have billions of dollars’ worth of goods stolen. Truckload carriers are particularly vulnerable because their cargo can be easily identified and targeted.

Why Building Business Credit Can Help

  1. Competition for customers is stiff in the trucking industry, but by being a company that has the strongest business credit scores and ratings, a smaller company could show it poses the least amount of risk.
  2. Leveraging business credit to win more contract bids could mean increases in revenue and the ability to pay workers a higher wage, helping a smaller company attract and retain quality workers.
  3. Business credit can help a company get more favorable insurance premiums, which may prove useful in the event of stolen goods. A smaller company may be able to leverage strong scores and ratings to get more extensive coverage and be better protected from loss due to theft.

Cash Flow Management is Critical for Truckers

In addition to the challenges above, the trucking industry is also vulnerable to seasonal and economic cycles that make cash flow and capital two prominent challenges.

  • Demand Tied to Economic Cycles: Profitability in the trucking industry is closely tied to the volatile health of the national economy. Drops in construction spending, consumer confidence, and industrial production can negatively impact trucking profits.
  • Vulnerability to Fuel Price Increases: Fuel, like labor, is one of the trucking industry’s highest operating costs. Diesel fuel can account for 15 percent or more of revenues and rising fuel costs have reduced the number of small and midsized trucking companies. Unable to negotiate bulk fuel rates, small businesses are more vulnerable to price hikes.
  • Finance & Working Capital: Cash flow is somewhat seasonal, as many shipments are made prior to the winter holiday selling season. Bankruptcies are common in the trucking industry and are closely correlated to the cost of diesel fuel. Rapid price increases for fuel can create critical cash flow problems, particularly for smaller companies.

Commercial Trucking Companies - Business Credit Strategies

The average US retail price for diesel and regular gas rose 30% and 25.8% respectively, in the week ending July 16, 2018, compared to the same week in 2017.
 

  1. A company’s business credit file can be a huge asset for managing cash flow, getting a higher credit limit recommendation, and getting financing.
  2. To survive economic changes, a small trucking company may need to get a loan or some other type of financing to cover rapid changes in cash flow or increased regulatory costs. Lenders often check business credit files before determining loan recipients or loan amounts. Strong business credit can help a company get a loan, receive a higher loan amount, or get more favorable interest rates.
  3. Having strong cash reserves can help offset a rise in fuel costs, and a company’s business credit file could help make it less expensive to borrow for short-term cash flow crunches or avoid unfavorable short-term financing all together. (Plus, strong cash flow indicates a healthy, reliable business, which could help when bidding on contracts.)

 

While the trucking industry faces some unique and complex business challenges, there are still many ways these businesses can compete and thrive. Even small business trucking companies can leverage business credit to enhance their operations and strengthen their business. Business credit can help challenging industries like trucking solve for cash flow problems, uncertainty, theft, and labor shortages. Learn more about building and leveraging business credit.

Stay tuned for part two in this series: “Business Credit for Carriers and Forwarders”

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