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Oct
18
2010

small independent truckers confront financial challenges

Posted by in Transportation Factoring

The following article written by James L. DiCamillo, Executive Vice President of RMP Capital Corp was recently featured by “Refrigerated Transporter” a publication by Penton Media, Inc.

Yes, gasoline prices have somewhat declined and stabilized for truckers, when compared with the crisis two years ago. The same can be said for the higher insurance costs that are now generally being mutually absorbed by the insurance and trucking industries.

All of this has not translated into any real economic improvement for the nation’s small business independent truck owners. The playing field is tilted to benefit the large trucking corporations for the foreseeable future. There are additional monetary complications for refrigerated truckers and operators dealing with perishable or temperature-sensitive inventory.

The trend is that small operators and entrepreneurs are selling out to the giants. Some of them become subcontractors grabbing one-shot load gigs to survive. They make a living and survive but with no real profit nor savings, and it is very difficult for the small independent to protect any asset value or equity in their vehicle investment.

It is dangerous for a small trucker to come under the thumb of a freight broker. A broker with a poor payments record, or who may misrepresent the scope of a shipment, could be very damaging to the trucker.

Especially in the past year, increased pressure on small operators comes from retailers that demand inventory deliveries on such a tight, ultra-efficient schedule. It can be unreasonable for the small trucker to perform service and meet demand. For refrigeration truckers, there is extra stress through higher costs and performance. Delivery time and spoilage can result in big offsets and short pays on invoices. These circumstances are very hard to predict. (For example, variables may include weather, accidents causing traffic tie-ups, or extensive roadwork with detours.) It is imperative they stick to delivery schedules to avoid this.trap.

It also means deploying good-quality drivers to ensure proper delivery times and specs to avoid offsets. Many refrigerated loads delivered by carriers are exempt from bond claims. Therefore, the refrigerated trucker is better off playing conservative by only dealing with quality customers.

Refrigerated truckers must take into account how extra maintenance costs on the refrigeration unit could affect cash flow. If the unit were to fail, it would cause losses for spoilage. If the unit has problems and is not dependable, the refrigerated truck owner cannot take a chance. Sometimes quick cash is needed to keep a maintenance schedule up to date and to budget for quick, unforeseen repairs. Obviously, the cost of regular maintenance and emergencies, perhaps, represents the income on several loads.

Again, the larger transporters are in a more gainful position to adapt for retailers in these situations.

For the smaller and entrepreneurial truckers, factoring invoices and receivables generated to distributors and retailers is one alternative to balance cash flow and working capital issues. For the trucker who is essentially keeping his numbers and figures “in his shirt pocket,” the factor takes on a back-office purpose, which then enables the trucker to focus on bringing in more business and handling operations. These tasks that can be performed by a factor focused on trucking include: access to fuel cards (which can be used for repairs) and rebates at discounted prices, debtor credit reports, detailed reporting systems that monitor accounts receivable and expenses, collections of past due accounts, and bond filings as required.

If a trucker decides to factor, they should verify the factor’s previous encounters (several references) in truck transportation which includes its memberships in recognized trade organizations like the International Factoring Association or the Commercial Finance Association. Factors who are members have identified themselves with those organizations’ code of ethics. (If the factor being considered is not a member, there should be a valid reason.) Also, factors serving this sector will generally interface the various state truck owners’ associations.

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