Be Careful When Buying Equipment
By Bruce Sayer
Following years of monetary restraint, many trucking companies are now better positioned to take on the financial responsibilities of updating their working equipment. But long term debt to facilitate such investment is a matter to be considered carefully. The economy is performing well as we head into the summer of 2018, but for how long?
At the recent Truck World trade show, held in Toronto last April, an atmosphere of levity and optimism seemed to fill the venue. Confidence ran high as industry stakeholders felt assurance that market conditions now favor freight carriers, providing the environment for trucking company owners to generate substantial profits. Year-over-year trends support this sense of confidence. Contract rates have grown substantially with long distance truckload prices reaching near multi-year highs and LTL rates increasing nearly 8% over the past 12 months. However, there is reason for caution.
Freight rates have levelled out for the second straight month, following the big rate gains that occurred in January and February of this year. Are the minor rate changes experienced in March and April evident of an overheated economy about to slow down, or is it the calm before trends take another upward spike? The disconcerting answer is; nobody knows with certainty.
Canada had solid economic growth of 2.9% in 2017 following a decade of many setbacks. According to the World Trade Organization it is forecast to touch 3.2% in 2018. Canada’s open economy is very dependent on synchronous global expansion, and therefore very reliant on the health of our largest trading partners. The US economy is currently experiencing its second longest period of economic expansion in history, but this upswing is marked by weak growth and inequality.
Confidence remains strong that economic conditions, for at least the immediate future, are favoring the transportation industry. But, over the long run it’s anyone’s guess. Speculation is now surfacing as to how and when the next downturn will arrive. Equipment replacement costs and investments in fleet expansion can be justified based on current market conditions, but some industry experts are warning carriers to act cautiously. The favorable economic conditions that exist today may not endure too much longer.
For a majority of truck company owners, one of the most difficult aspects of running a trucking company is the management of capital expenditures and the maintaining of positive cash flow. Increasing technology demands, aging equipment, growing operational costs and market uncertainty all combine to challenge the fiscal resources available to trucking companies. Whereas commercial banks are reluctant to finance trucking companies, qualifying for a factoring facility is easy. Freight factoring has emerged as a mainstream financial strategy, providing carriers with a means to maintain positive cash flow. Through the flexibility of this powerful funding option, carriers gain immediate access to working capital, plus the added benefit of unlimited funds – the more loads you deliver, the more invoices you produce, the more funds you can access. Positive cash flow provides the means to improve your credit score, accumulate a sizeable down payment, and support the monthly payments of a lease or dealer supported financing agreement.
For more information on freight factoring, please visit www.accutraccapital.com or call: 855.838.7575.☚