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Act with Caution when Buying New or Used Equipment

Accutrac Capital 17-May-2018 0 Comments Permalink

Following years of monetary restraint, many trucking companies are now better positioned to update working equipment. But current economic conditions need to be considered carefully before taking on long term debt. Freight Factoring provides trucking companies an opportunity to support such growth without the restrictive covenants and monthly obligations imposed on lenders by commercial banks.

At a recent trade show for the trucking industry, company owners, fleet managers, operators and suppliers were expressing great optimism. Industry stakeholders are now looking forward to generating substantial profits throughout the remainder of 2018.

By monitoring year-over-year progression, it is evident that contract rates have increased substantially. Long distance truckload prices near multi-year highs and LTL rates are up nearly 8%.

Despite good news, there is reason for caution

Following big rate gains made in January and February, trucking rates have flattened for the second straight month. This could be the symptoms of an overheated economy about to slow down, or just a minor cooling period before trends take another upward spike. The unfortunate fact is; nobody knows for certain.

This uncertainty stems from the US economys uncommon performance. Despite the second longest period of economic expansion in American history, growth is weak and inequality is widening.

Traditionally, the US economy recovers from downturns with several years of rapid growth. Throughout the 1960s, Americas economy grew an average of 4.9% a year. During the 1990s average yearly growth was 3.6%. Current expansion is averaging just 2.2% per year and is the first business cycle since WWII that has failed to provide a single year of growth over 3%.

Furthermore, Middle America has gained little benefit from this current period of economic recovery. During Obamas presidency, half of the economic growth went to the top 1% of US households. This increasing equity gap, in part, created the surge of discontent that helped propel Trump into the White House.

The next downturn

Speculation and concern is now surfacing as to how and when the next downturn will arrive. One such concern is over Trumps protectionist rhetoric. The fear is that global trading systems may be torn apart and wreak havoc to world economies. These concerns may be abated if Trump succeeds in extracting concessions from China and thus avoid a trade war with the worlds second largest GDP.

TS Lombard, a globally renowned independent research provider, speculates that problems are more likely to originate in the financial sector as it did in 2001 and 2007. The canary in the coal mine to watch for are tightening policies by the central bank and historically high asset prices. The good news is; none of these signs are evident yet.

Partner with a Freight Factoring Company

Confidence remains strong that current economic conditions favor the transportation industry. However, some industry experts are warning carriers to act cautiously when committing to fleet expansion and equipment replacement. The positive economic conditions that exist today, justifying the cost of equipment investment, may not endure too much longer.

Partnering with a freight factoring company is a sound financial strategy to support growth. Whether the economy is performing well or a contracting economy is causing cash flow problems, factoring invoices creates immediate access to working capital. For transportation companies managing the monthly obligations of a lease or loan on equipment, positive cash flow is key to sustainability.

For more information on freight factoring, please visit www.accutraccapital.com or call: 855-790-0906


 

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