The next era in freight transportation is now emerging, and it promises to be a positive trending period for trucking companies. Increasing volumes are expected to lead the industry into a capacity crunch and rates are expected to climb. Following a lengthy period of diminishing margins, heightened competition and low volumes, its a welcome change to a distressed industry. But an optimistic future has its own issues. To continue to operate in this changing environment, freight carriers need to stay ahead of competition, comply with newly mandated regulations and manage rising operating costs. The key to many of these issues is to embrace modern technology and stay current by continually upgrading. Ensuring your company has the working capital to support this activity is a critical necessity. Freight bill factoring has become a mainstream financial strategy for a growing number of trucking companies to meet this need.
The majority of the transportation industry is operating on legacy technology based on 15 year old software and older. This condition runs uniformly across the three major sectors; shippers, brokers and carriers. All suffer from the same lack of ability to capture big data and for software systems to communicate with each other. Human interaction remains the predominate means of relayed communication. Carriers suffer the most from this inefficient state of affairs. Drivers often sit idle for hours and drive too many empty miles due to a lack of real time integrated information. This results not only in wasted time, but sub-optimal pricing and routes for carriers. As is the nature of the free market, there are entrepreneurs emerging from this milieu who are building success around optimizing the LTL space with current technology to increase inefficiencies.
Fortunately, the technology community has taken notice of the massive gap in the transportation industry and have responded accordingly. Since 2013 there has been a 90% increase in venture capital injected in this space, totaling over $400 million. To date technology companies have focused their efforts on optimizing the three major verticals of shippers, brokers and carriers. Once a leader emerges in each respective field, they will ultimately seek to gain dominance across the horizontal space by integrating communication across the three verticals. At this point, the entire industry will have integrated communication, which will include interfacing with warehouse software.
The trucking industry is as old as it is massive, dating back to the dawn of the automobile. It is a history of survival of the fittest on the battle field of improving efficiencies. This battle has played out in several eras, each with distinctively different challenges that had to be overcome. The 80s was a period of intensifying competition as partial deregulation of the industry dramatically increased the number of trucking companies in operation. Reducing cost per mile and improving equipment utilization became the focus as strategies such as teaming and slip seating became more common place. The 2000s was a period of focus on fuel efficiency through aerodynamics and improved engine performance. Today, the focus is shifting to gaining advanced operational efficiency and increased life cycle of equipment through technological improvements. Volvo offers a prime example of this trend by extending its uptime services to late model vehicles through the addition of telematics connectivity.
In this regard, the common challenge that binds all trucking companies is the ability to fund continuous improvement. Change can be difficult and costly, but change is essential in the continuing battle for survival. For trucking companies, this means staying ahead of the financial curve with healthy cash flow. This challenge is heightened in our industry as operation costs are daily, never ending and increasing as time goes by. To further complicate the challenge, it is an industry plagued with slow paying customers that hampers the financial management of trucking companies. Conventional lenders such as commercial banks are reluctant to extend credit to the majority of small and medium size trucking companies as the risk is considered too great. This leaves the common trucking business owner in a dilemma; how to fund daily operation and finance business growth in such a restrictive environment? The answer for many is the powerful leveraging advantage of invoice factoring for trucking.
In its strict financial terms, freight bill factoring (a specific form of invoice factoring) is the process of selling your account receivables to a factoring company at a discount in exchange for immediate access to your cash. Upon submission of the receivable, the factoring company immediately advances a percentage (up to 97%) of the invoice face value, minus a small fee. Once the invoice has been paid by your customer to the factoring company the balance owing to you is provided. Factoring designed specifically for trucking companies is a financial tool to gain steady, reliable cash flow bringing monetary stability in an industry full of unpredictability.
Trucking is widely recognized as an old school and fragmented industry. However, this is quickly changing as the emergence of technological developments dedicated to solving the needs of this critical industry becomes ever more prominent. For trucking companies that integrate the competitive advantages of modern technology, the future is looking extremely positive in a new era of increased volumes and growing freight rates.