How to maintain a sustainable trucking company is no less of a challenge now than it has ever been. Basically, it’s a “be prepared for anything” scenario as both the Canadian and US economies continue to underperform. Setbacks to both economies in the first quarter of the year resulted in a downward revision to growth projections for 2015. The key to maintaining a sustainable trucking business in this low growth environment is good service and access to working capital.
The Current Economic Scene is likely to be a Temporary Setback
The first quarter economic revisions reflect an unexpected contraction of output in the United States, with spillover effects to Canada. Major contributors to the weakening economic activities include last winter’s notably harsh weather conditions, port closures, a surging US dollar and a severely weakened Canadian dollar, as well as a strong downsizing of capital expenditure in the oil sector.
Nevertheless, the unexpected weakness in North America’s economic scene is likely to prove a temporary setback. The underlying drivers for a gradual improvement in economic activity remain intact. Acceleration in consumption and investment fueled by wage growth, improving labor market conditions, low interest rates, lower fuel prices, and a strengthening housing market are expected to drive momentum upward.
It's not all Doom and Gloom
Despite recent economic headlines that paint a dark picture, it’s not all doom and gloom. The US economy posted a greatly improved second quarter. A recent US Commerce Department report stated that gross domestic product for the quarter expanded at a 3.7 percent annual pace, outperforming the projected 2.3 percent rate reported previously. Despite suffering a technical recession during the first half of the year, Canada entered the third quarter on a stronger economic pace. Statistics Canada reports a surprising recovery in GDP for the month of June, up 0.5% per cent. This suggests the Canadian economy has entered the third quarter on a much stronger footing.
Volumes are Down,but Rates are Up
No matter the economic forecasts and performances, reality is; volumes have been down. In the US, the index for shipping volume for the month of March dropped 5% from previous year and fell 2.5% in April. First quarter volumes in Canada were down 23% over the same period in 2014. However, this is the trucking industry and not all things are as expected. Despite lower volumes, trucking companies are reporting higher revenues.
According to a new report from the American Trucking Association, the For-Hire Truck Tonnage Index was up 3.7% compared to July 2014. Further, the Association is predicting that freight volumes are to increase nearly 29% over the next 11 years. In Canada, volumes slowed during the second quarter of the year, but rates and margins continue to grow. This trend in rising rates is expected to continue according to transportation industry analysts.
Adjust to the Evolving Needs of Customers
Transportation experts are looking ahead at the upcoming fall peak season, predicting that it will most likely not be as strong this year. However, as the economy continues to chug along the contract rates are still expected to grow versus last year. Despite the drop in fuel costs, labour costs have shown substantial increases, which is keeping up the pressure for rising rates. The market remains quite profitable for trucking companies that know how to work current conditions.
To survive and prosper in this slow growth market, trucking companies need to adapt to the evolving needs of their customers. Shippers are becoming wary of low cost transportation services that often lead to service failures. These failures often result in costly delays and damages that erode their bottom line. By delivering consistent and reliable service in specifically chosen lanes, successful freight carriers build customer loyalty and command the best price for their service.
The most successful freight carriers are getting back to basics by focusing on maximizing equipment utilization. These are the carriers that concentrate operations on lanes where they have the optimal balance of outbound and inbound freight with shipments that provide the highest yield.
The Key to Sustainability
Looking at the slow growth forecasts, it’s no wonder that many trucking companies face difficulty. Ever growing competition, increasing government regulations, costly emission standards and rising diver wages are the common enemies of a growing trucking business. However, armed with good business sense and a viable financial strategy, the future is full of potential.
The key is sustainability; being able to ride through the difficult lows and capitalize on opportunities as they arise. Maintaining positive cash flow is absolutely essential to survival. Without the needed cash on hand, you will not have the ability to grow operations to meet demand or worse, your trucks will grind to a halt eliminating your source of revenue. Execute an ongoing financial strategy that will ensure access to working capital as you need it. If your company does not qualify for a banking line of credit, consider Invoice Factoring.
About Accutrac Capital
Accutrac Capital specializes in the Transportation Industry providing low cost invoice factoring to improve your company’s cash flow. Our cost effective services are convenient to use, simple to understand and easy to manage. A dedicated Accounts Manager ensures you receive superior customer service and trusted advice to aid with credit decisions, expedite funding and answer all queries. To further benefit your profitability, Accutrac Capital provides Fuel Discount pricing with convenient terms at high quality truck stops across North America. Qualification is quick and easy.