Business

When it comes to operating your own trucking business, being a great driver isn’t enough. It takes more than driving skill to profitably manage a business. Successful owners know the various tasks necessary to keep the business running. They also know their limitations. For example, some owner-operators perform all the maintenance on their equipment. Everything from oil changes to engine rebuilds become do-it-yourself projects accomplished by the owner’s hand. Others, however, leave the wrenching to the professionals — or they handle the grease and oil but trust any projects requiring more knowledge or equipment to a local shop. When it comes to the cash flow of a trucking business, factors could be considered “money mechanics.” They understand the tasks of billing and collection, and can help truckers stay focused on serving their customers by handling some of the business duties the driver may not be comfortable with or have time to handle. It doesn’t matter how good the shipping service is if the trucker isn’t paid for it. After the delivery, the factor takes care of invoicing the customer and collecting payment. It may seem like an easy task, but owners who are on the road can’t always find time to complete an invoice and send it to the customer. And there’s more. Each open invoice must be tracked to make sure payment is received. After a period of time, another invoice needs to be sent, or the customer called, or both. If the customer still doesn’t pay, collection actions may be necessary. It can be a lot to keep track of while still performing driver duties. Even when the customer pays, it still takes time. Many businesses operate on a 30-day payment cycle, meaning the driver waits a month before payment is received. Others may have a 45- or 60-day cycle, making the wait even longer. Then, there are those that aren’t very good at keeping bills paid. They can lose invoices, forget payments and otherwise cause extra collecting effort. Factors not only keep track of all this; they can help with the waiting, too. That’s because most factors advance the payment to the trucking business. Some pay within hours of delivery, keeping cash flowing through the trucking business. The factor waits for payment, not the trucker. When considering a factoring service, when and how payments are made is an important detail. Options can include direct deposit into the trucker’s bank account, the assignment of funds to a fuel card or a prepaid debit card, or even mailing a check. As for the conditions for making payment, most factors are able to pay upon receipt of a photo of the paperwork. Those that require faxing or mailing of documents are behind the times. If the customer never pays, the trucker may have to pay back the advanced funds, but there’s a choice here, too. Factors often offer “recourse” or “nonrecourse” services. In nonrecourse agreements, the factor takes the loss if the customer doesn’t pay. Fees for factoring services vary among businesses offering the service and are an important consideration when choosing a factor. In most cases, the factor simply keeps a percentage of the invoiced amount, or a flat fee plus a percentage. The fee goes up if the agreement is for nonrecourse billing, because the factor is assuming greater risk. Factors can also help the trucker decide which customers to accept. A great freight rate may look attractive, but if it comes from a shipper with a poor history of paying, the deal might not be so good. Factors can often help identify which shippers have poor payment histories, bad credit records and more. They can advise drivers about which customers to avoid, which take a long time to pay and so on. In cases where a shipper has failed to pay in the past, the factor may simply decline to advance any funds based on the load; this action protects both trucker and the factor. It’s important to ask the factor whether they allow “spot” factoring. Some factors require the trucking business to use their services for all loads they haul. However, some trucking businesses have certain customers that are very good about paying on time. In these cases, the owner may want to deal directly with the customer, avoiding the additional step and expense of involving a factor. They might prefer using the factor for loads from new or occasional shippers they haven’t established a relationship with. Ancillary services are another area to ask a prospective factor about. Most factoring businesses offer additional services, either directly or through partnerships with other businesses. Free credit checks are one such service; fuel cards are another. Some owner-operators carry large amounts of cash for fuel purchases, while others use credit cards that charge high interest rates if the bill isn’t paid off by the due date. Factoring services can offer fuel cards with smaller fees and no interest, saving money and keeping the businesses debt down. In some cases, fuel cards come with discounted pricing on fuel, oil, tires and other items and services. Some factors can assist with emergency cash needs, too. Expensive repairs, such as an engine rebuild, can sideline a trucking business if the owner can’t fund the work. Some drivers turn to predatory lenders who offer quick cash, sometimes in a single day. Often, these lenders charge exorbitant fees along with high interest rates. Some lenders insist on access to the business bank account so they can make withdrawals without the owner’s input. Factors may provide low- or no-interest solutions to help owners get the business back up and running. Others partner with firms that help manage programs to keep the business viable. Anyone doing business with a factor should carefully read the agreement paperwork. Some factors impose fees for certain actions — including a fee to terminate the agreement. It’s best to understand all rates and fees from the beginning of the relationship. Factors can smooth out cash flow for trucking businesses, allowing the owner to concentrate on the business of moving freight. Factors can also help owner-operators make sound business decisions and can help when things go wrong.

Strong freight rates continued to drive trucking revenues upward in April, despite some loss of volume, according to reports received from several sources. The Cass Freight Index for Shipments, which measures shipments across a variety of transportation modes including rail, pipeline, ship, air and truck, fell by 1.5% from March shipment numbers. A part of that drop is cyclical. Final months in each quarter (like March) are usually strong, while the following month are typically less so. As the economy rallies back from COVID-19 shutdowns, however, there are additional issues this year. Shortages of semiconductor chips and other products are creating a drag on manufacturing, while record prices for steel and other commodities are slowing assembly lines, particularly in the automotive and heavy-duty truck sectors. Automotive shipments via railroad dropped about 20% from March to April, according to the Cass report. Steel supplies took a hit when India, the world’s second-largest steel producer, experienced a rash of COVID-19 cases. Oxygen needed for steel production was instead sent to hospitals to treat the growing number of patients. Another factor is that some of the March shipping was a carryover from February’s polar vortex, pushing March shipment numbers higher than they otherwise would have been. Compared to 2020, however, the economy is roaring back. The Cass Freight Index of 1.178 in April was 27.6% higher than in April 2020, when the economy was nearing its lowest point. Compared to April 2019, when nobody had even heard of COVID-19, the shipment index dropped by 1.3%. Without commodity shortages, it’s likely this year’s shipments would have equaled or exceeded 2019 numbers. While shipments struggle to reach pre-pandemic numbers, the amount of money spent on shipments continues to rise. For example, the Cass Expenditures Index set its fourth new record in five months, coming in a whopping 45.1% higher than the April 2020 index. The Cass Trucking Index measures freight demand and truck supply. The April index showed a decline from March; however, the index was into positive territory for the 11th consecutive month. Shippers are having difficulty finding enough trucks to haul their products and are paying high rates for those they find. The trucking industry has experienced difficulty in adding trucks, due to decreased production, as well as drivers, due to worsening shortages. Parts shortages continue to slow truck builders, while the driver shortage continues to grow worse. The American Trucking Associations (ATA) reported its Truck Tonnage Index fell by 0.3% in April from March levels, losing some of March’s 2.3% increase. The ATA index was 114.7 in April, compared to 115.1 in March. Bob Costello, chief economist for ATA, sees good days ahead. “The outlook is solid for tonnage going forward as the country approaches pre-pandemic levels of activity, with strong economic growth in key areas for trucking — including retail, home construction and even manufacturing,” he said. Homebuilding is likely to slow in the coming months due to record lumber prices, along with higher costs for steel and other construction materials. Costello echoed industry capacity concerns. “Trucking’s biggest challenges are not on the demand side, but on the supply side, including difficulty finding qualified drivers,” he explained. The list of carriers that have implemented pay raises to attract more drivers (and keep the ones they already have) is growing every week. While pay raises stimulate driver turnover as drivers leave for better pay, they aren’t enough to attract new drivers to an industry that has seen the average age of its workforce climb each year for more than a decade. DAT’s Truckload Volume Index fell 5% in April from March levels, but it’s important to note that March’s index was a record. According to DAT Freight and Analytics, April was still the second-busiest month on record. The DAT index measured 225 in April. A baseline of 100 reflects freight volume in January 2015, so the April score is 125% higher. “It’s not unusual to see a decline from March to April, but truckload freight activity remained at historic levels compared to previous years,” explained Ken Adamo, chief of analytics at DAT. “Trucking companies are in the driver’s seat with respect to pricing power.” According to DAT, the national average spot rate for van loads posted on its load board dropped by 8 cents per mile from March levels, coming in at $2.59 per mile. While it’s normal for spot rates to decline when freight volumes do, the April figure was still the second-highest on record. Refrigerated rates declined too, but only by 2 cents per mile to $2.93. Flatbed rates went against the trend, rising 18 cents per mile to $2.96. Spot rates rose sharply in the second half of 2020 with contract rates expected to follow. They did. DAT reported that average contracted rates — those negotiated in advance of shipment needs — rose to $2.66 for van freight. The increase represented the 12th consecutive month of growth. The average contract rate for refrigerated freight also grew, but at $2.78 it still lags behind the average spot rate. Average flatbed rates for the month were the same for both spot and contract freight, $2.96 per mile. An interesting statistic reported by DAT showed nearly 96 loads (95.7) for every available truck posted on their board. “Spot and contract rates are high as we enter a period when truckload capacity is only going to tighten, as produce and retail goods move ahead of the July 4 holiday and back-to-school shopping season,” Adamo said. A strange dynamic is in play for rates in the coming months. At some point, commodity shortages will ease, and prices for steel, lumber and other products will come down. Order backlogs are occurring at manufacturers that are experiencing reduced production due to shortages. When production increases, and while truck capacity is still restricted by shortages of new trucks and drivers, rates should experience another bump. In the meantime, signs are still pointing to a robust period for trucking for at least the next few months. Carriers large and small can make money while being more selective about cargoes and lanes.

U.S. sales of new Class 8 trucks declined in April, according to data received from ACT Research. Sales of 19,714 trucks were 12.4% lower than the 22,512 sold in March. The March number, however, may have been artificially high due to February’s bad weather, which could have delayed some deliveries until the following month. Compared to April 2020, Class 8 truck sales increased by 51.8% over last year’s 12,965. Of the trucks sold, 14,347 were road tractors (72.8% of the total), and 5,367 were vocational trucks equipped with dump, trash, concrete or other bodies. That’s a significant difference from April 2020, when more than a third (37.2%) of Class 8 trucks sold were vocational. Freight levels at the time were free falling due to COVID-19 shutdowns, slowing sales of new tractors. For months there have been predictions of production slowdowns due to shortages of various parts and materials needed to manufacture new trucks. With April sales nearing 20,000 units, it might appear that the industry is doing fine. Not so fast, said Kenny Vieth, president and senior analyst for ACT. “We should be on our way to building 30,000 trucks in a month,” he said. The year 2006 saw record Class 8 sales for the trucking industry. Wards reported sales of 284,004 in that year, an average of 23,667 per month. The Wards report, however, excludes some manufacturers of vocational trucks used for delivery of concrete, trash collection, firefighting and applications such as truck-mounted cranes, making total production numbers higher than reported. Vieth explained where the trucks are coming from. “We have seen inventories continue to creep down,” he said. “The Class 8 inventory in April, on a North American basis, is at 39-month low 49,800 units.” It’s evident that some of the new trucks being sold are coming from OEM and dealer inventories rather than hot off the assembly line. As inventories dwindle, new trucks are harder to find — and more expensive to buy. Shortages of parts and commodities may not have had much impact on April production, but don’t be fooled. “Every month, it’s something else hitting the fan,” Vieth said. “In January, it was chip (semiconductor) shortages. In February, it was plastics.” As the deep freeze of Winter Storm “Uri” caused power outages in much of the state of Texas, plastics manufacturers were forced to shut down, according to Plastics News. Sudden shutdowns can result in molten plastics solidifying in lines and machines, resulting in considerable time being needed for restart. The end result is that manufacturers of plastic products destined for new truck builders experienced difficulty obtaining materials. Then, there’s steel. Prices for steel have increased by more than 40% since the year started and remain at record levels. Just as worldwide production was ramping up, India, the world’s second-largest producer, shut down steel production as oxygen used by the plants was diverted to hospitals to treat a massive surge in COVID-19 cases. Shortages typically result in higher prices, which are often passed on to consumers. On May 11, Reuters reported that ArvinMeritor, a supplier of auto and truck parts, would begin charging a monthly surcharge to help offset surging steel prices. It’s highly likely that truck manufacturers will again impose a commodity price surcharge in the near future, as they did during the recovery from the Great Recession of 2008. Truck orders actually declined in April, coming in at 33,600 — down 16% from March but still more than OEMs can build in a month. The backlog is now approaching 10 months at current production levels as 2021 building slots are nearly gone. If the build rate slows further due to parts shortages, it will take even longer to clear the backlog. Those planning on turning to the used truck market to avoid new truck prices are likely to be disappointed, too. ACT Research’s “State of the Industry: U.S. Classes 3-8 Used Trucks” release reported that sales of new trucks in April were 51% higher than a year ago, and average prices were 45% higher than on the COVID-depressed market of 2020. Prices rose 5% over the March average. Among the individual OEMs, all except Mack Truck sold fewer Class 8 trucks in April than in March, according to data received from Wards Intelligence — 1,649 Bulldog brand trucks were moved in the month, 16 more than in March and 586 more than in April 2020. Volvo’s 1,934 sold in April lagged 540 trucks behind March sales of 2,474, a 21.8% decline. International sold 2,192 Class 8 trucks in April, down 102 (4.4%) from March sales. Kenworth sales of 3,005 were down by 35 from March for a 1.2% decrease, but were 715 trucks (31.2%) better than April 2020 sales. Peterbilt sold 2,990 in April, down 191 trucks (6%) from March. Freightliner sales declined by 1,774 trucks in April, a drop of 20.1%, but it’s important to note that March was an exceptional month for the company with 8,839 trucks moved. Western Star sold 477 in April, down 27 (5.4%) from March sales. Market share for the OEMs hasn’t changed much. To date, Freightliner has 40% of U.S. Class 8 sales, up 3.1% from 36.9% at the same point last year. Peterbilt’s 15.3% is next, up 0.5%, followed by Kenworth’s 13.7% which is down 2.1% from the 15.8% of the market last year. International has also dropped market share. This year, 10.5% of the Class 8 trucks sold were Internationals, compared to 12.5% at the same point in 2020. Volvo has picked up 1.5% of the market and sits at 10.6% for the year to date. Mack dropped 0.3% of its share, from 7.8% at this time last year to its current 7.5% of the market. For at least the next few months, trucks will be harder to find and more expensive when found. Strong freight rates may provide incentive to pay more for equipment, but current owners may decide to spend to keep their current stock running a while longer instead of trying to replace it.

PORTLAND, Ore. —Truckload freight activity declined in April, but the month was still the second busiest month on record for shippers, freight brokers and motor carriers, according to DAT Freight & Analytics. The DAT Truckload Volume Index (TVI) registered 225 in April, down 5% from the all-time high set in March. The index is an aggregated measure of dry van, refrigerated and flatbed loads moved by truckload carriers. A baseline of 100 reflects freight volume in January 2015. “It’s not unusual to see a decline from March to April, but truckload freight activity remained at historic levels compared to previous years,” said Ken Adamo, chief of analytics at DAT. “The April TVI was 39% higher than it was in April 2020 and April 2018, and 26% higher than in April 2019, indicating unusually strong demand for truckload capacity last month. Trucking companies are in the driver’s seat with respect to pricing power.” At $2.59 per mile for April, the national average spot rate for van loads on the DAT One load board network was 8 cents lower than the March average, but was the second-highest monthly average van rate on record. The national average spot reefer rate was $2.93 per mile, 2 cents lower than in March, while the spot flatbed rate averaged $2.96 per mile, 18 cents higher month over month. Contract rates for truckload services — scheduled and planned transportation where the rate is negotiated well in advance and part of a larger commitment to move goods — were historically high in April. The average contract van rate was $2.66 per mile and increased for the 12th consecutive month. In addition, the average contract rate for refrigerated freight was $2.78 a mile, 15 cents below the average spot reefer rate. The national average contract rate for flatbed equipment, which is used to haul construction materials, heavy equipment and a variety of other industrial goods, was $2.96 per mile, or $1.03 higher than in April 2020. On the spot market, the flatbed load-to-truck ratio averaged 95.7, meaning there were more than 95 loads posted for every available truck last month. “There’s a feeling among businesses that they are at their ceiling for the price of logistics,” Adamo said. “Spot and contract rates are high as we enter a period when truckload capacity is only going to tighten, as produce and retail goods move ahead of the July 4 holiday and back-to-school shopping season.” DAT’s outlook for May 2021: Supply chain imbalances due to commodity shortages for manufacturing and the reopening of long-shuttered offices and service businesses have led to increased use of the spot market. In most years, 12% to 15% of truckload freight moves on the spot market; that figure is closer to 25% today. During the first week of May, the volume of load posts on DAT One was 36% higher compared to the same period in 2018, when spot truckload freight activity followed a more typical pattern. Expect demand for refrigerated trailers to increase as domestic produce harvests expand north beyond the U.S. southern border. The national average price of on-highway diesel was $3.13 a gallon in April. Spot rates include a calculated surcharge that fluctuates with the price of fuel, which is expected to rise following the cyberattack on the Colonial Pipeline.