The current credit crisis is placing increased pressure on shippers and carriers to offset shrinking volumes and cash flows. Published statistics indicate that both manufacturing production and retail...
The current credit crisis is placing increased pressure on shippers and carriers to offset shrinking volumes and cash flows. Published statistics indicate that both manufacturing production and retail sales sank in September to their lowest level in years. This is resulting in production cuts and layoffs.
Carriers are facing challenges from shippers on a number for fronts.
• Smaller shipments and less volume
• Slower payment of freight invoices
• Increasing numbers of shipper bankruptcies that result in non-payment of their overdue accounts
• Shippers holding up payment or claiming they need to offset (contra) their payables for alleged damage or poor service
In addition, truckers are finding that their access to credit is being more restricted by financial institutions and suppliers. Banks are trying to do a more effective job of prioritizing their loan portfolios. This may make the flow of money to certain truckers more problematic than in previous times. Whether it is short term payments for fuel and payroll or more significant funds for new capital equipment or an acquisition, credit liquidity is being more carefully scrutinized.
What can carriers do to help themselves during these difficult times?
Large carriers with lots of cash on their balance sheets are in the best position to weather the storm. For carriers with less cash, there are a number of possible initiatives that may be helpful. They include:
• Sale of non-core businesses or excess equipment (where possible)
• Trimming capacity
• Merging operations and removing redundancy
• Reducing fixed costs, including salaried employees, and utilizing more outside agency personnel on an as required basis
• Performing more careful due diligence of prospective shippers
• Shying away from one shot or large short term spurts in freight, particularly from shippers that are unknown
• Demanding payment on delivery from specific slow-paying shippers
• Hiring collection agencies to recover unpaid bills that are 30 days and over
• Speeding up the process of sending out invoices
• Charging for round trip mileage in situations where backhaul freight is very difficult to secure
• Updating their fuel surcharge tables more frequently • Offering incentives to shippers for “quick pay”
Some carriers are turning to more desperate measures such as factoring their receivables. Factoring fees typically run from 5 to 10% and are based on the credit worthiness of the client. While factoring can help some companies, it can also push others into a “downward spiral.” With margins so lean in trucking, giving away some precious points in margin may jeopardize the trucker’s long term survival.
This is also a time for marketing initiatives. Offering new services, which are an extension of, or an improvement on existing services, is another way to offset the financial challenges. Generating new and profitable revenue sources can be very helpful in taking advantage of a company’s existing infrastructure and resources. This is also an opportunity to secure market share from weaker carriers that are terminating good people, exiting profitable markets and/or “cheating” on service. The anxiety level of strong sales performers working for your competitors is often heightened by rumours and substandard operating performance. This can make these individuals more open to overtures from stronger, better financed companies. Those companies that are able to maintain strong cost control, good financial management and aggressive marketing activities will be the ones in the best position to ride out the current financial crisis.