Dollars & Sense

April numbers decline from March, but still strong

Sylectus has released its data for the trucking industry’s performance in April, and although the numbers were down from March, it still was the best April on record for many of the companies that are tracked in the Sylectus Index.

And, even though April wasn’t as strong as March, it still was a much better month than April 2010, with across-the-board increases in the categories tracked in the index.

Among the highlights: a 28 percent increase in total revenue, an 11 percent increase in total miles and a 14 percent increase in total revenue per mile.

Sylectus offered a few explanations as to why business volumes declined from March to April:

• April had three fewer business days than March.

• March is the final month of a quarter, and many shippers try to move freight off their docks in order to recognize that revenue in their quarterly numbers.

• April is typically a slower month in the annual manufacturing cycle.

• The tsunami that struck Japan in mid-March started to effect North American manufacturing in late March and then in April, as various plants either were idled or had their production reduced because of parts shortages.

• Rising fuel prices are beginning to affect prices of other items and dampening the economic recovery.

Sylectus President Stuart Sutton cautions that companies should account for several factors when they prepare their annual budgets, so that they are prepared for month-to-month changes in volume such as the industry experienced in March and April:

• The business cycle: Trucking companies should be aware of their customers’ business cycle. For example, if a particular trucking company’s core customers are in the manufacturing business, then those customers can be expected to have some months that are slower (usually the beginning of each quarter) and some that are stronger (the final month of each quarter and November when the Christmas rush begins). Understanding the customer’s business cycle will help a trucking company better understand its own revenue cycle and budget more accurately.

• The growth/recession cycle:  Unlike the business cycle, the growth/recession cycle can be nearly impossible to predict, but it can have a major impact on trucking companies. In a growth cycle, it’s easy for most companies to be profitable; smart companies are prepared to ride out a recession and be poised to take advantage of its eventual end. For example, companies that had embraced the Internet and the powers of “the cloud” were in position to grow when the most recent recession ended. Those that did not embrace the lower costs and increased efficiency offered by the network-enabled “cloud” technology will not experience the same growth.

• One-time major events: These events, such as the tsunami in Japan, can affect a trucking company’s budget for a few months and need to be accounted for. Even though such events can occur anywhere on the globe, they can and do have an impact on the North American supply chain. Another example is Hurricane Katrina, which created an increased demand for trucks to move supplies into the southern United States. That reduced the truck capacity in North America, causing rates to go up. Once the area affected by the hurricane was stabilized, those trucks were available for other freight and rates returned to normal.

• Key cost areas for your business: All companies have certain fixed costs, but some costs can vary widely. This is especially significant in the trucking industry, where fuel represents a major expense and there can be a long lag between the time an expense is incurred and the time you are actually paid by your customer. This situation can easily create strained cash flow, so it’s important to monitor fuel costs and try to stay ahead of the game. If you believe fuel costs will be rising, it’s best to try and be several months ahead of the change.

In short, Sutton noted, budgeting is a key tool for all companies but it’s also essential to understand the industry you serve and how cycles can affect your business.