Dollars & Sense

Money-making March caps 'strongest quarter ever'

“Absolutely astounding.”

That’s how Sylectus summed up the month of March as its released its monthly data analysis.

Across-the-board increases in every revenue category spurred the industry to an outstanding month and capped what Sylectus is calling the “strongest quarter ever” for the companies that are tracked on the Sylectus index.

Among the highlights:

• An increase of 34 percent in total miles over February 2010

• An increase of 22 percent in total revenue per mile

• An increase of 182 percent in fuel revenue

All of that added up to a whopping 63 percent increase in total revenue.

What’s spurring the industry resurgence? According to Sylectus, it’s a variety of factors:

• Low inventory levels. During the economic downturn, manufacturers tightened their inventory restrictions in order to lower their risk. Although demand for their products is picking up, many manufacturers have been reluctant to increase their inventories — which means they rely on their transportation network to deliver the items they need “just in time.” In fact, over the last several weeks, some large manufacturing operations have been idled because suppliers couldn’t react quickly enough to the increased demand. All that has led to increased demand for time-sensitive trucking and distribution.

• The driver shortage. Finding and keeping good drivers is becoming more difficult for everyone in the trucking industry for a variety of factors. Increased regulations are weeding some drivers out of the industry. Trucking also is beginning to feel the “baby boomer” effect as its workforce ages. The driver shortage was a problem even before the recession hit, but now it’s an even more significant issue. But the lower supply of trucks and drivers also leads to increased rates, based on the economic principle of supply and demand.

• What Sylectus calls the “Barrier to Entry.” Although freight rates are soaring based on the increased demand and the lower supply of trucks and drivers, new companies aren’t coming into the trucking industry to fill the gap. Part of this is because banks are reluctant to make start-up loans to fledgling trucking companies. Because there is relatively little new competition, companies that were able to weather the economic storm of the recession are now reaping the rewards.

• Access to Fleet. For several years, load brokers and freight forwarders could count on trucking companies bidding aggressively on their freight. But now that trucking companies have access to plenty of freight directly from their own customers, they are in position to pick and choose which freight they accept from brokers. The brokers are now feeling the financial pinch rather than the trucking companies. In fact, Sylectus predicts that many shippers may begin to bypass freight brokers and establish long-term relationships with a carrier. The shipper can pay the carrier they same rate it had been paying the broker, and the carrier could still make a profit. That all translates into new business as shippers migrate away from freight brokers to secure guaranteed capacity with trucking companies.

But just as trucking companies have emerged from the tough times of the not-too-distant past,  Sylectus also warns that things could change quickly based on other factors:

• Fuel prices. Sylectus reports that the fuel rate increase at the start of 2011 is already tracking ahead of 2008, when the U.S. plunged into a recession. Trucking companies can pass the higher costs on to the shippers, of course, but the shippers in turn will pass them on to the consumers. Eventually, that will weaken consumer spending, which ultimately will lead to a reduction in freight. Smart trucking companies can take some steps now to be prepared for the worst: Keep a tight rein on your expenses, stay up to date on accounts receivable and watch your cash flow. Work to build relationships with lenders, and build up a reserve fund in case of a major downturn.

2.   Cash flow crunch.  A quick rise in sales can put a huge strain on your cash flow — especially if your Accounts Receivable (the money coming in from your customers) lag significantly behind our Accounts Payable (the money you spend on payroll, supplies, fuel, maintenance, etc.) Know what your cash-flow picture looks like, and work closely with your bank to increase your line of credit as you grow.

3.   World events.  Global conflict, natural disasters — they all can affect the delicate balance of the economy, and those effects can trickle down to the trucking industry.