Slow orders for new trucks, spiking inventories on dealer lots, deteriorating freight and rate conditions, and dwindling spot rates for same-day truckloads have all contributed to the recent announcement that the trucking industry is officially in a recession, according to data tracked by ACT Research.
ACT President Kenny Vieth said, “every freight metric we look at has been negative for at least six months.”
In an industry that is very cyclical, it’s hard to be optimistic. However, a downturn doesn’t have to be a bad thing — a silver lining exists. A downturn can open the door to opportunities, and separate the strong from the weak, and the savvy from the complacent.
Become Tech-Differentiated to Hold Business Value
Technology differentiation is key, and a renewed focus on technology investment and digitization is advantageous to outperforming your peers on cost and service going forward. Automation that generates greater efficiency and through-put with a smaller headcount enables logistics and trucking companies to lower their prices while maintaining profitability.
Trucking companies should leverage technology that enables seamless collaboration between supply chain partners and increases decision-making capabilities. Technology can provide tools to enhance customer relationships and improve efficiency, while helping companies grow.
Technology can also streamline processes and unlock siloed data so that it can be accessed and shared in real-time by shippers, intermediaries, and consignees without relying on manual processes. The right tech tools can enable your partners and staff to see critical data that is only relevant to them without having to manually get the information. By using multi-party platforms, your partners and customers will stay satisfied.
Careful Assessment of Your Finances Can Stabilize Your Business and Protect It
Another opportunity is to create a comprehensive, thought-out financial plan. Carefully assess your economic environment, its vulnerabilities (at the company level and by business unit), and quantify the impact of a recession. Look to stabilize your business, protecting it from risk, and ensuring that it has the liquidity necessary to weather the crisis. Assess the condition of fleets and conduct a cost-benefit analysis to determine the financial implications and capitalize on the downturn in the longer term.
Additionally, you need to monitor your cash position by using a disciplined cash management system, by reducing spending and by focusing on cash inflow. One idea is to create a rolling report on your cash position (either weekly or monthly) that details expected near-term payments and receipts and calculates expected cash inflows and outflows. A centralized cash management system can provide crucial data and enables you to pool cash across business units.
Another way to free up cash is to look for opportunities to reduce working capital—the difference between a company’s current assets and liabilities. This involves reducing current assets, such as inventories (through more careful management of both production and sourcing processes) and receivables (through the active management of trade credit).
Other Key Ideas to Be Successful in a Recession
Also, it’s critical to understand your own strengths and weaknesses relative to those of your competitors. To emerge from the downturn in a lead position, you must calibrate your next steps, in light of the actions that your competitors will most likely take.
Are you fretting over cutting prices to maintain volume? It’s time to review orders for new equipment and eliminate non-essentials.
Plus, a recession may be a good time to consider offloading old equipment and purchasing new and updated trucks. Spending may seem counter-intuitive, but old equipment has little value in a downturn and can be a liability. You can buy used quality trucks at lower prices and decreased interest rates, due to the sheer amount that are available. Updated and reliable vehicles save money as they provide reliability and don’t require the maintenance time or expenses of older equipment. Furthermore, updated equipment will spare you the hassles and costs resulting from safety issues with dated trucks. Extended payment terms should also be evaluated as a preventative measure in the face of a recession.
If high maintenance costs begin to drain your cash reserve, financing a new or used truck purchase can be an option to put you in a position to build wealth and grow your net worth. Using other people’s money, or OPM, can be a smart business strategy that allows you to hang on to available cash.
The Bottom Line:
Trucking companies must take action to strengthen balance sheets, maximize cash flow, and manage costs and debt. It’s also important to evaluate people strategies to keep staff and drivers motivated. These steps will help your company weather a recession and potentially grow in a downturn.
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At Commercial Fleet Financing (CFF), our pros have given smart advice to fleet owners and owner-operators in the transportation, moving, towing or construction industries for more than two decades. With CFF, finding the right financing solutions is a phone call away and most borrowers secure commercial vehicle financing with ease. To talk directly with one of our finance pros and get started with a credit approval in as little as two hours, CFF’s phone number is (469)-281-2962.
