The Benefits of Being An Owner Operator in Trucking

In recent years, there has been much consolidati8on and migration toward the large fleet operators in gaining market share in the trucking industry. We have seen the growth of trucking firms such as Con-way, Inc. (CNW: NYSE), Old Dominion Freight Lines, Inc. (ODFL: NASDAQ), and Estes Express Lines. Additionally, large brokerages such as C.H. Robinson Worldwide, Inc. (CHRW: NASDAQ) capitalized on the opportunities in the industry before the economic slowdown began. However, in light of the successes of the publicly traded transportation companies, there are still many benefits to being an owner operator in the trucking industry.

First, small owner operator truckers enjoy the obvious benefit of low overhead. The administration overhead is practically nonexistent for a single truck operator as compared to a fleet operator. A small operator can outsource professional services as needed for services such as accounting and invoice factoring rather than employing in-house staff.

Small trucking owners also enjoy greater flexibility in determining routes and schedules. In short, a small trucking company controls their own destiny and doesn’t feel the pressure to hit a certain earnings per share number for shareholders. A small trucking operator can determine how successful he or she wants to be and are only accountable to themselves.

Long-Term Outlook is Bright For the Trucking Industry

Although the global economy is coming to a screeching halt, the outlook is promising for the truckers over the long-term. Many signs exist throughout the market place that indicate that fleet operators will emerge from the current economic crisis with the potential for significant growth in their bottom lines.

As trucking operators fight to keep costs down to remain profitable, the fight will help them to become lean and be positioned for increased profitability when the economy starts to expand. In line with cutting controllable costs, the cost of financing is reduced as interest rates are lowered, which is currently the case.

Another major factor that will help propel the success of trucking companies over the coming years is the implementation of better technologies in fleet operations. New technologies are emerging in the transportation industry that help serve the overall efficiencies of trucking operations.

The last item I see helping truckers see success over the long-term is the falling price of oil and diesel fuel. Lower fuel prices takes some pressure off of truckers and allows for increased profitability. It has been said that the success of the trucking industry is inversely related to the price of fuel. This is an overly simplistic analysis of the transportation industry, and is flawed in its overall theory. However, it is hard to argue with the overall theory that when fuel prices are high, the trucking industry struggles. On the flip side, when fuel prices are low, the trucking industry flourishes.

With many signs pointing to the long-term success of America’s truckers, this is a time to get excited about the opportunities within the trucking industry.

U.S. Economic Crisis Impacting Publicly Traded Trucking Companies

With the nation’s trucking industry feeling the squeeze from the economic downturn here in the U.S., the large publicly traded less-than-truckload (LTL) carriers are no exception. Con-way Inc. (CNW: NYSE), one of the largest U.S. LTL carriers, recently adjusted their earnings per share forecast down for the year, citing weaker demand for cargo shipments and price pressure due to the economic slowdown. As a result, Con-way’s stock price has fallen nearly 20% in recent days in composite trading on the New York Stock Exchange.

Other publicly traded trucking companies have also fallen victim to the same market conditions as Con-way. Old Dominion Freight Line Inc. (ODFL: NASDAQ) and other trucking firms have also seen significant drops in stock prices as they struggle to manage the impact of lower freight volume and high fuel prices on business operations.

The trucking industry has long been a barometer of the vitality of the U.S. economy. Historically, there has been a strong correlation between the condition of the U.S. economy and the volume of freight shipments hauled by the nation’s trucking companies. Manufacturing output has seen a significant slowdown over the last two months, thus contributing to the gloomy outlook for the trucking industry as a whole. Many experts believe that cargo volume will stabilize in the near future, but that a major recovery for publicly traded LTL trucking companies may not happen anytime soon.

The Crisis on Wall Street Also Hurts Truckers

Although many may not see the connection, wall street has a huge impact on the trucking industry. As the meltdown continues with some of the nation’s oldest and most respected financial institutions, the overall credit crisis is placing a strangle hold on many truckers’ ability to obtain a loan for fleet expansion or operating capital. The macro economy generally affects the amount of freight being shipped and the rate paid to move the freight.

With the U.S. economy struggling the way it is, many analysts were calling for an interest rate cut by the Fed at the Federal Open Market Committee meeting held earlier today. However, their calls for a rate cut did not result in a cut, as the Fed held rates steady at 2% on the Federal Funds rate. It needs to be pointed out, however, that even with rate cuts and the liquidity pumped into the credit market by the Fed over the past few days, many trucking operators will still continue to struggle getting financing. Many banks have a significant number of bad loans in their portfolios to clean up before they are comfortable extending new loans.

On the flip side, the current decline in oil and fuel prices should come as welcome relief to the trucking industry, as operating margins should start to improve. Fuel surcharges rarely cover the true cost of fuel and high fuel prices squeeze the margins of trucking companies.

In summary, the overall economy impacts fleet operators by limiting the availability of credit and impacting the number of loads available to haul. Trucking operators with good credit are no exception. The trucking industry will continue to be under immense pressure until consumer spending picks up and the construction industry sees a recovery.

Truckers and Credit Cards: Matching Expenses With Cash Receipts

Most small and mid-sized trucking companies deal with cash shortages at one time or another. These cash “crunches” are partly to blame on a trucking company’s expenses being paid before it is able to collect its cash from its customers. In accounting there is a principle called the matching principle. The matching principle is the concept that when accounting for a business’ financial transactions, the expenses and revenue for a specific transaction must be reported in the same accounting period. By following this principle, you get a true picture of a company’s profitability, or lack thereof.

When analyzing the cash flow challenges of a typical trucking, you quickly realize that much of the problem is that truckers pay for many of their expenses immediately even though they have to wait for 30 -60 days to receive payment from their customers. Although this blog will focus on accounts receivable factoring as a primary method of accelerating cash flow, there are other solutions to helping deal with the mismatched timing of cash disbursements and cash receipts. One such solution is using credit cards to make business purchases.

Trucking companies should look at the many benefits of using a credit card for many of its daily expenditures such as fuel and maintenance. Using a credit card buys you more time to pay for your expenses because most credit card companies give you a grace period in which to make your payment without incurring any finance charges. This allows you to more closely match your expenditures with your collections. Additionally, many credit cards are offered as reward credit cards that give you benefits such as discounted gas, travel rewards, free merchandise and much more.

Many people have long been aware of the rewards you can get from a credit card, as well as the many reasons you may want a credit card, such as applying for a student credit card for your college student. However, many small business owners have yet to realize the benefits a credit card can offer their business. So go ahead and find the best credit card for your business and put it to work for you.

Trucking Conference

The American Trucking Association is scheduled to hold their annual conference and exposition October 4-7, 2008. The conference and expo will be held in New Orleans, LA. The ATA scheduled list of guest speakers and expo exhibitors plan to tackle the issues of the economy, fuel costs, new technologies, and how to be profitable in tough economic conditions. The conference plans to address how to boost fleet fuel efficiency, address the latest on the 2010 engine emissions standards, improve driver recruitment, and take a “green” approach to trucking.

“The current economic environment and the upcoming Presidential election make ATA’s 2008 annual convention all the more important for our motor carrier members,” said ATA President and CEO Bill Graves. “This event is designed to deliver strategies and solutions that will help fleets face today’s current operating challenges and thrive.”

In light of the challenges faced by trucking companies in today’s strained economy, the information offered up at the ATA conference is bound to be beneficial to all trucking companies. Although many fleet operators have found ways of dealing with the high cost of diesel fuel, as well as the slow down in cargo shipments, I am sure that new strategies will be introduced to help deal with these challenges even better.