Freight factoring is an essential service for trucking company owners. Instead of traditional billing processes where you send an invoice, wait a month or two for the client to pay you, and float bills and business expenses as best you can in the meantime. It’s also helpful in that the factoring company handles invoicing, leaving you with more time to focus on finding and building client relationships.
Use freight factoring to manage a fluctuating market. It’s a great way to stabilize your cash flow, even in slow periods. Take a look at the market trends, how we got here, and the reasons to partner with a freight factoring company like Saint John Capital.
Lessons Learned During the Great Depression
If you go back to 1929 when the Great Depression started, several factors caused the economy to collapse. World War I impacted production rates at farms and factories. As business started to boom, interest rates dropped. Consumers spent more on items that required them to borrow money, such as cars.
Business owners were getting rich faster than before, banks were lending plenty, and life seemed great. That was until the Dow Jones dropped by over 12% in one day. Suddenly, businesses that were booming found their value tanking and couldn’t afford their expenses.
As businesses lost value, they laid workers off. Unemployment rates skyrocketed, and people couldn’t pay back loans they’d taken out. In response, the Federal Reserve drastically increased interest rates, which played a part in the stock market crash.
Meanwhile, you also had the Smoot-Hawley Act that increased U.S. tariffs by over 15% in hopes of helping American factories remain competitive. Instead, other countries followed suit and hit the U.S. with expensive tariffs. Fast-forward to 2020 and some of those issues happened again.
The Economy Continues to Fluctuate
When the Coronavirus pandemic hit, President Donald Trump ordered non-essential businesses to close down to get people to stay home and stop spreading the virus. Some people could work from home, but retailers, restaurants, schools, and daycares were all impacted. Government stipends helped provide people with money to keep up with bills in the meantime.
Manufacturing slowed down, people started spending money as they were home all day and getting their salary plus COVID benefits, and businesses couldn’t keep afloat and started laying off workers. Meanwhile, demand for home delivery greatly increased. This event would become known as “The Great Lockdown.”
Again, the Federal Reserve raised interest rates, making it harder for businesses and consumers to spend. Plus, there were medical bills if families required hospitalization after contracting COVID. Housing prices soared, so rents increased accordingly. Supplies like lumber also increased, making it more expensive to afford necessary repairs. Gas prices plummeted until the lockdown ended. As more cars hit the road, gas prices increased with the increasing demand.
All of that has led us to where we are today. Steps have been taken to prevent another Great Depression, but it’s costing us in terms of interest rates, insurance premiums, and property, school, and income taxes. Fuel rates are also higher than they were when demand was low.
All of these pain points have made it very hard for the trucking industry to thrive. Truckers are paying more at the pump than they were during the lockdown. Wages aren’t keeping up, which makes the field incredibly competitive. If your company cannot afford to provide better benefits or higher wages than another company, it could be making it impossible to find drivers. This has led to many companies shutting down and filing bankruptcy.
The economy isn’t going to fix itself overnight, so you need to be prepared to withstand turbulence in the market. Do this by setting your company up with the technology to help you find loads, negotiate favorable contracts, and get paid within days of delivery rather than months from now.
How Are Market Trends Impacting Freight Factoring?
A few market trends are proving to be the top criteria to consider when planning ahead.
Technology
The use of technology in the tucking industry is increasing. It used to be that you had to get back to the office to submit your bills of landing to get paid. Now, you can snap a picture and send it automatically from anywhere you happen to be. The use of GPS also alerts your company to your exact location at any time.
AI is making it easier than ever before to set up searches to find work, plan routes, and change those routes on the go if there are accidents or unexpected obstacles. It can also help scour the internet for the best trucking insurance for your needs. Plus, it keeps up with regulatory changes that you might miss if you’re busy.
Supply and Demand
The demand for trucking has shifted a lot over the past five years. Fewer truck drivers are entering the field, and several big companies have shut down. After these layoffs, some drivers decided it was a good time to retire. Others shifted career paths.
You also have seasonal fluctuations, and this year could be tough. Predictions earlier in the year were that the Feds would start lowering interest rates in the spring. That never happened, and it’s uncertain that rates will go down until nearer the end of the year. With credit card interest rates at some of the highest levels ever seen before, people have slowed down spending.
If consumers don’t buy goods, it decreases the number of shipments that need drivers. While consumer spending is up over last year retail sales have only increased by 2.4%. It’s too soon to tell if holiday goods will be in high demand.
Lower Fees
While freight factoring helps keep your trucking company solvent, these companies are also shifting to meet changes in the market. The competition is fierce, so companies have to make sure their fees and services are competitive.
Low fees aren’t enough to be competitive. While you should consider a freight factoring company with the lowest fees, you also need to look at the services. The more you gain by signing up with a company, the better it is. At a bare minimum, choose a company that provides you with:
- Fuel discounts to help you save money on all of your fill-ups.
- Free business credit checks and these should be unlimited and not limited to 10 or 20 per month.
- Load-finding apps or job boards that make it easy to sort through listings and find more work.
- Financial products with low interest rates such as lines of credit or business credit cards.
- Same-day payments are better than waiting a few days, but make sure you look at the difference in fees when deciding the better option for your needs.
Long-term success comes down to the right partnerships. Use free business credit checks to thoroughly investigate new clients before you agree to work with them. If there are signs of repetitive late payments or non-payments, don’t risk it. A load-finding app is a handy tool for finding work in slow times.
Gain both of those services when you sign up with Saint John Capital and enter into a freight factoring arrangement where you get paid the same day or within a day or two. It’s our goal to ensure you get paid on time, every time. Sign up for free and learn more about our personalized freight factoring arrangements.
