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After several years of decreasing revenues and reduced profitability in the trucking and transportation segment of the U.S. economy, current trends indicate that a period of expanding demand and increased traffic is just around the corner. This is good news for the beleaguered trucking industry, which has been in an enforced holding pattern due to economic downturns and concerns over increased federal regulations and the costs associated with complying with these new rules. In the light of these new industry forecasts, many firms are considering expanding their operations and adding new services to attract more customers in the competitive transportation marketplace.
Increased Weight, Not Increased Loads
Recent statistics indicate that the number of truckload shipments have not significantly increased in the last few months. However, the average weight of individual shipments has risen considerably. A study conducted by the American Trucking Association (ATA) showed a 2.3 percent increase in freight tonnage between April 2013 and May 2013. This is a significant indicator of improving conditions in the trucking industry and will boost profits for many transportation firms that had experienced financial difficulties in the past few years.
Larger Cargo Spells Larger Profits
One contributing factor to increased weight and traffic in the trucking sector is the increase in production among automakers and large equipment manufacturers. Many long-haul trucking firms are seeing much more activity in this area of the transportation industry as these large items are delivered to showroom floors and warehouses across the U.S. As the economy continues to recover, the demand for these items is likely to increase, creating a need for even more over-the-road trucking and transportation services. According to projections published by the ATA, the overall volume of freight is expected to increase by one-fifth by 2024; trucking volume is expected to experience disproportionate growth and to account for approximately 70 percent of all freight shipments during the same period.
Added Services Also Boosting Traffic
Demand for specialty transportation services in the business environment has led more trucking firms to expand into less-than-truckload shipping, white glove delivery and last-mile set-up arrangements. These added services provide one-stop convenience for corporate clients and ensure that trucking firms attract their fair share of business opportunities in the competitive transportation industry. By expanding the corporate portfolio to include added-value services, trucking companies can ensure that they stay at the forefront of the industry during this time of growth.
Drivers a Potential Limiting Factor for Growth
The added volume of business for trucking firms has led to increased demand for qualified and experienced drivers. Estimates indicate that the trucking industry requires approximately 30,000 additional drivers to manage current demand for over-the-road transportation services. Flat profit margins have discouraged new drivers from entering the marketplace and have created a shortage of drivers for companies just as they are ready to expand their services. Owner-operators are in especially high demand and in short supply in the employment marketplace. As a result, many companies are raising their pay rates to retain their existing personnel and to attract new drivers to their company.
New Drive-Time Regulations Present Challenges
The new federal regulations limiting the hours per day and week that drivers can stay on the road are presenting even more financial difficulties for some companies. Many drivers have been working longer hours to compensate for the shortage of qualified operators. Changes to the federal hours-of-service regulations took effect in July 2013 and have already had a considerable impact on the operations of many smaller trucking firms. Although larger transportation companies have yet to feel the same economic stresses, it is likely that the reduced hours and increased costs of implementing these new requirements will lead to rate hikes for customers within the next few years.
Managing the Cash Flow Crunch
Trucking firms interested in expanding in the current favorable economic environment will find one roadblock still in place. The credit crunch that began in 2009 is continuing to affect small businesses and to limit their access to loans and lines of credit in the traditional banking marketplace. Many smaller trucking companies are struggling with the aftermath of an extended lull in demand and the ongoing expenses required to maintain operations and keep vehicles in good running order to manage their current customer lists. For these firms, an infusion of working capital is an absolute requirement for expansion and growth in the transportation industry.
Many trucking firms are turning to asset-based lending companies as a viable option to traditional banking arrangements. Asset-based lenders offer purchase order funding, invoice loans and other collateralized loans that draw on the value of outstanding financial instruments. Most trucking companies have long-standing relationships with steady customers and maintain accounts receivable arrangements with these clients. By monetizing the outstanding invoices and purchase orders from these customers, smaller trucking companies can acquire the working capital necessary to expand and take advantage of the current favorable conditions in their industry.
Companies like 1st Commercial Credit are an ideal solution to managing the credit crunch and provide rapid funding for trucking companies and other businesses. The application process is fast and easy; most companies receive their funds within a working week of approval. By opting for these alternative lending solutions, trucking firms can compete more effectively in the expanding transportation marketplace.