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Incidental expenses are often overlooked in the overall costs of trucking operations. Fuel costs, regular vehicle maintenance and overhead for warehousing and storage are usually figured into annual or project-based budgets. Per diems for drivers for meals, lodging, tips and fees for toll roads, however, may be considered too inconsequential to be worth examining for potential cost savings or to identify trends in these regular expenses. However, monitoring and assessing these monetary outlays can help companies ensure improved working conditions for their staff members and more efficient use of financial resources in the corporate trucking environment.
Small Expenses Can Add Up to Big Cash Flow Problems
Maintaining meticulous books and monitoring expenses can help trucking firms identify areas where cost savings can be realized and improvements can be made in the overall budget plan. Supply chain management is one area where careful attention can often lead to improved profitability and increased flexibility in managing the costs of fuel, vehicle maintenance and other expenses incurred in the normal course of trucking operations. For some companies, offering per diems to their employees as part of their compensation package can improve retention and allow improved management of ongoing minor expenses in the working environment.
Per Diems and Tax Liabilities
The Internal Revenue Service (IRS) offers tax benefits for trucking employees who receive per diem amounts as part of their compensation plan from their employer. Companies that pay per-diem amounts that fall within the approved federal guidelines are not required to pay employment tax on these amounts; additionally, staff members need not pay income tax on these amounts. In effect, per diems that fall inside the federal guidelines are tax-exempt for both employers and drivers.
Toll Road Costs Increasing
As state and federal tax revenues continue to dwindle, many states are turning to self-funding to manage the costs of necessary roadway construction projects. One such initiative is the Ohio River Bridges Project, which is a joint project of the states of Indiana and Kentucky. When completed, this two-bridge project will connect the downtown area of Louisville with Jeffersonville, Indiana, and will span the Ohio River between Prospect, Kentucky, and Utica, Indiana. Proposed tolls for these bridges range from $1 for passenger vehicles to as much as $12 for larger trucks hauling cargo across the river by means of these new connections.
A Chilling Effect on Local Trucking Firms
For companies operating in the Louisville area, these new tolls represent a crippling additional expense for their future operations. The business manager for Kentuckiana Trucking, Sean Schneider, estimates that the tolls assessed by these bridges could cost Kentuckiana upwards of $800,000 annually. While the final tolls have not yet been determined by the project authority, the cumulative effect of repeated toll charges for trucking companies that operate in Louisville and the surrounding communities may lead to the ultimate failure of these companies and the loss of the transportation services they currently provide.
Fuel Costs Still a Factor
While fuel prices have stabilized to a considerable degree over recent months, the financial pressure created by the initial price increases has left many trucking firms operating on minimal cash reserves or no reserves at all. The fluctuations in fuel prices and the upward creep in the diesel marketplace have created serious issues for many companies in their cash flow management and financial dealings.
Years of Lower Profits for Trucking Industry
Economic downturns in recent years reduced demand for trucking services and led to increased competition in this industry; as a result, most transportation-sector firms are not well positioned to raise rates or to negotiate more favorable and profitable contractual agreements with new or existing client lists. Many trucking companies have had to cut costs, reduce staffing and tighten their belts to survive during the last few years.
Tight Credit Conditions Make Matters Worse
Further exacerbating the financial situations of small trucking firms, banks and lending institutions throughout the U.S. have tightened the availability of credit in the aftermath of various industry bubble collapses and scattered evidence of corporate wrongdoing in the financial world. Many trucking firms have been cut off from the loans, lines of credit and financial arrangements they need to stay viable in today's competitive transportation marketplace.
Signs of Hope on the Horizon
Recent economic indicators do offer some hope for trucking firms caught between increasing fuel costs and static revenue streams. Increased demand for trucking services is rejuvenating the industry and allowing financially beleaguered companies to enjoy an influx of new and repeat business that can lead to enhanced revenue streams and profitability. For trucking firms who have already optimized supply chain arrangements during the period of economic contraction, the added funds available from new contracts and new customers can provide increased financial stability and increased profits.
Factoring for Trucking Companies
The stress of recent economic conditions has led many trucking firms to consider an alternative way of obtaining funding for their ongoing business operations. Factoring is an ancient and established way to manage pressing financial needs and continue normal business operations. Factoring arrangements are not loans; instead, they are the sale of outstanding financial instruments to fund current expenses. For example, a trucking firm with an outstanding contract for transporting cookies from manufacturer to marketplace will surrender the right to payment on that contract to a factoring company. In return, the factoring establishment will pay the trucking company almost all that is owed on the invoice or contractual agreement, retaining a percentage for fees and profit on the transaction. The trucking firm benefits by obtaining cash immediately to manage ongoing needs, and the factoring company pockets a small profit to maintain its business operations.
Advantages of Factoring over Loans
Taking out additional loans can have a serious impact on corporate credit ratings. Additionally, loans accrue interest over time, creating the potential for trucking companies to owe far more than the initial amount needed for a loan. By opting for factoring rather than borrowing, companies can resolve cash flow problems quickly and without added financial burdens. Finally, factoring is much more readily available than other credit arrangements in the financial marketplace and offers immediate decisions and disbursements to resolve monetary matters quickly.
Companies like 1st Commercial Credit specialize in fast decisions on freight factoring arrangements and can ensure that trucking firms obtain the right funding solutions to manage their ongoing operational needs. These specialty financing and funding companies are an ideal solution for transportation companies in today's challenging economic marketplace.