Business Credit for the Trucking Industry

Part One: Overcoming Common Trucking Small Business Challenges

Trucking companies face a multitude of challenges, from skilled labor shortages to cash flow problems to intense regulations. Small business trucking companies often struggle the most and are being pushed out of the industry by larger entities.

Demand for trucking is driven by consumer spending and manufacturing output, and the profitability of individual companies often depends on having efficient operations. Large companies have advantages here – in account relationships, bulk fuel purchasing, fleet size, and access to qualified drivers. Because of this, the US trucking industry is fragmented: the 50 largest companies account for 40 percent of revenue.

However, small trucking companies can still find ways to compete. In addition to offering fast turnarounds and servicing smaller, local markets, small trucking companies can build their business credit files to help win lucrative contracts, better manage cash flow, and get higher credit limit recommendations.

Business credit can help solve for some of the biggest challenges facing the trucking industry, especially small business trucking. These challenges include: 

• Customer Concentration – Many trucking firms receive a large portion of business from just a few big customers or customers all in the same industry.
• Driver Shortages – Hiring and retaining qualified drivers is a consistent challenge in the trucking industry. Many of the industry’s workers are approaching retirement age, but long hours and relatively low wages have made it difficult for companies to attract new employees.
• Freight Theft – Every year transportation providers have billions of dollars’ worth of goods stolen. Truckload carriers are particularly vulnerable because their cargo can be easily identified and targeted.

How Building Business Credit Can Help

1. Competition for customers is stiff in the trucking industry, but by being a company that has the strongest business credit scores and ratings, a smaller company could show it poses the least amount of risk.
2. Leveraging business credit to win more contract bids could mean increases in revenue and the ability to pay workers a higher wage, helping a smaller company attract and retain quality workers.
3. Business credit can help a company get more favorable insurance premiums, which may prove useful in the event of stolen goods. A smaller company may be able to leverage strong scores and ratings to get more extensive coverage and be better protected from loss due to theft.

Cash Flow Management is Critical for Truckers

In addition to the challenges above, the trucking industry is also vulnerable to seasonal and economic cycles that make cash flow and capital two prominent challenges.

• Demand Tied to Economic Cycles: Profitability in the trucking industry is closely tied to the volatile health of the national economy. Drops in construction spending, consumer confidence, and industrial production can negatively impact trucking profits.
• Vulnerability to Fuel Price Increases: Fuel, like labor, is one of the trucking industry’s highest operating costs. Diesel fuel can account for 15 percent or more of revenues and rising fuel costs have reduced the number of small and midsized trucking companies. Unable to negotiate bulk fuel rates, small businesses are more vulnerable to price hikes.
• Finance & Working Capital: Cash flow is somewhat seasonal, as many shipments are made prior to the winter holiday selling season. Bankruptcies are common in the trucking industry and are closely correlated to the cost of diesel fuel. Rapid price increases for fuel can create critical cash flow problems, particularly for smaller companies.

Business Credit Strategies for Commercial Trucking Companies

1. A company’s business credit file can be a huge asset for managing cash flow, getting a higher credit limit recommendation, and obtaining financing.
2. To survive economic changes, a small trucking company may need to get a loan or some other type of financing to cover rapid changes in cash flow or increased regulatory costs. Lenders often check business credit files before determining loan recipients or loan amounts. Strong business credit can help a company get a loan, receive a higher loan amount, or get more favorable interest rates.
3. Having strong cash reserves can help offset a rise in fuel costs, and a company’s business credit file could help make it less expensive to borrow for short-term cash flow crunches or avoid unfavorable short-term financing all together. (Plus, strong cash flow indicates a healthy, reliable business, which could help when bidding on contracts.)

Part Two: Challenges for Carriers and Forwarders

The trucking industry faces a host of challenges as whole, but each sector also faces its own unique business challenges. Carriers and forwarders in the trucking industry face additional obstacles, like thin margins, credibility, unexpected costs, and more. Often, carriers and forwarders don’t know how business credit can help them manage these challenges, or they discover they need business credit at a critical point in their business but don’t have strong scores and ratings ready to assist. Building business credit early on can be crucial for carriers and forwarders. Here’s why:

1.   Thin Margins

Carriers and forwarders run on thin margins, and interest rates and insurance premiums can be the difference between turning a profit or breaking even.

Strong business credit scores and ratings can help companies get more favorable rates, terms, and conditions. When a company’s business credit file indicates that it’s low risk, it can negotiate better deals.

2.  Unexpected Costs

Unexpected costs while on the road, such as fuel, tire replacement, and repairs, can leave carriers and forwarders in need of quick cash. Employees also need access to credit accounts to cover unexpected expenses while they are on the road, and the trucking company may need to obtain high credit limits to manage these costs.

Business credit can help companies manage their cash flow to avoid shortages and help them get higher credit limit recommendations. Strong scores and ratings can influence others to offer more credit and can make it easier to get financing to offset unexpected expenses.

3.  Credibility

Carriers and forwarders often work with a set customer or group of customers, but many of them also regularly look for loads to pick up. Credibility can be a huge issue for those trying to grow and work with new brokers, who will require trucking companies to meet certain qualifications before hiring them.

A strong business credit report can help companies create new relationships and grow. Scores and ratings convey how a company pays its bills and help predict whether it will be a reliable supplier or might cease operations. A business credit file also contains information on suits, liens, and judgments, and all of this information can convey credibility. When trying to win new business or show it can meet certain standards, business credit can be instrumental for a trucking company.

4. High-Dollar Purchases

Trucks and other equipment are high-dollar purchases for carriers and forwarders, so these companies tend to have heavy credit needs and require financing on a regular basis.

Business credit is routinely checked by lenders when a company seeks a business loan. Lenders want to be confident that a loan will be repaid, and they turn to business credit reports for help when deciding how much capital to offer and at what rates. Building strong business credit can help companies get a loan with favorable interest rates.

Even if new equipment or vehicles aren’t anticipated soon, it’s important to establish a complete business credit file early on, so that there’s time to build and impact it before a loan becomes necessary.

Part Three: Challenges for Freight Brokers

Freight brokers, who act as intermediaries between carriers and shippers, encounter unique business challenges. They must consider their own credibility, financing needs, and the credibility of the companies they work with. Business credit can assist brokers in overcoming these obstacles and evaluating potential partners in the trucking industry.

1.  Surety bonds and insurance

Freight brokers are required to obtain a $75,000 surety bond. If a freight broker does not live up to its contracts with a shipper or a carrier, the surety bond assures shippers and carriers that the broker has the cash or assets to cover at least the amount of the bond.

Surety bonds can be obtained from an insurance company, but brokers must pay premiums. Strong business credit scores and ratings can help brokers negotiate lower premiums by helping show they are a low-risk company.

2.  Liability

Brokers may be liable for damages if the shipment is damaged or there is an accident, so they typically have a strict qualification process for carriers.

Brokers can check the business credit files of other companies to help vet and qualify new carriers. A business credit file contains information on suits, liens, judgments, and payment history. Predictive scores and ratings can help brokers decide if a carrier is likely to pay late or go out of business, so they can choose the best companies to contract with.

3.  Cash flow

Brokers face very little in the way of startup costs, but they usually pay carriers right away and then bill shippers. This can lead to cash flow and funding problems for brokers. Lines of credit can create financial flexibility while waiting for customers to pay. 

A strong business credit file can help a broker get a line of credit from a bank, with more favorable terms.
Brokers can also check a shipper’s business credit file prior to approving their credit terms to make sure the shipper isn’t too high risk.

4. Competition

Freight brokering is an extremely competitive industry, and brokers will need to stand out as well as prove they are the best choice for the job. By building and maintaining a strong business credit file, brokers can show they’re low risk and may be able to negotiate higher prices because they’re more reliable than the competition.

Good business credit can be an invaluable asset for businesses in the trucking industry. Whether it’s carriers, forwarders, freight brokers, or trucking, good business credit can open new doors, help win more business, keep costs low, and help business run more smoothly.

Start Building Business Credit Today

It’s clear that business credit can help carriers and forwarders succeed in multiple ways. With strong business credit that is monitored early on, trucking companies like these can have better access to funding, fewer cash flow issues, higher credit limits, and clear credibility.

The first step in potentially building business credit is getting a free Dun & Bradstreet D‑U‑N‑S^® Number to identify your business, aggregate your information, and establish your business credit file.