It appears that 2009 will be an ugly year for trucking companies – and pretty much everyone else for that matter. But the continuing and potentially deepening pain may lead to a severe capacity crunch once the recovery materializes. That’s great news – provided you are one of the lucky survivors. If times are tough or look like they will be, take steps now to improve your odds of being around to reap the rewards.
Maximize cash flow. Work to speed your accounts receivable, and employ every responsible and ethical tactic to push debt and vendor payments to the last possible moment. For specific steps you can take, consult the “How to Manage Cash Flow” manual at www.commercialcarrieruniversity.com.
Tap existing credit lines – immediately. In the current credit environment, some lenders are capping lines of credit at the current balance without cause, says Jay Taylor, managing director of Capital Resource Partners. Consider drawing the maximum availability on any existing credit lines as quickly as possible to create a cash reserve.
Try to work with lenders. Because lenders also are hurting, you may have limited or no success, but it’s worth a try. Taylor recommends asking for considerations such as interest-only for a time, skipping payments or moving payments to the end of the finance contract.
Pare your fleet. “The big issue is utilization – excess capacity, in the form of trucks on the fence,” says Richard Bell, chief executive officer of accounting and business advising firm Bell & Co. “Pay the note payment, or sell the truck at a lower price. In today’s market, a 50-unit fleet may need to be a 25- to 30-unit fleet based on freight.”
Increase freight network density. “Nothing will improve short-term performance more than reducing the scope of a small company’s freight network,” Taylor says. Focus on core customers and lanes that have repetitive shipments. Eliminate shipments to destinations that are infrequent and where there are no core customers.
Hedge fuel. Based on today’s pricing, fleets probably should cap prices on at least 15 percent of their fuel volume for all of 2009, says Brad Simons, president of Simons Petroleum’s Pathway Network. If the price of a barrel of oil drops to $40 or below, fleets should look to cap at least 30 to 40 percent.
Eliminate noncritical expenses. Focus on each dollar spent on items that do not keep the company running, Taylor advises. Eliminate exceptions – even if they affect owners.
Slash overhead. Most carriers could reduce overhead by 30 to 40 percent for a year or two without destroying core capabilities, Taylor says. He suggests offering furloughs without pay, cutting hours for hourly employees, having employees share shifts, leaving all vacancies in place and, ultimately, instituting a reduction in force if necessary. And Bell suggests looking at situations where technology can take over. “Instead of five trucks per one support person, shoot for eight trucks to one support person.”
Watch customers very closely. Don’t forget that the recession may be hurting your customers more than you. Stay on top of accounts receivable and any other indicators of financial health. If you aren’t careful, bankruptcy could not only wipe out receivables but also even require you to return recent freight payments to the trustee. For more on dealing with bankrupt customers, see “Become a critical vendor,” Law, November 2008.
Reduce management compensation. In a crisis, Taylor recommends imposing “voluntary” 25 percent pay cut on the management team to show leadership. At a minimum, shareholders should reduce their own compensation.
Look within the business for solutions. “If your company turns south, fix the problem, but do not throw all your personal funds into the company,” Bell says. “The ship is sinking for some reason, and 90 percent of the time, it is revenue-driven.”
These are tough tactics, but more profitable days lie ahead if you manage to stick around for them.