Equipment Financing: Leverage the cost of wages and tap into profitable demand for transportation
The US Economy is growing, but the $700 Billion long-haul trucking industry is booming. However, though the amount of freight moved by trucks has been steadily increasing since 2012, the industry struggles to find employees. According to the American Trucking Associations, long-haul trucking currently employs roughly 800,000 people, but needs 48,000 more; a problem augmented by shrinking American unemployment rates. The simple truth, employees would rather be construction workers, and return home at night, than drive long hours away from friends and family. The result: as average U.S. wages increased by 4%, long-haul wages spiked 17% in an effort entice workers to start driving and keep driving.
This is excellent news for truck drivers who now earn an average of $57,000 a year. However, trucking companies are struggling to keep up with the cutthroat employer wage and benefits hiking competition currently forming in the long haul marketplace. Jim Keppler, vice president of integrated supply chain for Whirlpool Corp., stated the problem directly: “Given the fact that the cost of transporting products over the road is rising, it has kind of forced us to rethink out distribution network strategy…Driver pay is a big part of that.” In response, Whirlpool built a truck depot abutting its train station in order to remove the need to short-haul trucks in their supply line, thus reducing their costs to allow supplementation of wages. This is a great solution for large companies but how are small companies supposed to compete?
The simple solution is equipment financing. Financing removes the need to pay large dollar amounts upfront for expensive equipment, thus increasing cash flow. Instead of paying $57,000 for a tractor, finance the truck at a comparatively low monthly payment. Then, pay your driver $4,750 a month and watch as the driver’s wage and the lease payments pay for themselves through the profit of having an additional truck in your fleet.
The transport company that successfully learns to use equipment financing can then cash in on its former weakness, the lack of drivers in the market. Companies that rely on trucking to ship and receive merchandise feel the lack of drivers especially strongly. A transport company that finances trucks, and thus has drivers, can charge a premium for its services. High price of services creates higher profits. Through equipment financing a transport company can circumnavigate complications cause by the cost of wages and instead tap into the surplus of customer demand for transportation. A surplus of demand creates a rise in service price and a rise in price creates opportunities for expansion and profit.
Sources Cited:
Wall Street Journal
http://www.wsj.com/articles/drivers-reap-benefits-of-trucking-boom-1444728780
American Trucking Associations
http://www.trucking.org/article.aspx?uid=24c06a51-4f43-4826-bd79-530c23f205e6
Bureau of Labor Statistics
http://data.bls.gov/timeseries/LNS14000000