Spot Rates, Contract Rates, and the Future of Trucking

Last quarter, spot rates plummeted drastically, forcing carriers to shift their priorities to contract shipments to make up uneven revenue cycles. The drop in spot rates hit just as demand flattened and fuel prices skyrocketed, leading some industry analysts to predict contract rates will also drop in the near future. The big questions that remain unanswered are what is happening to correct the economy, can the freight sector avoid a recession, and what can carriers do to improve cash flow?

Why Did Spot Rates Drop?

According to a recent Bank of America shipper survey, demand dropped to its lowest point since May of 2020. Since spot rate activity usually leads contract rates by a few weeks, a severe drop in the former could signal a similar fall in the latter, leading to a trucking recession. The trucking industry typically sees downturns twice as much as the regular economy in the United States. The bigger issue is that if freight demand continues to slow down across more industries, then that could lead to a nationwide downturn. Despite all the doom and gloom headlines, market analysts still say it is too early to tell if a major recession is definitely in the future. Typically, from June to September, the trucking industry experiences high demand as retailers stock up on beverages and the construction sector kicks into high gear by ordering raw materials and supplies. So far, the summer of 2022 has seen the opposite trend. Between rising oil prices, bottlenecks in international trade, and consumer hesitancy in certain areas, combined with ongoing recovery from the stresses of 2020, the trucking industry is in a really tight spot. One of the biggest indicators of a potential downturn is sluggish revenue and delayed customer payments.


Avoiding Cash Flow Issues

Whether spot rates are falling faster than contract rates, or if things work out fine, the reality of the current situation is costs are increasing for both fleets and owner-operators. Choppy revenue cycles, uneven rates, and rising fuel prices have left independent drivers and trucking companies with cash flow issues. Some are turning to short-term loans to smooth things over, but this solution actually leads to more problems. If we are headed toward a downturn in the trucking industry, short-term loans will only add debt to the balance sheet, and cash flow issues will be recurring. This could lead to bankruptcy and similar financial scenarios that we saw in 2019 and the start of 2020. Overall, experts advise against taking out short-term loans. If cash flow issues were not enough, splitting revenue between regular operational expenses and loan payments can place trucking companies in dire straits that only accelerate problems instead of solving them.

The Benefits of Freight Bill Factoring

To solve and prevent cash flow issues during a very turbulent period in the trucking industry, carriers and owner-operators use freight factoring services. Trucking professionals cannot wait 30, 60, or 90 days for customers to pay invoices, but they are beholden to the time allotted on staggered payment schedules. Freight bill factoring from Single Point Capital eliminates unnecessary waiting periods by converting unpaid receivables into cash and making funds available in a single day. Additionally, freight bill factoring is not a loan, so trucking companies and owner-operators avoid taking on debt and get to preserve their credit ratings.

By using freight bill factoring from Single Point Capital, trucking companies and independent drivers can catch up on revenue, cover expenses, plan for the future, and build up capital to weather any potential downturns in the industry. Trucking companies that take advantage of freight bill factoring have a better chance at long-term success than those that rely on loans and wait for revenue to trickle in via staggered payment schedules. We offer comprehensive factoring services with live account managers who will answer your questions and offer guidance so you can reach your goals regardless of which direction the economic winds blow. Cingle Point Capital is a national leader in freight bill factoring services for large fleets, owner-operators, small trucking companies, and everything in between. To learn more about freight bill factoring, reach out to the team at Single Point Capital today.