The word “inflation” has been thrown around a lot recently, both on the news and in everyday business conversations. However, the problem is that inflation is an abstract concept. No one seems to be drilling down to explain how inflation impacts businesses, specifically the trucking industry.
Types of Inflation
Three different types of inflation can directly impact the trucking industry. The first type occurs when customer demand outweighs capacity. This is good for the trucking industry. We saw it in 2017-2019 and are starting to see it again as the economy gets back on track. The second type involves the overall cost of goods and services and the gradual increase in wages and cost of living. Everyone is experiencing this type of inflation, and it cannot be stopped, save for a significant economic backslide like the Great Recession of 2008. The third type occurs when the cost of making products or providing services forces businesses to raise their prices, which can occur during long-term gas price hikes, high tariffs on raw materials, and more.
Inflation and the Federal Reserve
To offset inflation, the Federal Reserve will typically intervene by raising interest rates on loans. This happened numerous times in 2017 and 2018. The drawback of this approach to inflation is that trucking businesses with loans for facilities, equipment, working capital, and more end up paying higher rates to lenders every month. This means trucking companies and owner-operators are keeping less revenue and need to find a way to boost cash flow to compensate. Unfortunately, as inflation rises, the ability to secure adequate financing becomes more challenging. Banks and other lending institutions lower their loan amounts while increasing credit and collateral requirements. At the same time, trucking companies may not want to take out loans wigh now. Inflation usually leads to interest rate hikes, which means borrowers could end up paying more each month on new and existing loans. Ultimately, trucking companies will need to find a way to get the financing they need without subjecting themselves to high interest rates, all while trying to maintain cash flow as the economy is poised for an upswing. Seems like a tall order? Not if you know what to look for outside of the realm of bank loans.
How Trucking Companies Adjust for Inflation
With more revenue going out to pay higher interest rates on loans, trucking companies can experience a strain on cash flow. Unfortunately, customers are still paying their invoices according to staggered schedules of 30 days or more, and trucking companies still have to make loan payments on time. Therefore, turning to short-term loans only makes the situation worse by piling debt on the balance sheet. In addition, to solve the problems caused by inflation and stay ahead of the game, trucking companies and owner-operators use freight bill factoring. Using freight bill factoring from Single Point Capital, unpaid invoices become cash, and funds are made available within a single day. Freight bill factoring boosts cash flow so trucking companies and owner-operators can build up capital reserves to handle price changes and interest hikes caused by inflation without resorting to loans. Freight bill factoring is debt-free, does not impact credit ratings, and there are no ongoing interest payments, so it it inflation-resistant financing.
In conclusion, Single Point Capital is a national leader in freight bill factoring services. Contact our team today to boost your cash flow and stay a step ahead of inflation.