Tougher Credit Standards.

Will we be able to look back at this fuel crisis the same way we look back on Arab Oil embargo of the 70’s? Will we be able to say “it was ugly but we survived?” Unfortunately, today’s energy crisis is still unfolding. No one knows how bad it will get or how many businesses will become casualties. One thing we can be sure of, these high fuel prices will have a profound impact on the way we live and do business.

The first quarter of 2008 marked the highest number of trucking bankruptcies in history. Many carriers have chosen to park their equipment rather than haul freight for a loss. The fuel crisis has created issues further up the freight chain affecting both transportation brokers and shippers. Increasingly, both find themselves under pressure to “pay-up” or face the prospect of having no one left to haul their freight.

In the face of “vertical” profitability issues, RTS Credit Service has strengthened its credit guidelines for brokerage and shipping firms. As a result, you will notice a higher number of credit alerts. These reflect both our tougher credit standards and, in some cases, a slowing down of pay. We would like to make a very important point here. It is one thing for a brokerage or shipper to pay freight invoices slower than the industry average when transportation resources are available. It is quite another issue not to have the resources to pay more efficiently when the market demands it. Therefore, we think that slow pay under the current difficult conditions represents a high level of risk for the carrier, one to be avoided if possible.

Even though the first five months of 2008 have painted a bleak picture for motor carriers, there may yet be a silver lining to this economic storm. Our sources tell us that freight has picked up in June. Carriers are dictating pricing more and more with a take-it-or-leave-it type of strategy. In many cases, we are seeing a bidding war for available equipment. There are numerous instances of long hauls paying four to five dollars per mile. A note of caution is appropriate here: don’t be taken in by extraordinarily high rates. Slow paying brokers and shippers are often more desperate to secure equipment and will need to pay-up to keep a customer. Check the credit rating and rate of pay on everyone that you are not absolutely positive about. If you have any questions, please give us a call.

While we are clearly entering a period of opportunity for truck lines that should extend through December, there will be an increased wave of defaults on freight liabilities for that period as well.

Have a successful summer and watch those receivables.

Ryan Beasley
Manager
RTS Financial Service, Inc.