Transportation Companies are Struggling

• October 16, 2023
• Andrew Bollman

Authored by Tony Faust and Andy Bollman

As the 3rd quarter came to a close recently, it’s safe to say that the last few quarters have been interesting for transportation companies. We’ve seen soft freight rates, rising costs, bankruptcies, carriers closing their doors, high interest rates and companies struggling to manage cash flow needs. Economists are projecting this to continue for another 6 to 18 months. 

So given that, what should you be doing? How should you be managing your business to survive, or even thrive?

During these times, companies really need to focus on their financials and metrics. When things are going well, think back to 2020 for example, companies can easily get away with not paying attention to their financials and metrics because the environment and market is so great, it can hide operational flaws. But when we’re in the middle of a freight recession, not paying attention to your financials and metrics to understand your business can sink a business before you realize what happened. 

Here are some metrics that you should consider utilizing:

• rate per mile trend
• fixed costs per mile
• deadhead miles
• understanding weekly/monthly cash flow

Perhaps you’ve heard the phrase “cash is king”. Whether you believe there are storm clouds or sunny days forming over our economic future, knowing your cash flow may never be more important.

A statement of cash flow should be part of your financial reporting. A reconciliation of your cash flow will offer you powerful insight as to your cash management and detail every dollar coming in and going out. You can assess your current cash flow situation and set goals for future cash flow.

In addition to a statement of cash flow, analyzing variable costs as a percentage of revenue can provide incredible information for your management team. Tracking your variable costs to revenue can help decision making such as rate increases, driver compensation adjustments, fuel surcharges and equipment purchases. Do you really know if adding two more trucks will improve your cash flow. A variable cost analysis should be part of your business strategy plans.

A 13-week cash flow model has been around forever. It provides a short enough time period to be accurate while providing a longer-term look at potential cash flow shortages. It is a useful model for your management team to implement changes quickly.

The key to cash flow management is timeliness of information. Waiting even a month for cash flow information can put you at a competitive disadvantage. Internal systems must be fast, accurate and adaptable. Data management is crucial. Those that can harvest their data and put it into meaningful analysis quickly, will have a competitive advantage.

Are you struggling to get data like this? CLA is here to help. We have tools and resources available to dig into the details, analyze your data and produce useful financial information. 

, Accounting and Finance, Industry trends/analysis, Operations, profitability, levering data | 1 Comment »