A Freight-ning Turn of Events
Here in the factoring community, we’ve had an inkling or two that banks are cutting people off. In the words of Boston, it’s more than a feeling.
U.S. bank credit went from 10% growth in August of last year to a -0.6% dip this October. We’ve only seen this happen once since 1974 during the 2008 financial crisis.
U.S. firms raised a little under $70B from bond sales and leveraged loans in October, making it the quietest month so far this year. It’s also the weakest borrowing pace since 2011.
Now that the stage is set, it’s time for us to turn our attention to a major leading indicator of economic health: the freight market.
Memes of the day
We’re witnessing freight brokers go out of business like it’s all going out of style…and fast.
- SELSCS: This supply chain giant is closing down operations and lost 40% of their business this year. As if kicking off the year with a theft of $700,000 worth of video poker machines wasn’t bad enough. According to the firm’s CEO, they couldn’t come to an agreement with their bank on their day-to-day cash flow needs.
- Convoy Inc: Just one day after word leaked to the public that they were in hot water, Convoy Inc. announced they’re closing up core business operations. What caused the collapse? A massive freight recession and contraction in the capital markets, which also crushed an acquisition target.
- Heartland Express: While they’re not closing down, Heartland Express reported a net loss for Q3. They recently acquired both Contract Freighters Inc. and Smith Transport, which are experiencing the same turmoil as all the other freight brokers. As for the Q4 outlook, the company expects little gains on sale compared to the $4.1M they pulled in last year.
Oh, and don’t forget the bankruptcies of Yellow and Surge Transport. How’s that for a post-Halloween jumpscare? If you need a costume for next year, how about the ghost of freight brokers past?
As Craig Fuller (@FreightAlley) summed it up, freight brokers make their money through margin, or the delta between what they charge the shipper and what it takes to pay carriers.
Back in the day, typical margins were between 12 and 18%, however the brokers who wanted to scale quickly often took a smaller margin. They’d charge shippers less than competitors, for example, Convoy was at 7%.
Recently, banks and factors involved in financing freight brokers have been finding out what happens when you have been swimming naked.
Add in the compressed margins, the current state of banking, and boom. The perfect storm.
This upset could cause even more pain for an already battered transportation market and is most certainly a bellwether for the economy as a whole.
Keep On Truckin’
If you believed ZIRP or BRRR were going to be the status quo for an infinite future, you’re probably in the midst of a rude awakening. Alas, the shock is continuing to break things and the freight market is our latest victim of change. Shock will always be a factor of this journey, and victory means we conquer some ugly along the way. Even Luke Skywalker had to abandon his old ways to embrace “The Force.”
At Dare, we’re with you every step of the way, especially through our white label Back Room Service.
As a Dare Capital partner, you’ll experience:
- Greater income (a lot more)
- Owning assets instead of commissions
- Zero investment down
- No personal liability
- Fifty-fifty split on risks and profits
If you’re ready for a lender who roots for you, even in hard times, give us a call.
Until next time,