The recession may officially be over, but many smaller trucking companies are struggling to come out of it strong. One company is trying to help with some free advice.
Andy Ahern has been in the trucking business for 40 years and has been running a transportation analyst and consulting business for 23. He's done merger and acquisition work for large companies like CRST and C.R. England. But right now, it's the small and medium companies that could really use his company's expertise -- and can't afford it.
That's why his firm, Ahern and Associates, has set up a free crisis hotline where owners of trucking companies hit hard by the economy can receive a complimentary one-hour consultation.
"My grandfather told me, you've always got to give back to the community," Ahern said.
After the announcement of this hit my desk recently, I decided to call CEO Andy Ahern and ask him about the trends behind it.
GIVING BACK
Obviously there's an opportunity there for one of these companies to eventually become an Ahern client, or to refer a colleague who will. But Ahern seemed sincere in his desire to help.
"What's happened the last couple years have had a devastating effect on the industry," he told me. "I think the Great Recession took almost 10,000 carriers out of business." Ahern says he grew up hearing about the Great Depression from his grandfather. These last couple of years, he said, "we were as close to the Great Depression as we could be. It is going to take a very long time to come out of this."
Ahern said he started wanting to do something after seen friends lost their businesses, and after one trucker he talked to who was in financial straits closed his doors and committed suicide.
"The big carriers can afford to pay for our services, but if you look at trucking industry, 50 percent are one to nine trucks." Smaller carriers often can't get financing, shippers are forcing them to reduce rates and are extending payment terms, and they're being forced to go into factoring.
Ahern said he gets five to 10 calls a day from small trucking companies that are desperate. "If I were a small businessman and don't want to sell, how can I survive?" they ask. "We're giving them options. Some of the stories are so sad."
"I'm working with a one lady who's been in business 25 years, they haven't made any money the last three."
THE CHALLENGES
"I think the next 12 to 18 months will be very favorable to the trucking industry," Ahern said. Many economic experts are predicting that because of the amount of supply taken out of the industry, even a modest increase in demand is going to mean higher rates.
"But how is the small trucker going to deal with the issue if he can't get financing, and what's he going to do when we have a driver shortage?"
"How does a little guy afford a $110,000 truck no one will finance?" Ahern asked. "The shippers want everything -- EDI, Qualcomm, etc. how are they going to do that?"
Even though things are looking up, Ahern said, the credit crunch is disproportionately affecting small operations. Most trucking companies have been extending trade cycles, but when you do that, maintenance costs go up. "A lot of your small businesses, even if they wanted to buy new euiqpment, they can't get loans," he lamented.
After talking with his analysts and auditors, who were getting similar calls, he decided to launch a program offering some free advice.
THE ADVICE
"What we try to do is stick to the fundamentals," Ahern explained. "You need to know what your costs are, treat each truck as a profit center. Lane balancing is crucial, and you've got to be prepared for the inevitable."
One of the common areas Ahern and his colleagues find themselves counseling companies on is factoring. Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.
"Is factoring the kiss of death? It depend on the terms and conditions," Ahern explained. There are a number of things a company needs to consider, such as length of contract, terms, rates, and incidental charges. "It's impossible to make money as a small carrier paying 11 percent" to a factor, Ahern said. "Some are at 6 to 8 percent, which they can live with."
An answer for some carriers is teaming up with a larger carrier, as a subcontractor or other type of partnership arrangement. Often this can help companies with the back-office expenses, or with insurance expenses.
"There are times when you have to tell people it's time to cut their losses, which is very difficult to do. There are companies that are in so deep they're not going to come out of it," he said. And there are others who are simply not willing to make the changes they need to in order to compete in today's world. "Some of them would rather close their doors than change."
Ahern emphasized that he's "not the smartest spark plug in the engine; I have access to people who have been through these battles. I can call one of my customers or one of my auditors. We have access to a lot of information, and information is power. Sometimes these people just need a sounding board."
"Truckers are an interesting breed," Ahern said. "They compete every day with each other, yet it's a special community."
THE HOTLINE
The hotline is manned by experienced auditors, many of whom are ex-presidents and CEOs of trucking and logistics companies. They can help with:
* Cash flow management * Receivable financing * Too many empty miles * Low revenue per mile * Violations of bank covenants * 940 and 941 tax liabilities * Delinquent equipment payments
To receive a complimentary one-hour consultation, call 602-242-1030 Ext. 201 Monday through Friday 8 a.m. to 4 p.m. PST.
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