Some large unicorn startups are targeting freight matching for truckers as a great way to guarantee better utilization of trucks for smaller independent truckers, and offer the additional benefit of helping sustainability. Empty return trips are definitely a source of unnecessary air pollution.
Two big ones are Convoy in the US, and Zeus Labs in the UK. The concept is Uber-like and simple: match freight that has to move with trucks looking for a load. It’s easily handled with software. So far, so good.
Now these large, well-capitalized firms are using their financial power to offer factoring to their trucker clients. In effect, the truckers are selling their freight invoices to the large firms for ready cash of something like 80% of the value. The claim in the article is ‘up to 85%”. It’s up to the factors then to collect the full value of the invoice, possibly as much as 90 days later. This is due to the ‘slow pay’ practices of many shippers.
This factoring or loaning of money could be useful for a trucker, in order to get paid right after delivering the load. The question is whether the price is right. The factor can make a lot of money due to the reduced payment for the invoices. It clearly is a good business for the factor.
But as in small business everywhere, it’s not always the best policy to sell your invoices for early money. The discount may be too high to offer a decent profit on the trip. Truckers might be trapped by the idea of quick money into reducing their profits from each load by too much to sustain them. It’s a classic small business risk, that has to be examined closely.
I’m not sure truckers are all prepared to make this evaluation. But the offer of early payment can be attractive.
We’ve seen a catastrophic drop in demand for trucking freight. It’s natural given the very high prices for truck hauls recently. Now tender rejection, a measure of how often trucking firms reject contracted loads to go after higher-paying spot market loads, has dropped to around 9% from well over 20%.
Does this mean that the inventory buildup also is about over? We hear conflicting things from the maritime front. There are still ships waiting to unload, even though Shanghai has reduced its shipping considerably. Many firms have gone to private shipping rather than using the liner alliances. But the containers still seem to be coming.
It’s a good question what portion of the trucking drop is to be attributed simply to the high prices, and what part to the actual reduction of demand.
I think it may be the high prices. They may be inducing shippers and buyers to hold off to keep logistics costs down. Buying larger orders less often is a good way to reduce total inventory cost, even if you leave out quantity discounting. So firms can plan to buy later. It may pay off with reduced trucking need and lower truck haul prices.
So is there a driver shortage? We may be training a bunch of new drivers just as the demand for them is cratering. How is that good for those people?
Truck drivers can’t get overtime pay, according to a US law. The law is old, and was passed to meet a need when trucking was regulated. with the shortage of drivers today, shouldn’t we look at allowing overtime pay?
Doing so would probably increase some drivers’ take-home. It might also induce trucking firms to reduce the service level, on the grounds that they won’t pay the extra for overtime. That would mean we would need even more drivers to handle the loads we need to. Or cargo would not move.
Fairness to people seems to warrant allowing overtime wages for truckers. That could be a social objective we’d like to see met. It’s fair also to look at what the flow of goods might look like if overtime were paid. That is harder, because we don’t know how firms would execute on the rule as they try to handle the consigned loads. It might be better to not pay overtime and try to outsource loads to independent operators on a piecework basis.
The effect would probably include a lot more outsourcing to owner-operators. And with all the controversy today about what owner-operators are owed in terms of benefits and work rules, more controversy and confusion could erupt.