Despite growing signs the trucking industry is finally recovering from a four-year recession, access to credit remains stubbornly tight and cautious truckers seem reluctant to borrow, according to a quarterly survey by M&A firm Transport Capital Partners.
A second-quarter survey of about 160 truckers, most of whom have annual revenues of more than $25 million, found that 60 percent expected credit availability to remain unchanged during the next six months, with 15 percent expecting credit conditions to tighten. Just 25 percent forecast credit conditions to improve by year's end.
The speculation over credit availability comes amid a brightening picture for the trucking industry. Nearly 90 percent expect volumes to increase over the next 12 months compared with the prior 12 months. That was up from 70 percent in the first-quarter survey. About 84 percent of respondents expected rates to rise over the next 12 months, up 53 percent from the first quarter and 12 percent from a year ago.
One reflection of truckers' optimism is their reduced reliance on freight brokers for business. About 80 percent of the carriers surveyed reported they were making less use of brokers, compared with 30 percent in May 2009. The figures indicate that business is strong enough for truckers to procure more traffic directly from shippers without having to pay an intermediary to generate loads.
Opinions over credit conditions were divided, depending on carrier revenue. Of those respondents expecting tighter credit, only 10 percent were truckers with annual revenues of more than $25 million, while 27 percent were smaller companies.
Richard J. Mikes, a managing partner with Transport Capital Partners, said he was surprised by the feedback on credit conditions given historically low interest rates and ample liquidity in the marketplace. Yet an absence of credit isn't as much of a negative as it might seem, he added. Larger truckers are already sitting on large cash piles and may not need credit to finance capital investments. Smaller truckers are generally conservative and will be loath to buy anything if they can't pay cash for it, Mikes said.
While the lack of credit may hamper purchases of new equipment, Mikes said that isn't much of a concern, either. There is an enormous amount of used capacity already parked, and truckers can effectively add space simply by boosting the utilization of their existing fleet. Should truckers want to add rigs or trailers, they are likely to head to the aftermarket, where a five-year-old rig can be bought for maybe one-third the cost of a new one, according to Mikes.
Rising costs across the board are likely to curtail truckers' appetite for credit, anyway. Truckers are already paying more to recruit and retain drivers. In addition, new government safety regulations set to take effect in the fall will increase the industry's compliance costs, while at the same time further thinning the available driver pool.
The improving market outlook has sparked interest in acquisitions, the survey found. In the second-quarter survey, 45 percent of respondents said they would be interested in buying another trucking company in the next 18 months. Of those who expressed interest, 53 percent were classified as larger truckers.
The share of carriers who said they were interested in selling their companies dropped to 20 percent in June from 28 percent in March. Of those, 25 percent who said they would entertain offers were considered smaller carriers; 17 percent were larger companies.