Expediting 2016: The State of Finance, Credit and Lending
Fluctuations in business are nothing new, and as Expediters, we’ve learned to take the good times with the bad. It’s no secret that 2016 has seen a soft environment for freight. According to the CASS Freight Index report, as of June, freight is down 8.8 percent from June 2015. This situation is causing pressure on lending markets, as well as credit end users. In order to analyze and better understand these market forces, Spotlight News talked to four industry finance specialists to get their take on what’s down the road for finance, credit, and lending. Their answers may surprise you and even motivate some to reevaluate their business goals. But one thing is for certain, you won’t look at credit and lending the same way again — and you will also learn that there is safety in support in any economic environment.
Sarah Jones • District Finance Manager at Daimler Truck Financial for the Indianapolis Territory
SLN: What are you seeing in Finance, Lending and Credit right now?
The financial strength at the moment is not going in the right direction. As we do all of the line renewals for the year, the ratings have gone down, and a lot of our owner operator delinquencies are up. Used truck values have been hurt somewhat and this was a leading indicator for the down tick.
SLN: To what do you attribute the recent downturn in the economy?
I attribute it to a number of things. Everyone stopped replacing units during the previous downturn and waited things out, and during the 2014 – 2015 era, people were replacing all of their equipment. So, your debt service ratios are a little high right now. And on top of this, you have the driver shortage where you have all this new equipment out there in the market. It’s not uncommon right now to see a lot of new equipment just sitting because there are no drivers to put in these trucks. Throw in slow freight on top of all this, and it all has a cumulative effect.
SLN: What do you see happening to finance and the economy from now through next year?
I think we’re leveling off. 2014 & 15 were high and it looks like we’re entering into a period of “normalcy” — it’s a good thing if you ask me. Driver retention is a priority for every fleet and you’re seeing carriers and support companies like Expediter Services introducing new and innovative ways to attract and keep drivers and we’re starting to see the fruits of that labor. I think 2017 is going to be a really good year.
SLN: Do you feel the election is having an effect on the market?
No doubt elections do have an effect because no one knows what is going to happen, but it’s proven that after every election, the economy always bounces right back initially. I’m truly not worried about it and once it’s behind us it will be business as usual.
SLN: Do you have any advice for customers?
I think the best thing you can do whether you’re an owner operator or a fleet is to make sure you’re prepared, organized and you’ve done your homework. As an owner operator, it’s especially important to align yourself with a carrier or a service company like Expediter Services. Having that umbrella of cost savings and support can make all the difference.
David Bibler • Finance Manager Stoops Freightliner Quality Trailer
SLN: What are you seeing in the financial lending market right now?
I see a tightening of credit from the major players at the moment. They’re asking more questions, not necessarily not doing the business, but they are being more cautious and drilling deeper.
SLN: How does the fact that the lenders are drilling deeper effect your business?
With the lenders being more cautious and asking more questions, it slows down the process a little more and makes it more difficult for me and my staff to meet all the stipulations.
SLN: What are lenders looking at when it comes to making loans?
Some lenders will only consider individuals who have had at least five years experience as an owner operator, versus someone who has just been a company driver for a short time period. Many of these lenders were in the business during the previous couple of downturns and haven’t forgotten the affects created by a bad economy.
Also, the first truck and/or trailer are tough for the first time buyer (if not practically impossible). But what’s even tougher is the second and third truck, depending on how quickly the owner wants to grow. For instance, if a buyer were to come back a few months later, having bought a new truck and wants to buy another, that’s probably not going to happen. Whereas, years ago, depending on the financial strength of the individual, they may have had a better opportunity to make that happen. Now, lenders will want to see a couple of years of pay history at least in order to consider the loan.
SLN: What can a first time buyer do to increase his or her odds of getting a successful loan?
It really comes down to the individual. For example, an experienced company driver with five to six years driving experience, who is a home owner, a previous credit history with a car, etc., and is looking to buy a new truck — we might be able to do a deal. But putting a first time buyer in new equipment is slim to none, unless there’s a substantial down payment. This is because lenders have learned that this scenario is one of their biggest risks.
I think the toughest thing for equipment buyers to understand is that buying a truck isn’t like buying a car or a house, where your high credit consists of a few credit cards and a $10,000 car loan. Just because you have a 700 credit score doesn’t mean you’re going to get an approval.
Steps customers can take to show the best credit to lenders are:
• Get experience with a program at a fleet (such as ES)
• Buy used equipment to get established
Lending has come full circle. People used to buy a used truck, get experience as an owner operator, then trade that equipment in order to get a little newer truck, taking steps to build a business, and that’s the scenario where we are at the present; slow and steady growth.
SLN: What do you see for finance in the future?
Well, personally, I can’t wait for the election to be over with. I think this will help somewhat. Also, the economy has been on a slow burn over several years, which isn’t a terrible thing. I think we’re on the downside of this slow burn and I think we’re in for a soft landing, barring some kind of national catastrophe. To sum it up, I think the future is bright.
Steve Kochensparger • Finance Manager Expediter Equipment Finance
SLN: What are you seeing in the economy and finance right now?
The credit market has tightened up. It’s important for people to understand that there’s a big difference between personal credit versus commercial credit. The tightening up I mentioned primarily affects first time buyers because they come into a potential truck purchasing situation, sometimes with unrealistic expectations. They may have just gone down to their local car dealer, purchased a new pickup truck and gotten a 3.9% interest rate. Realistically, I may not be able to get them anything at all based on what their credit score is. It really
comes down to comparable credit.
SLN: What do you mean by comparable credit?
We see a lot of people who just don’t have any depth to their credit report. They’ve had $12,000 car loans and two or three credit cards. They’ve got a pretty decent score, but there’s nothing there for a commercial lender to put their teeth into. This is one of the criteria that lenders are looking at now, what kind of length and depth the customer has in his credit report. Unfortunately, the recession of 2008 — 2010, caused a lot of problems even for experienced drivers, and some of those problems are now cleared up or are getting ready to be cleared. For instance, if you had a slow pay back in ’08, that will be coming off your credit report. But if you had a tax lein or similar, that stays on your record until it’s satisfied. I’ve pulled more poor credit in the past couple of years than I’ve seen in a long time.
SLN: What do you attribute to the recent rash of poor credit you’ve seen?
It’s due to the poor economy, definitely. People just aren’t working like they’d like to be working. There are only so many jobs to go around and if you take a job just to have a job, then you might not be making anywhere close to what you were making before. When it comes to truck drivers, freight has been off for about a year or so, especially in the first and second quarters of this year. This effects the trucking community in a couple of ways. They know they need a new truck, but they don’t have the revenue, so they’re holding their current truck together the best they can and their maintenance goes up. Every year you own a truck, the cost to operate goes up. There’s more maintenance of course, but the big killer is when the truck is down, you’re not making revenue and there’s no way to make it up once you miss that opportunity.
SLN: Is being an Owner Operator for everyone?
A lot of people find out that being an Owner Operator isn’t always the answer unless they have a really good truck and a reserve of cash to see them through daily operating expenses and even some unforeseen maintenance costs.
SLN: Where do you see Finance and the economy going from now until next year?
We are seeing a pick up in the freight. Freight like anything else in the economy goes through cycles and what we’ve been seeing is nothing out of the ordinary. I don’t think people were looking for this last downturn as much as they should have, and I think this has maybe caught some folks unaware. One of the things we’re seeing as a result is that the cash requirement for lenders has gone up, while the available cash for buyers has gone down. This makes putting a deal together somewhat harder. But hopefully, we will continue to see an improvement in freight and this will relieve some of the pressure we’re seeing in the lending markets.
SLN: How can potential owners operators prepare and protect their positions in a down market?
When you buy a truck as an owner operator, you’re not just buying a truck, you’re starting a business and you have to deal with everything that goes along with that. I would recommend anyone wanting to own a truck and start a business, to align themselves with an entity like Expediter Services (which is unique in the market because of what they offer) that can provide support and cost savings like fuel discounts, insurance and even maintenance. I see so many new owners leaving “money on the table” because they don’t take advantage of the programs offered by these type of companies.
Jeff Tacker • Vice President of Operations Expediter Services
SLN: What is your take on Finance, Lending and Credit right now?
Like everyone else, we’re seeing a tightening of the credit markets, putting pressure on lenders and customers of credit. There are a couple of key factors at play here, among them being a soft freight environment, and an acute driver shortage in the market. The first couple of quarters of 2016 were a real low point for freight. These are areas that Expediter Services is keen to bring our resources to bear in order to help the industry, and our community as a whole.
SLN: You mentioned helping the industry and your community. What is Expediter Services doing?
ES is unlike any company in the industry. First of all, we’re a service company. What I mean by that is we are here to provide support to independent contractors, owner operators and fleet owners in the form of programs and value added initiatives to save money on fuel, insurance, and maintenance items, in conjunction with tools to help maximize utilization. We are also in the business to serve and support our carrier’s efforts by being the largest expediting capacity provider in the country.
Through our finance arm, Expediter Equipment Finance, we have access to capital, giving us the ability to make loans for equipment that other lenders in the market simply won’t or can’t do. A good example of this is our PTO (Path to Ownership) that takes into account your work history with Expediter Services when it comes to getting a loan. We feel it’s our support, programs, benefits and options that set us apart in the industry and will be beneficial to anyone looking for opportunities during a good and bad economy.
SLN: How do you see 2016 and 2017 shaping up?
From the data we’ve seen, there is a leveling out of the deep and slow freight trough we experienced earlier in the year. We feel a positive economic trend is on the horizon. We urge anyone who is looking for support and opportunity to contact Expediter Services to learn more about how we can support your efforts through good times and bad.
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