Why do freight factoring businesses exist when truckers make so much money? We’re sure many truckers will smile at this comment because it is both a truth and myth.
Freight factoring companies such as OTRcapital are an invaluable lifeline to trucking businesses. A lot of people know there is money to be made in the trucking business. But many are not aware that there are a lot of hidden expenses that can eat into your profits.
Here are four things you may not be aware of regarding finance in the trucking business.
Lots of money – little profit
Did you know? In the United States, the trucking industry generates at least $255 billion worth of revenue every year, which is approximately 70% of the freighting that takes place.
Despite this seemingly amazing profitable outlook, the situation on the ground is very different for those who are carrying out the day-to-day operations. It is costly to operate a trucking business, and data from the American Transportation Research Inc (ATRI) states that the average trucking business spends as much as 95% of their total revenue on business expenses, which leaves roughly just 5% as profit.
Low average salaries for truckers
Truck drivers don’t take home as much money as most people think. The average annual salary, according to the Labor Department, is around $40,000. Those drivers working in private fleets for big companies can expect about $73,000 per year. With salaries the way they are, very few millennials are looking at the trucking industry as their profession of choice. And if trucking companies don’t work with freight factoring firms like OTR Capital, they may struggle to pay even these basic wages, which can make them lose valuable employees.
A serious shortage of drivers
In 2015, the country had a shortage of at least 50,000 truckers. It costs money to recruit, train, and retain drivers – money that many trucking businesses may not always have. Sometimes trucking companies end up having to pay for this training, which is pretty extensive.
For example, every truck driver needs first to meet a few basic requirements. They need to get their Commercial Driver’s License (CDL) in their state of residence. After this, they must attend a truck driving school.
To work for reputable trucking companies, they should have a clean driving record and be able to provide proof of stable work history. Additionally, they’ll have to undergo a physical to ensure that they’re in good health, which includes passing a drug and alcohol test. Lastly, the Department of Transportation stipulates that professional truck drivers should be at the very least 21 years old.
Maintaining trucks is an expensive business
Fleet management is a costly task. The average downtime for a truck can cost a trucking company $448 to $760 per day, per vehicle! That’s a lot of money. Add to this the fact that these trucks need a lot of fuel; it’s easy to see how important it is to have positive cash flow in a trucking business. Just to put things into perspective where fuel is concerned, the transportation and trucking industry consumes 13% of the entire fuel supply of the country.
Running a trucking business is no small feat. It requires substantial financial backing. This is why every trucking firm needs to work hand-in-hand with reputable freight factoring companies such as OTR Capital.