The ongoing freight recession has created a difficult operating environment for carriers and brokers alike. The sheer amount of capacity in the markets remains significantly higher than demand. At the same time, brokers are entering and exiting the market at a rapid pace.
This combination of challenges has made it difficult for carriers to create and maintain lucrative partnerships in recent years.
While spirits were lifted during the third quarter of 2023, brokers and carriers have seen a stark decline in optimism surrounding the status of the freight market in the fourth quarter.
“This dip encapsulates the ongoing struggles in an industry attempting to rightsize against a backdrop of excess capacity and economic uncertainty,” FreightWaves’ Joe Antoshak reported.
Earlier in the year, many carriers expected to see a significant market shift by the end of 2023. Seeing that projected rightsizing timeline pushed back into next year seems to have left the group feeling deflated.
“Brokers and 3PLs are confronting a pronounced shift in sentiment as they close out Q4 2023, with overall freight sentiment having receded to 8.78 from a Q3 high of 12.55,” Antoshak reported. “This downturn is reflective of broader constriction in the freight market, where low rates and tightened capital environments squeeze margins, testing the resilience of the brokerage sector.”
For carriers navigating this difficult market, cash flow is top of mind. Strong partnerships will be necessary to ensure carriers can keep moving — and keep getting paid — into 2024, allowing for a more measured approach for owner-operators and fleets to manage their cash flow.
“The average over-the-road carrier operating within the U.S. is running at a break-even cost. The margin for risk is low, and market volatility is at an all-time high,” according to an OTR Solutions representative. “Factoring offers the cash flow you need to keep your operation moving, but it provides even more valuable guidance and security.”
When a carrier partners with a factoring company, the factoring company offers cash flow via the buying of invoices. With this level of investment in the partnership, carriers can rest assured that factoring companies tend to have their best interest in mind.
The value of partnering with a factoring company is significant for both new and existing carriers, especially in tumultuous economic times when there is risk associated with every load.
New carriers entering the market then need to be laser focused on finding their first load. Most companies do not significantly evaluate a broker’s credit and ability to pay before accepting their first load.
At the same time, established carriers are looking for ways to diversify and expand their operations. However, while they are experienced, and can potentially lean on cash flow from their overall operation to cover potential losses, they still are taking on risks when booking a load with a new customer.
Both new and seasoned carriers are at risk of losing significant revenue in the event that the brokers tendering their loads cannot hold up their end of the deal. Is this a risk carriers can afford to take?
According to the graph below, about 78% of operating authorities active 12 months after obtaining authority still maintain an active operating authority when factoring with OTR Solutions. When you compare this with the roughly 64% survival rate among the remaining market, which includes operating authorities factoring with other providers and those managing payments on their own, you will find that OTR offers significant value to these operations in addition to the pure cash flow accessed via similar financing options.
This data suggests a significant survival gap between carriers that elect to partner with a factoring company — in this case, OTR — and those that do not.
OTR stands out among its competitors by offering true nonrecourse factoring. This is the only type of factoring that completely shifts the liabilities related to uncollected and uncollectible payments from the carrier to the factoring company.
“True non-recourse factoring is the only solution available to carriers and owner operators of any size that fully and completely protects your business from a loss in free cash flow when a broker or customer files for bankruptcy and slow downs in broker pay,” according to a recent OTR blog post.
With this type of factoring, carriers of all shapes and sizes can protect themselves from going under even when companies that owe them money go out of business. The likelihood that carriers have or will face this scenario in the current freight market is high. Deciding to factor now could mean the difference between surviving this holiday season — or not.