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The Impact of Rising Fuel Costs on Trucking: Leveraging Lines of Credit for Stability

Fuel costs keep fluctuating and it’s hard to know what you’ll be paying at the pump from one week to the next. Prices also vary greatly between one region and another.

For example, on July 1st, drivers in New England were spending around $3.45 per gallon for gas and $4.10 per gallon for diesel. Head to the Rockies and prices are $3.35 per gallon for gas and $3.75 per gallon for diesel. The U.S. average was $3.48 for gas and $3.81 for diesel.

When you run a trucking business or are an owner-operator, you need some form of stability. Rising gas prices can be hard to handle, but you don’t want them to cripple your business and cause financial hardship. There are ways to stabilize these increases, and one of them is a business line of credit. 

What Drives Fuel Prices?

People are often quick to blame a president for rising fuel costs, but it’s not that simple. Several things factor into the increase or decrease in fuel costs. Crude oil costs are the leading factor.

At the beginning of June, looking at just a few of the available markets, U.S. crude oil cost between $75.55 to $80. Compare that to the first week of July, when prices increased to as high as $89. That crude oil has to be refined, which can cost as much as 70 cents per gallon.

Once refined, the end products like gas and diesel need to be transported to storage tanks or gas stations. That also costs money, and rising gas prices drive up the cost of transportation. You also have marketing, workers’ wages and benefits, profit margins, and federal and state taxes that all determine the cost you pay at the pump.

Any president can make an executive order to halt federal gas taxes. They can tap into the nation’s oil reserves. It’s also possible for a president to try to get oil producers to lower the cost per barrel. Ultimately, it’s up to oil producers to lower their price per barrel, which can eat into oil producers’ profits, which makes some companies resistant to that course of action.

You Lack the Power to Lower Fuel Prices, so What Can You Do?

You can’t snap your fingers and make fuel prices affordable, but you can find ways to save money and leverage financial products to prevent the pinch when there is a fluctuation.

Look for Fuel Discounts

When you get a business credit or debit card, look for cards that come with benefits like fuel discounts. When you’re able to save 10, 20, 30, or more cents per gallon, the savings add up quickly.

Maximize Efficiency When You’re on the Road

Little things can increase your fuel consumption. Make sure the tires are properly inflated. If you’re on the interstate at high speeds, opening windows actually creates more drag. Using your truck’s AC can be more efficient at high speeds. On slower roads, roll down the windows and turn off the AC for better fuel consumption.

Carefully Plan Routes

GPS tracking only does so much. Make sure route planners are also paying attention to construction zones that will land drivers in gridlocks that waste time and fuel. It’s also important to look for seasonal roads that are suitable for some drivers and not others. There may be a shorter route over a pass, but is it designed for smaller, shorter vehicles or vehicles of all sizes?

Research Business Lines of Credit Products

Start by looking into a low-interest business line of credit. When you’re approved, don’t go rushing out to use it. Save it solely for the emergencies you face when you’re waiting for a client to pay and need to cover expenses in the meantime. 

Generally, it can take brokers and shippers up to three months to pay. Much of this comes down to the contract terms you set and your wording on invoices, but Net 30, 60, and 90 days are common in trucking. If you drive loads for government agencies like FEMA, it can take even longer.

Waiting months to get paid isn’t easy. You have wages to pay, insurance to cover, permits and licensing, utilities, workers’ benefits, taxes, truck repairs and maintenance, and fuel. If you’re waiting months for payment to come in, it’s hard to float those bills without it impacting your credit rating or accruing expensive late fees. 

You know you’ll have the money to pay everything off at once when the payments arrive, but you just need a little breathing room. That’s where a line of credit helps. Make minimum payments on the amount of credit you use, and when you get paid, pay it all back at once.

How a Business Line of Credit Works

A line of credit is a financial product where you’re approved for a credit line, meaning you have up to X amount you can draw from. To make a purchase, you use the card or checks that come from the bank or financial institution. Each purchase is drawn from that credit line. You’re not required to use it all, but it’s there for emergencies.

For the draw period where you make purchases and tap into the credit line, you often only have to make payments to cover the interest. Some lines of credit require you to pay on the interest and a small amount of principal (money you’ve spent). Eventually, the draw period ends.

Draw periods on a business line of credit are usually less than 5 years, though it will vary. Once that period ends, you must make payments on the interest and the principal. Your payments greatly increase after the draw period, which is why it’s important to borrow only what you need and not more than that. You don’t want to borrow so much that you can’t afford to repay what you used.

Points to Consider

Before you apply for a business line of credit, there are a few things to consider.

  • This is a loan product and will impact your credit score. Make sure you can afford to make the minimum payments in slow periods.
  • Interest rates do depend on your credit rating. Businesses with a low credit score will pay more in interest.
  • Freight factoring also provides upfront cash without impacting your credit score. You get paid instantly for the loads you haul, but you can run the risk of having to repay that money if your client doesn’t pay.

Saint John Capital offers low-interest lines of credit for trucking companies and freight factoring with low fees. Both are a handy way to even out periods with low cash flow until you get paid. We offer instant approval on lines of credit, and our weekly payments that make it easy to fit the line of credit into your budget. Learn more by clicking the blue “Get Started” button.

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