The logistics and transportation industry is undergoing immense change. Higher consumer expectations have resulted in more demanding delivery schedules; legislative and regulatory requirements have financial implications, and evolving technological developments continue to challenge traditional logistics and supply-chain models.
To combat this disruption and be competitive in the marketplace, logistics companies need to meet growing service expectations of consumers while remaining profitable and generating growth. A key strategy toward this end is to engage with a financial partner that specializes in asset valuations and provides knowledge of the secondary market, collateral trends and emerging technologies. In the process, companies can more effectively determine the value of their investments.
Prepare for the Future
With the rise of e-commerce, including online retailers such as Amazon.com, logistics companies need to adapt to consumers’ demanding delivery expectations. In line with this change, supply-chains are experiencing a fundamental shift, as companies move from long-haul to just-in-time (JIT) delivery, and suppliers transition from multiple storage facilities to single warehouses that meet local needs. As companies look to upgrade to smaller vehicles to support more frequent deliveries, they need asset-class and collateral expertise to help identify potential efficiencies and cost savings.
The changing regulatory and legislative environment continues to have implications for the logistics industry. The electronic logging device (ELD), a significant expense to implement, has also resulted in initial productivity loss for many companies. A seasoned partner can guide investments in additional equipment. By adding tractors to the fleet to meet delivery demands, companies can realize production increases.
Evolving technological developments, including the use of artificial intelligence in production and distribution, drones, autonomous ground vehicles, and alternative fuel options continue to disrupt the traditional supply-chain model.
For logistics companies, it's important to understand how a current investment might impact their future bottom line. Engines in production today are required to meet certain fuel-efficiency targets within a set number of years. While this might not impact smaller companies, it will elongate the value of the equipment for providers with large fleets.
Anticipate Changing Needs
Familiarity with industry trends and technology patterns can help companies to determine whether their existing assets can accommodate anticipated market changes, by benchmarking current inventory and efficiency levels.
A company’s understanding of how to obtain the maximum value of assets, whether in a resale or throughout the economic lifecycle, can make the difference between thriving and surviving. It’s essential to understand the financial repercussions of investing in upgraded equipment that offers as little as 1/10th of a mile of extra gas efficiency.
Increase Working Capital
The effective management of working capital is critical to maintaining a competitive advantage. For logistics companies, fixed assets are a key resource, often representing a significant capital investment. Understanding the value of these assets, and how they translate into working capital, enables them to make data-driven decisions that impact the bottom line.
Logistics providers can benefit from the adoption of strategies for improving working capital, based on an understanding of the equipment lifecycle as it pertains to company objectives. They should be taking advantage of both fixed- and floating-rate loans or leases, which offer a combination of flexibility, convenience and competitive pricing, and can increase working capital needed for future opportunities. A sale-leaseback agreement, for example, converts equity into cash without interrupting business operations, by enabling companies to sell equipment for cash that can be used for ongoing business needs or new investments.
Possession of a thorough understanding of asset valuation enables logistics companies to confidently navigate current and future needs. As more "unknowns" get replaced with "knowns," they’re in a position to make more informed decisions.
By engaging in a collaborative relationship with a committed financial partner that understands their business and is reliable and trustworthy, logistics companies can successfully navigate an ever-changing industry.
Thomas Schied is vice president and director of asset management at TD Bank Equipment Finance.