Road haulage companies in the US are reporting big increases in letter of credit (L/C) charges as they consider consolidation or even liquidation in the current economic downturn.

The haulage companies are also finding their cash flow stretched as their customers demand lower haulage charges and longer payment terms in the absence of lines of credit.

Tightening conditions

One major road haulage company says in its most recent financial filing that it has already seen a substantial number of small and mid-sized carriers forced into bankruptcy due to tight credit, high and volatile fuel prices and challenging industry pricing.

Another carrier expects things to worsen. In its most recent filing it says declining freight volumes will make an even tougher operating environment and more difficult for weaker carriers to survive.

Cost pressures

Haulage rates are falling fast. One leading index suggests by between 3-5 per cent, while anecdotal information suggests carriers are discounting their services by as much as 10 per cent.

Carriers are also extending payment terms from 30 days to as many as 60 days, making it more difficult for them to fund their operations in a slow market.

L/C costs

Another pressure for carriers is that an increasing percentage of their own credit lines are tied up with L/Cs opened for insurance and other trading arrangements.

According to one report the cost of these L/Cs has jumped by 50-100 per cent over the last six months.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.