Late payments squeeze transportation intermediaries

 The credit crisis and economic downturn is significantly impacting the ability of U.S. freight intermediaries to collect payments and forcing them to more closely watch credit extended to their customers, the head of a large truck brokerage company said Nov. 17.

  We're having to increase diligence on our account receivables as shippers lag on meeting payment terms, said Doug Clark, president of Mesquite, Texas-based Cargo-Master, at a press conference during the Transportation Intermediaries Association's (TIA) annual conference in Fort Lauderdale, Fla.

   Logistics providers who arrange freight moves essentially finance shippers' freight because they typically pay the motor carrier well before they collect their money from the cargo owner. As part of their code of conduct, TIA members commit to pay carriers whether they get paid or not.

   The frozen credit markets have prevented retailers, manufacturers and other truck users from obtaining commercial paper and other short-term loans to help bridge operating costs, and many are struggling with cash flow as sales drop.

   Freight brokers on average receive payments within 38 to 45 days, but that float period has dropped to 50 days, Clark said. At the same time, 16 percent to 20 percent of overall receivables are being extended as shippers slow down their pay practices.

   Clark, who is also chairman of the TIA, said his company is monitoring accounts on a daily rather than weekly basis. When payments are not forthcoming we reach out to people who control the purse strings to find out what's going on, he said.

   Cargo-Master is also rejecting a lot of new business when it is not comfortable with the shipper's financial situation.

   In a follow-up interview with American Shipper, Clark described how Cargo-Master made a deal with the chief financial officer of a customer that owed about $400,000 in back payments. Under the new terms, the customer agreed to pay $25,000 per week of the outstanding debt and pay on time for booked freight going forward. After a couple of weeks the payments dropped to $12,000 per week and Cargo-Master decided to cut off the customer.

   Cargo-Master eventually was able to get paid off after a few months of pressure from its in-house attorney, but is no longer doing business with the customer, Clark said. He speculated that the customer probably raised the money to pay Cargo-Master by not paying some other vendors.

   Cargo-Master is an operating unit of Greatwide Logistics Services, a platform company that entered Chapter 11 bankruptcy in October. Its customers include Coca-Cola, Kraft, Wal-Mart, Kroger and General Tire.

   Clark said another TIA member recently informed him that a very large shipper is now seeking a 90-day float before making payments.

   Motor carriers are also being victimized by unscrupulous brokers who take business with no intention of paying the carrier and then pocket whatever part of the payment they receive from the shipper, Clark said. 

Source: American Shipper