Transport Corp Canada’s trucking division, RIMS Transport, is still grappling with the fallout from the latest supply chain challenges rocking the sector, but the group’s chief financial officer, Venu Katta, has relied on technology and other cash flow management tactics to ease the pressure on his business results.
“Cash flow management is now something that I focus heavily on,” Katta said in an interview. The supply chain chaos that erupted during the first wave of COVID-19 received fresh oxygen this year as Russia’s invasion of Ukraine led to a supply-side oil shock and that China’s manufacturing activity has contracted under its zero Covid policy.
“We’re not getting parts on time, transportation costs are going up, there’s no room in warehouses, and the demand for drivers is outstripping supply,” Katta said. “We are still feeling the effects of the pandemic in this sector. We are still clearing the first backlog.
Transport Corp Canada, the largest private trucking company in southern Ontario, provides transportation and supply chain management solutions in Canada and the United States.
Desperate for drivers
Some of the initial pressure on the trucking industry was related to a shortage of truckers that prompted some companies like Transportation to boost or soften compensation.
For example, instead of paying a trucker every two weeks, Katta started issuing paychecks every week. He also expanded the company’s group insurance coverage to include truck brokers and owner-operators and gave workers insurance discounts through his captive insurance program and expanded medical and group dental services to owner-operators and brokers, he said.
“We desperately needed to retain our brokers, drivers and owner-operators,” he said. But to pay weekly, he needed more cash, and the cost of the incentives led Katta to find ways to offset the costs by better managing working capital.
One of Katta’s changes is to get the company paid faster. It sought to reduce the number of days outstanding in sales (DSO), a measure of the average number of days it takes a business to get paid after a sale. The company’s DSO was getting worse, with collections dropping from 45 days to 60, leaving the company to deplete its cash faster than its receivables.
Previously, it took at least three to four business days before the company began the process of sending invoices, he explains. Now the company has invested in technology to solve this problem.
“We have improved the software system so that the manifest is scanned the same day. We have given brokers, owner-operators and our drivers mobile phones with scanners and documents that can be sent automatically. This eliminates the step where they file papers in the office and then have to scan them into the system. Now it goes directly from phone to software, then [it’s] billed,” he said.
RIMS Transport also had to come up with innovative solutions earlier in the pandemic, when shipping lanes between the US and Canadian border came to a virtual standstill. It was a difficult time for a company largely dependent on trade between the two countries.
In order to ensure that they would have enough drivers to cross the border, RIMS Transport implemented an incentive strategy to ensure that all of their truckers were vaccinated. “To keep our trucks rolling to the United States, we gave $1,000 to whoever got the shot and paid an additional $1,000 for each booster received,” he said. The result was that 99% of their drivers, owner operators and brokers had vaccine certification, he explains. It also encouraged them to stay with the company at a time when it was difficult to get people back to work, he said.
As for the ongoing supply chain challenge for 2022, as many have predicted, there is no end in sight, but new challenges have emerged and need to be resolved.
For example, tires are in short supply for the transportation industry, he explains. “They just aren’t available, especially if you’re using eight, 12 or 16 tire per axle trailers or flatbeds. Most of them are made in Korea, China, and India, and when held up in ports for a month or two, they get damaged because they sit in a hot container. The material inside the container is cooked. The spare parts for the trailers are also at sea and also come from countries like China or India. These types of costs cannot be passed on to the customer, adds Katta.