April 2011

Marquette Transportation Finance — Factoring Trucking Receivables for the Long Haul

After cutting his teeth at the ‘granddaddy’ of transportation financing companies, Richard Voreis, developed and has led Marquette Transportation Finance for more than eight successful years. Although the trucking industry faces economic challenges, Voreis does not envision the truckload segment, or its $350 billion annual revenues, to go away any time soon.

When Richard Voreis returned to work for his former employer, Marquette Financial Companies, he brought with him experience that would not only define his career, but also launch Marquette’s successful transportation financing operation. Working on the banking side at Marquette, Voreis left in the mid-1990s to learn the factoring business from the “granddaddy” of the trucking financing industry, Transport Clearings (TC). Several years later, after Transport’s original partners sold the business, which no longer exists today, Voreis returned to Marquette, armed with the knowledge necessary to create Marquette Transportation Finance (MTF).

Now president and CEO of MTF, Voreis, recalls its origin, “Marquette was a lender to Transportation Clearings and was an unsuccessful bidder for the company… In 2002, I was asked to put together a business plan to start a transportation factoring company for Marquette. So, that was the genesis for MTF, and we launched in late 2002. All I knew was that grandfather of transportation factoring, Transport Clearings, and I basically used that as a model. In the subsequent three-year period, I was able to attract many people who were managers for me at TC. Seventy-five percent of our managing and marketing staff, including myself, had been at TC, and brought this wealth of industry experience.”

MTF provides accounts receivable financing to trucking companies that, for the most part, do not qualify for traditional bank financing. The company is headquartered in Bloomington, MN with four regional sales offices located throughout the United States. MTF is a wholly owned subsidiary of Phoenix-based Meridian Bank, part of Marquette Financial Companies, a $1.6 billion diversified financial services holding company located in Minneapolis. The holding company is comprised of banking and specialty financial service companies and is privately held by the Carl Pohlad family, whose interests include a variety of businesses in different industry segments. Founded by Carl R. Pohlad in the 1950s, the initial focus was on banking and related financial services. Throughout the years, the business interests have expanded to include bottling, real estate, technology, entertainment and major league baseball with the Minnesota Twins.

Explaining that MTF markets solely to the trucking industry, Voreis notes, “When we first started off, we used in our marketing the common cliché that we offer ‘the best of both worlds.’ We were smaller but had strong financial backing. We had the same kind of backing that the big boys like GE and Textron had. The other thing we had going for us was that we were entrepreneurial, we were small, we were nimble, we could make credit decisions, we could control how we managed our services. We hung our hats on that and we also delivered on it. It’s still how we operate, which has given us a strong advantage.”

Challenges to the Trucking Industry

Although the trucking industry has shown a rebound in early 2011 with an increase in freight tonnage and rates, Voreis’ outlook is cautious. “I sure don’t claim to be an economist, but it’s kind of interesting. If you talked to people in the industry in October or November of 2010, they were predicting the trucking industry would have modest benefits and increase in the first half of 2011, but would be well poised to experience great growth in the last two quarters of 2011 because they were right-sized in terms of expenses and the economy was going to start cranking better. From my standpoint, it’s iffy. Toward the tail end of last year and beginning of this year, tonnage was going up because inventory was at historical lows. There was a rebound in 2010 that had manufacturers replenishing inventories at just-in-time levels, but that’s kind have flushed through the system. Unless we get more growth coming in the economy, I envision that flattening out.

“Now, I’m not an expert and some industry people might say I’m wrong, but there’s a lot of potential for that scenario. Seventy percent of our economy is household spending, and household spending isn’t going out the roof… So, if you hang your hat on 70% of the economy being really stagnant, what happens a few quarters out? I see for the industry [that] it’s not going to be as robust as some people thought six months ago.”

Voreis also notes the impact of rising fuel costs on the trucking industry. When the cost of fuel rises quickly, it causes a lag in the cash cycle because fuel surcharges written in many contracts to help recoup the increase are paid on average from 35 to 45 days out. However, fuel has to be paid for up front, causing the trucking company to absorb the fuel cost for more than a month.

Risk Management

Risk management is a significant aspect of MTF’s business model because its prospects are financially stressed more often than not, and MTF must be able to collect the receivables it finances. The trucking industry is capital intensive and has low operating margins. Cash cycles are tight because two big expenses — payroll and fuel — require cash up front. MTF understands that being able to sell receivables the day after the load is hauled narrows the cash cycle. In evaluating a new prospect, MTF’s business model routinely results in having experience with the prospect’s existing customers 65% to 70% of the time.

“There’s a big balancing act in managing risk and providing service, and we do it very well,” Voreis explains. “All of the nuances make the difference — how your collection staff interacts with account debtors; the professionalism; the expertise of maintaining good relationships and making sure everyone gets paid; and, especially, efficient cash application. You can be factoring receivables, but if your cash application department does a poor, untimely job of applying cash that’s already in a lock box, that ties up cash for your client.”

He adds, “Many factoring companies don’t do a good job at cash application. We excel at it. We make sure if cash comes in today, it gets applied today. And if we can’t apply it, we make sure we get on the horn with the payor and our client and to make sure where to apply it. That’s what has allowed us to be very strong. We’ve got some good competition out there. We’ve got some folks who do a nice job, but I would put our shop against anybody’s in all areas in terms of offering the complete package.”

MTF’s business model also stresses that the company is not a low-cost provider, and it rarely walks away from a deal as the lowest bidder. Acknowledging that MTF must be competitive to book business, Voreis notes that MTF’s bids are priced to generate solid income, which in turn allows it to be viable to clients in the long term. Although MTF tends to bid higher, it attracts and retains clients based on its reputation in the industry. MTF has grown every year since its inception and has exceeded its five-year plan dating back to 2005. Its 2009 pre-tax profit was 20% greater than in 2008, and in 2010 it was 70% better than in 2009.

“With our business model we look very strongly at concentrations, and we try to make good credit decisions on the front end of who we are financing, and we have come through the last three years unscathed with charge-offs. We have not lost any money on receivable finance over the last three years. Zero dollars charged off. We grow on average well over $100 million annually,” Voreis says.

Why Factoring?

MTF offers two factoring products that purchase receivables via assignment on a recourse basis. One is a traditional factoring line and the other is a modified factoring line containing a borrowing base structure. In 2008, MTF launched an ABL product to have a credit offering available for existing clients with improved financial capacity. To date, the company has not funded an asset-based loan, due to the financial stress in the industry.

Voreis explains why providing factoring options specifically to the trucking industry has been the source of MTF’s success: “For us it’s a good market model. We only finance truckload carriers, carrying a one load for one shipper. We don’t finance the less-than truckload, where one truck carries several loads for several shippers, because the average receivable size is too small and your backroom efficiencies get ruined. An average less-than truckload receivable size is going to be about $50, but in the truckload side that average is going to be in the $1,000 to $1,200 range.”

The target market for MTF is truckload motor freight carriers with annual revenues ranging from $2 million to $100 million. Presently there are approximately 12,000 carriers that fall within MTF’s target market. The truckload segment of the transportation industry has total revenues of approximately $350 billion.

“It’s a huge market, and the pie is very big. And trucking is going to be here tomorrow, and it’s going to be here 50 years from now. It might look different, but goods need to be transported. So, it’s an industry that’s not going to become obsolete. The revenue stream is always going to be there,” Voreis says.

Lisa M. Goetz is an associate editor of ABF Journal. She started with Xander Media Group, the parent company of ABF Journal, in February 2011.