How the Pandemic Year Has Impacted Manufacturing, Staffing, and Transportation
We have now reached the one-year mark for the pandemic, although for many businesses, it may feel like a lifetime. For the B2B businesses we work with every day here at AR Funding, it has been an unpredictable and challenging 12 months.
The initial impact of COVID-19 was devastating. A record 3.28 million Americans filed for unemployment benefits and 43% of small businesses temporarily closed. In those first few weeks, we saw most of the industries we work with struggle to stay afloat, including the manufacturing, staffing, and transportation companies that make up a large percentage of our client base.
While government loan and grant programs such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) provided some relief, many of our clients experienced real hardship and uncertainty during this time. For some, our invoice factoring services were essential in enabling them to keep the lights on by turning their outstanding invoices into ready cash.
Having survived one of the toughest economic events of the century, what can small- to medium-sized (SMB) businesses in industries such as manufacturing, staffing, and transportation expect in the months ahead?
Surviving (and thriving) in a pandemic
One year later, our clients are finding ways to economize and right-size in their efforts to return to operational stability and profitability. Others are pivoting to align their products and services with evolving market needs. And still others—especially those involved in delivering essential products and services—find themselves scrambling to grow fast enough to meet the demand.
Here’s an example. A U.S. furniture manufacturer became an AR Funding client in the early days of the pandemic, when their orders were canceled and merchandise was stranded across the country. At the time, they needed invoice factoring to give them the cash they needed to continue operating. But in the months since, they have seen unprecedented growth as offshore manufacturing sources dried up and retailers began seeking out near-shore production partners. Today, this client uses the cash from invoice factoring to finance their rapid expansion.
Turning a corner: B2B business in 2021
In a recent Alignable survey of more than half a million North American SMBs, two in three (66%) businesses were still experiencing the negative impact of COVID-19 nearly one year later, and more than one in three (34%) were experiencing an “intense cash crunch.” And according to projections from McKinsey, recovery from the impact of the pandemic could take as long as five years.
However, there are also reasons to feel optimistic about the future as the vaccine rolls out across the U.S. and the rest of the world, and many business leaders are feeling more upbeat. A recent PwC survey of CFOs found that 28% of CFOs expect to see an increase in revenue over the next 12 months.
Staffing businesses: A surge in demand
In general, AR Funding’s clients in the staffing industry have begun to see high demand for their services, especially those in temporary staffing, manufacturing, construction, building materials suppliers and manufacturers, and professional medical staffing.
For many of these businesses, a key challenge is securing enough cash to fund payroll and finance future growth, and many of our clients are using invoice factoring in order to accelerate cash flow for these purposes.
Finding enough qualified, reliable workers is another significant challenge for our clients in the staffing industry. Despite record levels of unemployment in the U.S., the competition for workers in high-demand sectors is fierce.
The trends reported by our clients align with those reported by the industry as a whole. According to the American Staffing Association, staffing employment hit an annual high the week of December 7-13, 2020, with staffing jobs down just 5.6% compared to the same week in 2019. Similarly, McKinsey predicts that administrative and support services will bounce back more quickly than other industries, with a recovery predicted by 2022.
Manufacturing businesses: An uneven recovery
AR Funding’s clients in the manufacturing industry are reporting an uptick in business after many months of slow trade in 2020. The ongoing difficulty of shipping products from overseas has opened up new opportunities for manufacturers in the U.S., and some of our clients are not only recovering but actively growing after picking up new customers due to rising demand. Those that are able to produce PPE (personal protective equipment) have been able to develop a new and profitable business line.
However, the delays and complications involved in global shipping have also created problems for manufacturers, including unpredictable availability of goods and raw materials, higher costs, and thinner profit margins. In addition, a lack of qualified workers has impacted their ability to ramp up operations and meet the demand.
Overall, our manufacturing clients tell us that they are seeing their businesses recover, which supports broader industry reports including a recent survey by the National Association of Manufacturers, which found that optimism had risen 8.2% between Q3 and Q4 of 2020.
Transportation: Challenges and opportunities ahead
Our transportation clients are also seeing more opportunity in recent months as the country’s need to transport freight increases. The growing demand is enabling them to quote higher rates per mile, which, combined with lower fuel costs, is positively affecting profitability. Many of our trucking clients are using invoice factoring to finance an investment in a bigger fleet to accommodate the demand or to upgrade their current fleet.
However, there are concerns about the potential for an increase in fuel and labor costs, which could erode company profits or require them to raise their prices. According to McKinsey, the cost of wages, fuel, rent, and other expenses have risen considerably across the industry. Driver shortages and the added cost of maintaining health and safety protocols have also posed challenges.
For some transportation companies, getting back to growth will involve developing a different mix of customers in industries. McKinsey predicts that transportation companies that focus on moving agriculture and food products, pharmaceuticals, and basic commodities will return to growth faster
Adapting to a new normal
As we look forward at the year ahead, one thing is certain: the pandemic has changed the way businesses operate and will continue to do so over the long term. Businesses in staffing, manufacturing, transportation and other B2B industries need to be prepared to weather the volatility and take advantage of unexpected opportunities that may arise.
More than ever before, being able to react and adapt quickly is a critical business capability. Finding ways to strengthen cash flow through a variety of means gives businesses the stability and flexibility they will need in the coming year. Find out how invoice factoring can help B2B businesses improve cash flow here, or contact your local AR Funding representative to discuss your business needs.