Growths & Jobs | Truckers need more financing options

Traditionally, getting a loan from a bank or any financial institution to purchase a new truck has not been easy for companies in the business of trucking, let alone sole traders and contractors.

It’s a problem even the minister of industry and commerce, Audley Shaw, acknowledged recently, as he addressed the first anniversary of the SHACMAN brand of heavy-duty trucks in Jamaica, sold by Tank-Weld and financed by JN Bank.

“Part of our problem in Jamaica is that for too long, people who are in business, trying their best, have been affected by bad government policies. You had to pay high interest rates to borrow anything. In one period in our economy, you had to pay 50 and 60 per cent interest rate to buy a truck, even if it’s an old truck,” Shaw said, as he applauded JN Bank for offering rates below 10 per cent, with up to seven years for owners to repay.

What has been largely available to many companies and truckers are used American trucks; and after purchasing them, there is often much more work to be done to keep them going, explains Tank-Weld’s Managing Director, John Ralston, whose company has relied heavily on trucking for more than 40 years.

“You couldn’t bring in anything more than 10 years old. You bring it into Jamaica and then you’d find out just how good this thing is that you bought,” explained Ralston. “You couldn’t put the machines under pressure. You couldn’t find out if you were buying something good, because there is obviously no warranty when you’re buying in auctions.”

With the gradual evolution of the vehicles into more computerised machines, purchasing used trucks meant that they didn’t only need mechanics, but also analysts, further complicating the problem.

“Because of the brain drain in Jamaica, anybody with a little bit of computer knowledge – any good drivers, any good operators of machinery – were leaving Jamaica to go and work abroad,” Ralston lamented, adding that the standard of trained mechanics available in Jamaica added to the problem.

The situation eventually led to a point where the company experienced a breakdown of as many as 40 per cent of its 123-truck fleet.

Given all the problems faced by truckers, banks have traditionally shied away from financing heavy-duty vehicles.

“Banks were not willing to, if the trucks weren’t brand new; and the brand-new trucks out of the [United] States were just not affordable. People couldn’t afford to pay back a loan on a new truck,” Ralston explained.

In addition, local dealers who sold new trucks were not stocking parts; therefore, financial institutions perceived that if the trucks broke down, owners would find it difficult to honour their loan obligations.

“Therefore, the risk in lending to purchase commercial vehicles was greater than it was for a BMW or [Mercedes-] Benz,” Ralston explained.

The problems faced by the industry led to Tank-Weld’s experimentation with the SHACMAN brand, after observing those being used by the China Harbour Engineering Company.

“At the time, interest rates started to plummet; it was also the same time that Tank-Weld and Jamaica National were forging a new relationship. When it was brought to the attention of JN Bank that we were going to provide an affordable truck to Jamaica, they jumped on board,” Ralston explained.

Informal industry poses problem for banks

Although the risks posed by the availability of trucks and truck parts have traditionally raised red flags for banks, the business practices of sole operators and contractors have also made financial institutions a little uncomfortable.

“Just like the taxi operators, the trucking industry is hardly ever a formal industry. The majority of persons do not have a registered business,” acknowledged Judith-Ann Williams Sharpe, director of the All-Island Truckers’ Association.

And although some businesses are registered, they also face difficulties with banks, because a large portion of their business is informal, she stated.

“You’ll have, say, 150 trucks, but then you have 120 contractors, which means very few own more than one truck,” Williams Sharpe explained. “So even the paperwork that is required to get a basic bank account is difficult to come by.”

The inability to predict their flow of income adds to banks’ uneasiness with lending to truckers, she continued.

“The majority of us are subcontracted, so we don’t own the business. So we do not have the paperwork. You can’t get a letter verifying what you’ll [earn], because you don’t have a regularised thing (work itinerary) to say you have five trips per week,” Williams Sharpe underscored noting that this makes it difficult for truckers to determine how much they will earn each month.

Therefore, only unsecured financing is available at double-digit interest rates to many truckers, and even that is difficult for them to access, she stated. Williams Sharpe says the State and private sector need to devise a solution.