Heavy Duty Trucking, May 2018

HDT MAY 2018 22 WWW TRUCKINGINFO COM Hotline TRUCKINGS MOST RESPECTED BUSINESS REPORT Watch ECONOMIC Rising interest rates got you down Barring the U S economy suddenly slamming on the brakes and you would be hard pressed to find any economist or analyst worth their salt who would make such a prediction interest rates are going to continue to move higher The Federal Reserve in March lifted a key interest rate to its highest level since 2008 While it remained to be seen at press time if the Federal Open Market Committee would raise the Federal Funds Rate again when it met in early May the central bank has forecast a total of two more increases this year and three more in 2019 The good news is this means Fed officials believe the economy is in pretty good shape and rates will still be relatively low by historical standards The bad news is its going to cost you more if youre financing new equipment for your fleet Some trucking companies over the past decade have used a variable interest rate financing program to pay for large purchases This made sense Rather than being locked into a fixed rate program they were able to take advantage of then falling interest rates and less expensive financing But with rates already heading back up and expected to go even higher it may be time for a new strategy according to Anthony Sasso head of TD Equipment Finance at TD Bank Sasso told HDT that in this atmosphere of rising interest rates having a predictable cost going forward can benefit a lot of clients In other words while fixed rate financing say for over a 60 month period can and usually does have a higher interest rate than a variable rate program you get with it one thing that variable rate financing doesnt have predictability Even if your fleet already has a variable interest rate on equipment it already financed you might want to think about switching to a fixed rate loan A fixed rate loan gives the borrower more certainty in a rising rate environment Sasso said For example if and when rate increases occur a borrowers monthly payment will not be impacted because they are locked in to a specific amount each month This also has a positive impact on the companys cash flow There are many different types of fixed rate loans to choose from he said including tax oriented leases These are loans done in the form of a lease with three to five year terms for tractors and seven plus years for trailers allow companies to bring down the monthly equipment finance cost Tax oriented leases enable companies to take advantage of reduced rates that are passed through by the lessor and in some instances afford the opportunity to purchase the equipment at the conclusion of the lease at an agreed upon value at the time of lease origination Sasso said But just because interest rates are rising doesnt automatically mean you need to refinance Sasso added The reason That big corporate tax cut passed by Congress late last year If we look at the effect of tax reform that occurred at the end of last year what you see is a lowering of the overall federal tax rate he said That provides cash flow saving that could potentially offset or mitigate any of the interest rate hikes Evan Lockridge Business Contributing Editor elockridge@ truckinginfo com Evan Lockridge covers business and economic news for HDT both in this monthly column and on Truckinginfo com A freelance writer he has been covering the trucking industry in print online and on the air since 1991 Fed Funds Rate Rising Still Low Historically SOURCE FEDERAL RESERVE NOTE GRAY BARS MARK PAST RECESSIONS