Transportation Minute: Observations and Trends in Transportation Finance
Written by: David Jencks, Esq., Jencks Law, P.C.
Authored by David Jencks, Esq., The Transportation Minute delivers quarterly updates and observations from the ever-changing landscape of transportation factoring. This column aims to keep you informed and ahead of the curve.
While it may have been a quiet month in Lake Wobegon, it hasn’t been quiet in transportation finance since the IFA’s Annual Conference. Perhaps the only quiet thing in transportation finance is improving freight rates. From the view from my desk, there are some emerging trends affecting transportation Factors. The observations are partially anecdotal, and their duration is uncertain, but they warrant attention.
Subordinations
Equipment lenders are increasingly using two tactics with factors. First, they insert language in subordinations that limits subordination to "factored accounts only" instead of "all accounts." This undefined term often excludes the Factor from notifying and retaining proceeds of accounts not purchased or funded. Second, some large equipment lenders are attempting to enforce a clause in their subordination agreement requiring that it be returned within a set number of days to be effective. They then demand proof that the Factor in fact forwarded it, despite the agreement being signed by both parties, the document manifesting the intent of the parties, and operating under the agreement for a lengthy period. Therefore, Factors should log proof of sending carefully.
Payment Over Notice in Oilfield Services
Recently, oilfield account debtors, especially in hauling, must have attended a conference and received the same poor advice. Currently, there are numerous payment over notice issues, particularly in the Permian Basin. The common response from these debtors is: "We have a non-assignment clause in our contract and didn’t approve an assignment to you [the Factor] and we don’t have to pay you." However, as all of our thoroughly educated Factors know, Section 9-406(d)(2) of the UCC restricts anti-assignment clauses on payment rights. Despite being legally correct, many Factors are having to spend money to fight these claims to try to collect.
Account Debtor Credit Defaults
Credit defaults are rising. Currently, they appear more among Shippers than Brokers. This impacts Factors financing Brokers and those managing Carriers with direct Shipper agreements. While these defaults may not be true insolvencies, many account debtors are seeking extended payment terms, payment plans, and are ignoring collections. Anecdotally, the defaults seem common among distributors, manufacturers, and suppliers of construction materials. On an empirical basis, the American Bankruptcy Institute reports a 20% increase in Chapter 11 filings from April 2024 to April 2025.
Fraud
In the world of fraud, particularly with respect to ID frauds, two clear sub-trends are prevalent. The first is a Broker’s identity (rather than the Carrer) being co-opted and the fraudster acting in the name of such a Broker including load generation and load approvals. The second sub-trend is a fictitious Shipper (with a website and credit reference and all) who needs 15 loads moved immediately, and a new (fake) Carrier needing a Factor to finance those loads.
Truck Capacity
Truck capacity remains slightly elevated but continues to show signs of equalization, or even under capacity. One sign that the market anticipates tighter truck capacity (and thus higher freight rates) is used equipment sales have picked up, helping to clear excess inventory.
A strong start to the typical truck “selling season” in March continued to trend upward in April and into May.[1]
Late Model sleeper sales show the trend:
Model year 2023: $96,735; $16,472 (20.5%) higher than March
Model year 2022: $63,152; $3,542 (5.9%) higher than March
Model year 2021: $43,470; $3,118 (6.7%) lower than March
Model year 2020: $35,917; $1,428 (4.1%) higher than March[2]
As with much of the painfully slow “recovery” in the freight economy, there are mixed signals. For instance, there are concerns that new Class 8 Truck Orders dipped in April to lows not seen since late 2019/early 2020.[3] Nevertheless, used truck activity indicates Carriers are gearing for an under-capacity market by purchasing cheaper excess used inventory while holding off on new inventory. The law of supply and demand says we are even closer to an inflection point in rates.
I’ll be back to report on quarter three happenings in September. Until then, take a vacation and as always, happy factoring.
About David Jencks
David Jencks is an attorney that has been practicing for over 25 years in the areas of transportation and transportation finance. He represents Factors and transportation companies in transactional and litigation matters. He is a member of the Transportation Lawyers Association and co-general counsel to the International Factoring Association. For nearly twenty years, David has been a keynote speaker at the IFA’s Annual Convention and Transportation Factoring Meeting. In addition, he has conducted various training sessions and webinars covering diverse aspects of Transportation Factoring including account management, debtor credit, technology, fraud, risk management, problem loads, billing and legal issues.