Author: Canadian Western Bank

While the pandemic proved primetime for companies that move goods, today’s economy emphasizes liquidity.

When the COVID-19 pandemic shocked Canada’s economy in early 2020, the impact was not just severe, but widespread.

Not surprisingly, transportation prices soared in the two years since March 2020. The Federal Reserve Bank of St. Louis says ocean shipping prices rose by about 600%. Air freight went up by 50%. 

CWB’s Arjun Uppal says freight rates rocketed within Canada, too.

“Rates between Toronto and Montreal have gone up as much as two to three times, depending on what is being shipped,” says the Mississauga-based Uppal who specializes in supporting transportation sector clients in his role as a business development manager for CWB Equipment Financing.

By and large, freight rates have been good news for transportation companies – higher prices have translated into dramatically higher revenues. That’s in addition to ultra-low pandemic-era interest rates that made capital expenditures very affordable for businesses looking to expand operations to meet a heightened consumer demand.

A rise in interest, a change in direction

These days, however, the landscape is shifting rapidly. Interest rates are on the rise, increasing the cost of borrowing and undermining companies’ ability to expand or buy new equipment. 

Ani Modi, a CWB commercial business development manager based in Ajax, says business owners are realizing that attractive rate scenarios are a thing of the past – at least for now. “People are quickly recalibrating, and some are taking a wait-and-see approach when it comes to further expansion,” says Modi, adding there is a sense that people want to focus on their core business and look for solutions to ride out what could be a rough route going forward.

The good news is that many companies will be doing so from a position of financial strength.

For example, Uppal points out that his transportation clients funded pandemic-era expansion by borrowing at longer-term fixed rates, insulating them from rate shocks in the medium term. He notes that equipment prices in transportation have also inflated by at least 20% to 50%, which means used equipment has maintained its value.

Recalibrating for success with a financial partner built for business 

CWB clients realize the difference – and the benefits – of working with an expert team dedicated specifically to business owners.

“A transportation customer came to us looking for liquidity not to do more capex, but to prepare for the worst-case scenario and better handle whatever lies ahead,” says Uppal. “We helped them unlock the equity in the equipment and other acquisitions they made a couple of years back by giving them a new facility and extending their amortization.”

Both Modi and Uppal emphasize it’s vital for business owners to deal with a financial partner that’s tailor-made to support their needs – including helping them navigate challenging environments like high interest rates.

“There are not many institutions who understand business owners as thoroughly as we do,” says Modi. “We can be creative with our solutions and be quite a bit more flexible.”

About the Author

Mississauga Board of Trade