2017 DRIVING THE NUMBERS - trucking.org Docs/About/Organization/ITLC/Newsletter... · Speaker:...

1

DRIVING THE NUMBERS:A look at the trucking industry’s financial landscape

• Hiring of new NAFC staff beginning with a new Manager, Jenny Wieroniey, a former attorney with experience in tax, accounting and finance, who came to the NAFC from Merrill Lynch;

• Creation of a new quarterly e-magazine;

• Establish new Study Groups and nominate new Chairs of each group;

• Develop a new microsite for the NAFC connected to the ATA website;

• Establish a password protected “NAFC Connect” interactive online community for NAFC members only which will include libraries for each study group and task force as well as provide a platform for open conversations between members on NAFC related matters;

• Create a greater social media presence for the NAFC;

• Develop a regular series of webinars and/or online events to help educate members on issues of the day;

• Reestablish the NAFC Annual Meeting in the late spring/early summer time frame. The purpose of such a move is to provide members of NAFC Study Groups a better forum to identify key issues affecting the trucking industry, what the industry can do to address those issues both from the standpoint of a public policy effort as from a best practices perspective.

• Grow the Advisory Board from the current 10 members to 17 ensuring each Study Group has a Chairman, and the Executive Committee is established;

Introducing the National Accounting & Finance Council 2.0For the past year, the NAFC has been quietly undergoing a relaunch to return the Council to its rightful position as an intelligence leader in all trucking industry matters related to accounting and finance, as well as taxes and risk management including elements of information technology and cyber security. Throughout the year, the members of the NAFC Advisory Board have met periodically to revamp the Operating Procedures, approve a new logo, develop the Educational Session content for the NAFC Meeting in conjunction with ATA’s MC&E, and establish short and long-term goals for the Council. A sampling of these goals includes:

• Earn CPE Credit at ATA’s Management Conference & Exhibition .......................2

• The Trump and House Tax Reform Proposals – Are You Ready for the Potential Impact? .................3

• Op-Ed: Network Analysis Takes on More Importance ......................11

• Surge in State Fuel Tax Increases .................................. 13

Special thanks to the following individuals who have

taken time out of their schedules this year to serve

on the Advisory Board and begin the process of re-

storing the NAFC to an industry council of relevance.

1. Alan Witt - Vice President, Finance; TCW Inc.

2. Bart Middleton - CEO; Grammar Industries

3. Bryan Swaim - Vice President, Pricing, Treasurer, & Controller; ABF Freight

4. Eric Grant – Vice President, Finance; Maverick Transportation

5. Jason Higginbotham – Assistant CFO; Ozark Motor Lines

6. Mitch Poole – President & CEO;

Inland Logistics Solutions

7. Robert Ragan – Senior Vice President & CFO; Melton Truck Lines

8. Randolph Smith – Tax Partner, National Transportation Industry Leader; Grant Thornton

9. Ryan Erickson – Senior Vice President; McGriff, Seibels, & Williams, Inc.

10. Wes Davis – CFO; Big M Transportation

More volunteers are needed to expand the Advisory Board to ensure all the Study Groups have Chairman (and Vice Chairs) and the Executive Committee positions are fully occupied.

If you have an interest in serving, please contact Jenny Wieroniey

([email protected]) or John Lynch ([email protected]).

Jenny Wieroniey

2017

• Alliance for Toll Free Interstates Spearheading Opposition to Pro-Tolling Infrastructure Funding Initiatives .............5

Earn CPE credit and gain insight on the most pressing issues currently facing the trucking industry during NAFC’s sessions at ATA’s Annual Management Conference & Exhibition

Update on Lease Accounting Rule Changes

January, 1 2019 is the effective date for calendar-year public companies,

and January 1, 2020 for nonpublic entities (ACCOUNTING)

Speaker: Russell Norris - National Transportation and Logistics

Practice Leader - Grant Thornton

Monday, 10/23 • 11:30 am – 12:30 pm

In 2019, the Financial Accounting Standards Board is implementing new rules requiring leases longer than one year to be capitalized on a company’s

balance sheet. The recognition, measurement, and presentation of

expenses and cash flows arising from a lease will depend on the nature of your lease. Is your firm ready to implement

these changes?

Auto Liability Defense (BUSINESS LAW)

Speaker: Rob Moseley Attorney and Transportation

Practice Group Leader, Smith, Moore, Leatherwood, LLP

Tuesday, 10/24 • 8:00 am – 9:00 am

In recent years, there has been an increase in huge monetary verdicts found against drivers and trucking

companies. This session will explore the common themes in these cases

and explain how you can protect yourself and your company from

unnecessary liability.

Improve Overall Insurance and Loss Costs

(RISK MANAGEMENT)

Speaker: Vikas Shah – Executive Vice President - DMC Insurance

Monday, 10/23 • 3:45 pm – 4:45 pm

This session will explore some ways motor carriers are reducing overall

insurance and loss costs by utilizing telematics, driver scorecards, and coaching/incentive programs. This session will also help educate you

on how you can best articulate your safety enhancements to your

insurance partners to secure the best insurance terms

In addition to the education sessions,

NAFC invites all NAFC and MC&E

attendees to join us for a Cocktail Reception

sponsored by McGriff, Seibels, &

Williams, Inc. Join us Monday

from 5:00pm-6:00pm for great cocktails and conversation.

Tm

intcs

o

NAFTA Renegotiations and Impact on Trucking

(ECONOMICS)

Speakers: Ernesto Gaytan, Jr, President, Super Transport International;

Robert Penner – President/CEO, Bison Transport Inc;

George Chasteen – President ofInternational Business, Celadon Trucking;

Moderator: Martin Rojas - Senior Adviser for the Americas -International Road Union

Monday, 10/23 • 2:30 pm – 3:30 pm

NAFTA renegotiations are currently underway and the end result will have a tremendous impact on

cross border operations, the trucking industry and the US economy. Gain insight from our CEO panel on their goals for the negotiation process and how

certain changes will affect the trucking industry.

The panel will be moderated by Martin Rojas, the International Road Transport Union’s Senior Adviser

for the Americas and former longtime ATA staff member handling cross-border issues.

Problem Solving and Profitability(MANAGEMENT SERVICES)

Speaker: Ben Lyon & Randy Hooper Directors and Members of Transportation

Services Group - Katz, Sapper & Miller

Tuesday, 10/24 • 12:45 pm – 1:45 pm

Learn how to use technology and data to solve your biggest problems and maximize profits. Numbers rule in this industry, but picking and choosing the most valuable

freight isn’t a matter of simple arithmetic. As technological advancement continues, data analysis will become even more valuable for

carriers as they decide which shippers to give their trucks to on a regular basis.

The National Accounting and Finance Council will be offering five educational sessions at ATA’s Management Conference and Exhibition that will each qualify for one CPE credit. Based upon feedback from top industry professionals, NAFC has tailored their sessions around topics that will have the most impact on your business in the next year. Participants are able to register for either full MC&E access, which includes all NAFC sessions at http://mce.trucking.org, or for a reduced NAFC rate, which does not include access to any other MC&E meetings and events at http://nafc.trucking.org. NAFC-only registration will be available starting Friday 9/8.

3


The Trump and House Tax Reform Proposals – Are You Ready for the Potential Impact?By Russell Norris - Grant Thornton LLP

Until recently there were only two certainties in life. For now it appears that one of those is actually not so certain. Though taxes aren’t going away, tax reform is at the top of lawmakers’ agenda. We’re looking at a historic opportunity for major tax reform in the next 12 months, and it’s time for trucking and logistics companies to understand what is transpiring in Washington. If you don’t get ready, you may miss out. The plans for reform are not final, but there are important reasons not to wait to act. First, many business decisions you make now will have a long-term economic impact that could change under tax reform. More importantly, tax reform will create powerful new planning opportunities, many of which need to be implemented before tax reform is effective or require significant planning that should start now. Before you act, the first step should be understanding the proposals and how they would affect your business.

Two official tax plans have been released, one from the Trump administration and the other from House Republicans. The President’s ‘plan’ has few specifics while the House plan has a few more details. The plans have their differences, but there is some consensus on certain items that help project what tax reform may look like. It’s going to be “huuuge.” Both plans propose to slash rates, repeal many business

and individual benefits and repeal the alternative minimum tax (AMT). The House plan also proposes full expensing of asset purchases but would disallow interest expense, two points mentioned in Trump’s campaign proposal, but not specifically addressed in his tax reform outline. For more details on the two proposals please see the comparison chart.

Tax cuts sound great, right? But someone has to pay for them. Many business tax benefits and most itemized deductions, including the individual deduction for state and local taxes, may be on the chopping block. The House has also proposed making business taxes “border adjustable,” meaning imports could not be deducted while export revenue would not be included in taxable income. The trucking industry should be particularly concerned about the future of certain tax credits and like-kind exchanges. Companies losing important tax benefits may not benefit from tax reform even with big rate cuts.

Once you understand the potential impact, you should begin to focus on preparing for the potential ramifications. In the short-term, companies should consider tax strategies to implement before tax reform is passed, the impact tax reform will have on financial

statements, and the potential impact on cash flow forecasts and operations.

There are many planning opportunities that may be more advantageous to pursue before tax reform is effective. The prospect of a rate cut means you should be accelerating deductions into this year and deferring income into future years when rates might be higher. Did your company historically pass on a tax savings opportunity because the items discussed were only temporary differences? This year is an opportunity to turn a timing benefit into a permanent change. Companies should consider the tax benefit or cost on the timing of equipment purchases, the election in or out of bonus depreciation, the opportunity to accelerate depreciation on terminals and warehouses, as well as tax accounting method reviews. Tax reform may also impact your

(continued on page 4)

4


financial statements. The impact of legislative changes must be recorded in financial statements in the period of enactment. A change in tax rates would lead to a revaluation of deferred tax liabilities and deferred tax assets as a whole. Full expensing of asset purchases would greatly increase the deferred tax liability for fixed assets as there will be no new tax basis added to the deferred balance. The repeal of the alternative minimum tax may also eliminate any deferred tax asset a company has for AMT credits. As deferred taxes are revalued, there could be potential impacts to the recognition of valuation allowances and to bank covenants. Companies should identify risks from the proposed changes and analyze the potential impacts of tax reform on financial statements.

A critical area to consider from a short term perspective is cash flow consequences. Careful analysis and planning for the potential impact of tax reform to your future cash flow must be completed to avoid surprises. There is a good chance that legislation may change the way companies operate. Some items on the agenda, like the border adjustment tax and elimination of like-kind exchanges would impact some companies more than others. Your analysis should include how tax reform will impact operational decisions and the risks involved:

There are lots of unknowns that may need to be considered as the tax reform picture becomes clearer. However the discussion of these items should be held now to identify areas of interest for the future. Most companies likely do not have the answers readily available for all of these questions. You should consider properly modeling the effect of tax reform now in order to best prepare for the short-term and long-term impacts. This could be the “once-in-a-generation opportunity” to maximize the benefits of reform.

For a more in-depth

comparison of the

Trump and House tax

reform proposals,

see chart on page 18

u How will the elimination of like-kind

exchange rules and interest limitations

affect equipment purchases?

u Will you retain revenue equipment

longer if gains cannot be deferred

and interest expense is disallowed?

u Will alternative methods of acquiring

equipment need to be considered

(i.e. lease versus buy)?

u How does full expensing fit into this

puzzle?

u Should you accelerate large

purchases before tax reform

becomes effective?

u How will financing assets that do

not benefit from full expensing such

as land and stock acquisitions be

affected by tax reform?

Companies should also have an eye on

long-term items caused by tax reform.

Changing tax rates could affect the

company’s entity choice.

u How will corporate tax rates

compare to pass-through tax rates

after tax reform is enacted?

u Will reforms like border adjustments

or other changes to our international

tax law regimes shift the company’s

strategies for global supply chains

and target markets?

u What impact would these changes

have on capacity?

u How will reforms impact your ability

to finance equipment purchases, real

estate acquisitions or mergers?

(continued from page 3)

5


By Clark Barrineau – Alliance for Toll Free Interstates

The Trump Administration in May unveiled its FY 2018 budget proposal. Of particular import to the trucking industry is the section that speaks directly to the expansion of infrastructure funding, a key piece of the President’s domestic agenda. While the trucking industry is delighted to see the Administration’s emphasis on addressing the nation’s highway infrastructure funding woes, the proposal’s dependence on Public-Private Partnerships and elimination of federal restraints on states’ ability to toll existing interstates, raises a big, red flag for our industry along with the members of the Alliance for Toll Free Interstates (ATFI).

While the highway infrastructure funding debate churns in Washington, states are not sitting idle waiting for federal approval to pursue new tolls on our interstate system. Rhode Island is a perfect example. In 2016,

the state enacted legislation seeking to exploit a loophole in federal law allowing establishment of new tolls to fund bridge rehabilitation or reconstruction on the interstate system. The state DOT views this loophole, as a roundabout way of tolling the interstate system statewide as the new tolls, applicable to class-8 tractor-trailers only, would even fund rehabilitation of overpasses over 2-lane roads the state classifies as bridges. Additionally, Indiana recently announced it will study a similar bridge-tolling scheme across multiple interstates but applicable to all vehicles and Wisconsin Governor Scott Walker (R) declared support for border tolls on vehicles entering from Illinois.

Finally, were the status quo to remain and federal interstate tolling restrictions were not relaxed or eliminated, the trucking industry still faces the possibility up to three states could pursue tolls under the Federal Highway Administration’s Interstate System

Reconstruction and Rehabilitation Pilot Program (ISRRPP). Established by Congress in 1998, this federal pilot program authorizes three state-level tolling pilot projects to rebuild one existing interstate in each state. Recently Missouri, which held one of the three slots since 1998, finally surrendered its slot held for I-70 and last year, Virginia and North Carolina returned to FHWA the two slots each held for to pursue tolls on I-95. Suffice to say the tolling lobby is aggressively promoting tolling across the country and that voice is growing in both volume and influence.

Which brings us back to the Alliance for Toll Free Interstates. Founded in 2013 by ATA and Federation partners, the National Association of Truck Stop Operators (NATSO), as well as other like-minded businesses, trade groups and private citizens, ATFI is a national organization that serves as the primary voice opposing the well-

Alliance for Toll Free Interstates Spearheading Opposition to Pro-Tolling Infrastructure Funding Initiatives


6


financed tolling industry’s advocacy efforts. Specifically, ATFI was borne out of the trucking industry efforts to defeat North Carolina and Virginia’s separate pursuits of tolls on I-95. Working with their state trucking association federation partners, ATA and other groups led the opposition efforts to prevent the addition of tolls on I-95 in both states. Following those successful efforts, it was clear the tolling opposition needed a more formalized group to address the increasing number of tolling battles emerging at the state and federal levels.

In its brief existence, ATFI scored significant victories. For example, during deliberations on the 2015 federal highway reauthorization bill, ATFI spearheaded the successful effort to oppose expansion of ISRRPP-eligible states from three to upwards of ten states. While the ISRRPP tolling pilot program was

not expanded in the 2015 federal bill, a new “use it or lose it” clause was enacted—meaning the existing ISRRPP slots held for many years by Missouri, Virginia, and North Carolina could come available if not used. With those slots now returned to FHWA, the door has officially opened for other states to apply for those slots and push for new tolls on existing interstates.

Bottom line, ATFI must be very active in multiple states as well as at the federal level drafting Op-Eds or Letters to the Editor, messaging via Social Media, building grassroots networks, and advocating directly with lawmakers now, and for some time. These activities can stretch ATFI’s resources very thin and unfortunately, the tolling industry can rely on the very deep pockets of right-wing think tanks, technology companies, and investment banks

from across the globe. In sum, the threat of tolls is ever increasing and ATFI is on the front lines fighting on the industry’s behalf, but to move the needle, significantly greater support is required. Please take a moment to promote ATFI within your company, customers, with your friends and family. Encourage them to sign the anti-tolling petition so they can stay up-to-date on what ATFI is doing, follow ATFI on Facebook at Facebook.com/TollFreeInterstates and Twitter and any contribution you or your company can provide is encouraged and appreciated.


American Trucking Trends 2017Pick up a copy of the latest Trends report produced by ATA’s Economics Department. The only almanac on U.S. trucking, it serves as a vital source of information on major trucking and transportation issues.

Trends includes data on:• Truck freight tonnage• Number of Class 8 trucks in operation• Trucking revenues• Taxes paid by the trucking industry• Employment data• Number of miles traveled by trucks and the amount of fuel consumed

ATA Member Price: $125 / Non-ATA Member Price: $250

Order today at: www.atabusinesssolutions.com/Economics.aspx

7


Getting to Know Robert Ragan, Chief Financial Officer of Melton Truck Lines

Established in 1954 in Tulsa, Oklahoma,

Melton Truck Lines has grown to

become one of the largest flatbed

carriers in the industry. Melton does

business throughout North America,

employs roughly 1,200 drivers, including

owner-operators, and runs about 1,300

trucks and 2,200 trailers.

Tell us a bit about yourself to kicks things off.

u Grew up in Oklahoma City, OK

u Education – 1990 Graduate of the University of Oklahoma (diehard Sooners supporter) with an Accounting degree and later earned an MBA in Marketing from Oklahoma City University.

u Married with three children and three step-children

Q How did you get your start at Melton and what led you to a career in the trucking industry?

Prior to joining Melton, what kind of trucking background did you have?

A I was employed by Innovative Computing Corporation, which is now part of TMW

Systems, for ten years after college. In 1999, when Melton became a customer of Innovative, I was involved in the contract negotiations with Melton’s owner Bob Peterson. Approximately

six months later, the CFO role at Melton opened up and Bob wanted to know if I was interested. After 17 years with the company, I feel very fortunate he called.

Q What are your guiding

principles as the CFO of Melton Truck Lines and how do you rely on those to help you and your staff meet company goals and objectives?

A Leaders should set an example for others in the way they treat people with respect,

conduct themselves in a professional manner and celebrate successes. I am fortunate to have hired many talented people who have been with the company several years. We make sure they have received the proper training and feel empowered in their role. As a company, we are very transparent with our goals and financial results. I believe most employees appreciate knowing how their company is performing and feel more included. Lastly, we require different levels of management from all departments to periodically get out of the office and spend a week on the road with a driver. It is a reminder of the hard

work our drivers do every day and helps us with future decisions.

Q Since joining Melton in 2000, perhaps no other sector in the industry has seen

such market volatility as the flatbed sector. In your view, what were the key initiatives instituted that allowed Melton to withstand the extensive downswings and ultimately prosper long-term? Understanding that the business is cyclical and preparing for downturns is critical to the long-term success of the company. It is unwise to think you have everything figured out when business is strong because it can turn on you in a short period of time. Conservative financial management and preparing for rainy days is a must. We have always maintained nice liquidity levels and apply a significant amount of cash equity into the equipment we finance.


8


A What do you see are the major operational and financial distinctions

between flatbed hauler vs a traditional over-the-road dry van carrier?We are all in the business of picking up and safely delivering freight on-time. However, because of the physical nature of the job, a flatbed carrier’s hiring pool is smaller for which we compensate with higher pay. The flatbed sector’s earnings typically fluctuate more than other types of carriers as our freight levels are tied to heavy industrial production. The Institute of Supply Management (ISM) index has been the best indicator of freight levels for flatbed carriers and is currently reflective of the strong 2017 we are currently enjoying.

Q In your opinion, what are two metrics a trucking industry CFO should be

constantly monitoring?

A It is very difficult to narrow it down to two as a CFO should be monitoring

dozens of metrics or trends. Obviously, productivity levels and the current freight rates environment are significant earnings drivers but we also closely monitor our driver wages compared to the industry average, equipment prices and residual values, net fuel costs, etc.

Risk Management is an important aspect of the job. At Melton, we spend a lot of time analyzing the exposure and limits of our liability, worker’s compensation, and healthcare coverages.

Q With so much talk about Congress moving forward with tax reform, what

changes do you view as most critical to the success and growth of the trucking industry overall, for the flatbed sector, and specifically for Melton Truck Lines?

A We need to continue to work to make the job of a truck driver an appealing,

well-paid, rewarding job especial-ly for younger people or the driver shortage will be more severe in the future. As an industry, we need to understand what is important to the new generation of driver whose focus leans toward an overall quality of life experience as opposed to simply focusing on pay.

Q With the ever-growing threat of cyber related crimes, what has Melton

done to guard against malware, ransomware, or even hacking of computer systems to access payroll data or customer financial data?

A Similar to most companies, we have experienced several cyber related fraud

attempts – fortunately, none was successful. We required every office employee to sit through a one-hour webinar on how cyber criminals can attack the company. Periodically, our I.T. department will test the employees by sending e-mails to see who will click on the various links. For those who fail the test, we have follow-up training. Annually the company spends over $35K on software products to prevent hacking and/or cyber terrorism.

Q As the NAFC reemerges, what do you look to get out of being involved with such

a group and what are the key areas that should focus on?

A What has been most valuable to me are the relationships I have

developed with the other NAFC members over the years. Being able to pick up the phone and bounce something off a trusted counterpart has been very helpful.

Industry regulation should continue to be a focus of our industry’s associations. Melton supports sensible regulation, especially those that relate to public safety. However, exceptionally costly regulations, that do not have the associated benefits, is a challenge for us all.

Q What are the biggest challenges and obstacles facing Melton now and in the

coming years?

A I worry about the litigious environment in which we operate. It has

deteriorated over the last several years and continues to get worse. Unfortunately, it is reflective of our overall society. In the coming years, our elected officials must do something to curtail this trend or companies in several industries will not be able to afford insurance.

continued from page 7


9


Q In recent years the insurance market for trucking has experienced

an exodus of many primary insurers and reinsurers from the marketplace which of course corresponds with significant premium increases. How has Melton dealt with this market disruption and what, if any, advice do you have for smaller carriers that have been particularly affected by this development?

A Like everyone else in our industry, Melton has experienced increased

insurance costs that erode our bottom line. Consistency does help as we have a ten year relationship with our primary insurer. I would advise smaller fleets to also look for consistency and not jump to a new provider just to save a few dollars in the short run.

We have embraced many of the latest safety technologies. All 1,300 of our trucks are equipped with forward and rear facing cameras. We have received a tremendous return on that investment. Going forward, all new Melton trucks will be equipped with collision avoidance/mitigation technology. Small fleets may be hesitant to purchase these technologies however, similar to large fleets, they will save money in the long run.

Q How has Melton dealt with the ever-increasing costs of healthcare for

employees? Are there specific changes you have instituted that have helped mitigate the annual increases?

A We were early adopters of the wellness initiative and culture - our programs

go back over ten years. We require employees, as well as their spouses, to complete an annual biometric screening exam and offer financial rewards for those who take care of themselves. We follow-up with those that have metabolic syndrome throughout the year. We installed a 3,500 square foot gym in our headquarters and staff it with a full-time Wellness Manager. The company is self-insured for healthcare costs; as a result, if our efforts can annually prevent a couple major claims from occurring, the wellness programs more than pay for themselves.

Q Are there

particular areas of

concern for Melton

regarding the

renegotiating of NAFTA

terms? Is there anything

you think the U.S.

trucking industry should

be advocating for in

those negotiations to

help improve operations

for U.S. based carriers?

A Keeping

the cross

border freight flowing

unimpeded is very

important to the

industry and generates

a significant number of

U.S jobs. I believe the

ATA has continuously

advocated that position

to the new administration

and feel confident freight

will continue to move

and increase in the

coming years.


continued on page 10

10


Q Like so many of the other segments in the trucking industry, the landscape is

constantly changing due to merger and acquisition activity. Do you see Melton becoming more active in that arena and if yes, what are the key financial indicators you look at before considering a purchase? Historically what is the primary driver behind pursuit of a merger or acquisition (e.g. market share growth in area the company is involved in, expansion into new market segment, customer base, etc.)?

A Historically, the company has grown organically - typically in 6%-8% range.

We always listen to opportunities when they are presented but have not found anything more appealing to our own organic growth. Expansion into a new market and diversifying our company into a different segment would be interesting to me if the right opportunity came along at a reasonable price.

Q What is the company driver vs owner-operator ratio for Melton and has that ratio

fluctuated much since you have been at Melton? If yes, in what direction and what do you attribute that to?

A Melton is a 100% company owned fleet. That is the model we have primarily run

for over 25 years and feel it provides the highest service levels to our customers.

Q What are the biggest challenges Melton faces when it comes to driver

recruitment and retention? Does Melton offer drivers healthcare or retirement savings programs?

A Finding experienced drivers continues to be more difficult. Again, the

industry must make the truck driving job appealing to a new generation. We have almost a paternal instinct when talking to drivers about saving money and retirement. It always makes me feel good to see a driver retire with a nice nest egg to fall back on.

Q What is your typical tractor life-cycle in terms of years? Does Melton follow a strict

schedule of how long, in terms of years, it will hold onto a vehicle or is it based on mileage? Does Melton purchase all its vehicles or does it also lease and rent tractors or trailers?

A We have maintained a four year trade cycle for many years but will adjust

due to various market conditions when necessary. Historically we have purchased all of our trucks and trailers rather than leasing or renting.


Look out for

ATA’s Driver Compensation Study

COMING SOON!

If you participate in the survey you can get a discount off the finished report.

For more information, contact Ryan Platner, [email protected], or (703) 838-1935.

11


We keep seeing signs that things are looking up for the trucking industry. Most of the relevant economic indicators are favorable for trucking. Commodities are getting stronger, oil rig counts are increasing and the housing recovery is persisting. At the same time, small businesses are feeling a greater sense of optimism, and improvements to the tax code may boost entrepreneurialism. Low unemployment rates ultimately will lead to higher wages, giving consumers more money to spend and putting more goods on trucks.

These positive indicators for trucking are tempered by anecdotal reality.

Stifel analyst John Larkin reported from the recent Truckload Carriers Association 79th Annual Convention that “most shippers are not in the mood for rate increases, presently. Many are offering their carriers an opportunity to retain their existing lane awards provided rates remain flat at depressed levels or are sandpapered down further.”

This mirrors what our clients report and what I heard at the TCA meeting.

Truckers are an optimistic group, and most know that despite the current rate situation, the positive indicators combined with the electronic logging device, or ELD, mandate and ongoing driver issues should put capacity closer to demand than it has been in quite a while.

As capacity and demand

approach equilibrium, carriers

will have more options when

selecting which -freight to haul.

Numbers rule in this industry,

but picking and choosing the

most valuable freight isn’t a

matter of simple arithmetic.

Information, technology and

data analysis are going to

become a more valuable

commodity for carriers as they

decide which shippers to give

their trucks to on a regular basis.

The analytic tools on the market today, and the intelligence derived from the use thereof, make it possible for fleets to make intelligent data-driven decisions about customer and lane profitability.

These tools evaluate a carrier’s revenue stream, including price, cost, velocity, time and flow, to help carriers identify the yield associated with a specific piece of business, shipper or lane. Regardless of the chosen technology fleets use to analyze their network, their strategy must be well thought out, consistent, specific and most importantly, actionable.The leaders of trucking companies need to manage their customers the same way their customers manage

them: by the numbers. Price is the common language of trucking; it is the only meaningful communication between carrier and shipper. We are amazed by how many sophisticated trucking business owners confuse the market rate — the statistical average of what all carriers reporting to the index are receiving on a given lane during a given period — with their yield-based or required rate.

Hauling freight at or above the market rate does not mean it will be profitable. It just means you are beating the index. Enlightened carriers understand their costs as well as their freight networks and calculate a yield-based rate to identify what price they need to establish to be profitable on each piece of business. The relationship among the yield-based rate, the market rate, the current rate for that shipper and the rate for all current shippers on a given lane provides pricing intelligence that leads carriers to smart pricing decisions.

Truckers tend to be loyal to their customers. However, many times, this is a one-way street. In our consulting practice, we see what we believe is a misguided loyalty to longtime shippers. Long gone are the days of selling based on long-standing personal, plant-level relationships. Today’s highly educated shippers use MBAs and sophisticated models to manage their transportation spend. Carriers need to provide excellent service and respect their customers while also using smart math for pricing and capacity allocation.

Op-Ed: Network Analysis Takes on More Importance By David Roush – President, KSM Transport Advisors


12


Shippers who have been shortsighted and not relationship-oriented should take the trucking industry’s positive direction as a wake-up call and become better customers. This industry is about give and take, and those shippers that have focused only on low rates will pay the price when demand exceeds capacity. Anything shippers can do to support drivers, minimize delays and increase efficiency will bode well for them as fleets use analytics to select and price their freight.

The “good times” in trucking are few and far between. Now is the time to plan for a market with tight capacity. Carriers need to develop a plan based

on relationships but also — and in my opinion, more importantly — on analytics and profitability.

There is no magic bullet, but carriers need to educate themselves on their overall network and consistently execute the network strategies they have identified to improve their yield. As capacity tightens, carriers may see a bump in revenue, but unless they optimize their overall network and choose the customers with whom they want to align, they’re missing an opportunity to be strategic about engineering their freight network. KSM Transport Advisors provides profit improvement consulting services to trucking companies. Roush has

more than 30 years of experience in transportation and consulting analysis and implementation. His focus is on improving profitability utilizing freight network engineering, financial management, operational metrics and optimization strategies.


13


Surge in State Fuel Tax IncreasesBy Robert Pitcher, Vice President of State Laws, American Trucking Associations

After a slow start in 2017, states have all of a sudden begun to increase their fuel taxes. Commonly, state tax legislation is enacted more often in odd-numbered years than in even, which tend to be elec-tion years. Recently, 2015 was a banner year for state fuel tax increases, with the rates being raised in Georgia, Idaho, and North Carolina, among others. Last year was more subdued, but then, once elections were past, Michigan and New Jersey raised their taxes.

While a quarter to a third of the states have raised gas taxes in the last few years – and we include diesel when we say that -- most of the rest of the states are short on highway funds. It looked like 2017 would be a busy year for more increases. But through the first quarter of the year, and well into April – nothing.Then, in the space of two weeks, the dam (if there was one) seemed to break, and five states enacted legislation raising their fuel taxes: California, Indiana, Montana, South Carolina, and Tennessee. And West Virginia followed suit several weeks later.

CaliforniaCalifornia’s measure, S.B. 1, was signed by Governor Brown on April 28, though the legislature actually passed it three weeks before, by the two-thirds major-ities required in that state for any tax increases. Although the bill provides other funding as well, the increases are primarily in the form of higher fuel taxes: 12 cents a gallon more on gasoline, and 20 cents more on diesel, plus an increase of 4 percent in the sales tax on diesel, this last to fund transit. The fuel taxes will be indexed for inflation. The fuel tax changes

take effect this November 1. For noncommercial vehicles, there are a number of new registration-type fees, including one for zero-emission (primarily electric) cars, but these increases do not apply to trucks. There are no new weight fees, the largest component of California’s registration fee regime for heavy vehi-cles. Moreover, the bill sets new criteria for the age and use of a truck before the state’s environmental agencies can order it taken off the road (13 years of service or 800,000 miles). Last, the new money is to be reserved solely for transportation by the state constitution.

IndianaIn Indiana, the legislation, signed by Gov-ernor Holcomb on April 26, is H.B. 1002. It raises the diesel fuel tax by 20 cents a gallon, and indexes the tax for the future, with a two-cent cap per year on increases due to the index. The gasoline tax goes up by 10 cents, and is similarly indexed. The existing 11-cent surtax for motor carriers is retained, but loses its nature as a surtax by being moved to the pump, where it will be paid at time of purchase.

This change should improve enforcement considerably.

Indiana’s bill also increases registration fees, including those levied under the International Registration Plan, by 25 percent, but a proposed $100 per-vehicle fee was dropped from the bill. Finally, all local wheel taxes in Indiana are to be apportioned by fleet mileage. The ini-tial changes under the new law take effect July 1 this year.

MontanaMontana’s Governor Bullock signed the tax increase in that state on May 3, per H.B. 473. The increase on gasoline and diesel will be phased in over several years, with an initial jump of 4.5 cents a gallon on gasoline on July 1 this year, and an increase of 1.5 cents on diesel. Ultimately, by July 2022, the total increase will be 6 cents on gasoline and 2 cents on diesel. Some are of the opinion, how-ever, that the bill does not raise enough highway funds to suffice the state for more than a few years. This seems to set Montana apart from the other states that have acted recently.

South CarolinaOn May 9, 2017, South Carolina’s leg-islature easily overrode a veto by Gov-ernor McMaster to enact H.3516, which increases the state’s highway funding significantly. First, the fuel tax on both

robert Pitcher


14


gasoline and diesel, which has been 16 cents a gallon for many years, will rise by 2 cents a year for the next six years, resulting in a tax of 28 cents a gallon by 2023. This year’s 2-cent increase takes effect July 1.

Second, the legislation rolls the existing South Carolina apportioned property tax on motor carrier rolling stock into the vehicle registration system, including registrations issued under the Interna-tional Registration Plan. For a couple of decades, South Carolina has imposed a property tax, paid by separate report, on motor carriers based in the state and on those with a location there. Although the tax is apportioned on the basis of mile-age, the tax rate is quite high. The system

has been felt to be unfair, since it leaves exempt many carriers with significant business in the state but which have no South Carolina establishment. Evasion of the property tax is also thought to be widespread. Beginning in 2019, the property tax, renamed the Road Use Fee, will be paid on all commercial vehicles over 26,000 registered gross weight that are registered in the state, including those with IRP registrations. This includes fleets traveling in South Carolina under IRP but not based there. The new fee will be collected at the time of registration and, for interstate carri-ers, will be apportioned by fleet mileage traveled in South Carolina. The fee itself will still be based on fair market value of taxable power units. (Trailing equipment,

which has been exempt from property tax for some years, will continue to be.) Both registration and the new road use fee will be administered by the South Carolina Department of

Motor Vehicles.

Finally, H.3516 has beneficial provi-sions for interstate carriers concern-

ing local taxes and fees. The new law clarifies the point that trailing

equipment is exempt from all local fees and taxes. Vehicles registered under IRP, that is, power units, are to be exempt from local road use fees. And local business license taxes, which currently may only be imposed on a for-hire motor carrier by the locality of its principal place of business, will have to be apportioned by fleet miles in the state.

TennesseeIn Tennessee, where Governor Haslam

signed H. 534 on April 27, the fuel tax increases will also be phased in. On July

1 this year, the tax rate on gasoline and diesel will go up by 4 cents a gallon. Addi-tional three-cent increases for diesel only in each of the next two years will bring the total increase to 10 cents by July 2019.

West VirginiaWest Virginia’s legislature raised that state’s tax in special session toward the end of June. Governor Justice signed the bill (S.B.1006) in the early hours of June 23. As we read the bill, it provides for a 2.5 cent increase in the per-gallon rate on both gasoline and diesel, effective July 1, and an additional penny a gallon on both fuels effective the first of next year. West Virginia has had an indexed fuel tax for decades, what the bill actually does is set a new floor for fuel tax rates and raises the minimum wholesale price of fuel (to which the rate is indexed) from $2.34 to $3.04.

So in a matter of a couple of weeks, 2017 became a busy year for state fuel tax increases. And a few legislatures have not yet finished their regular 2017 sessions, and some of them are still considering fuel tax increases. These may be more likely now that six state legislatures have acted – with four of those states firmly controlled by Republicans. It is anticipated that more states will go into special session over tax issues as well.

Finally, we must congratulate the state trucking associations of California, Indiana, South Carolina, and Tennessee. Each of them has worked for years, many years in several cases, to obtain more adequate highway funding for their jurisdictions. And all of them managed to avoid the enactment of other provisions in these bills that would have been detrimental to motor carriers.

4%

2.5%+4.5

+4 +16

4%


SC

MT

CA

IN

TN

WV

GAS DIESEL

gas

diesel

gas 04¢

diesel 10¢

gas 12¢

diesel 12¢

gas 05¢

diesel 02¢

gas 10¢

diesel 20¢

gas 12¢

diesel 20¢

2.5¢2.5¢ gas

diesel

gas 04¢

diesel 10¢

gas 12¢

diesel 12¢

gas 05¢

diesel 02¢

gas 10¢

diesel 20¢

gas 12¢

diesel 20¢

2.5¢2.5¢

15


American Trucking Associations | www.trucking.org

$327.2 billionValue of merchandise moved by trucks in 2016

76% increase over 1995

5.9 millionNumber of truck movements across border to haul those goods in 2016

Percentage of goods moved by

trucks across the border

U.S. TRADE WITH CANADA

U.S. trade with Canada and Mexico is larger than the economy of Pennsylvania. To move all of that freight, in 2016 there were more than 11.6 million truck crossings combined on the Canadian and Mexican borders.

71%$372.8 billionValue of merchandise moved by trucks in 2016

372% increase over 1995

5.8 millionNumber of truck movements across border to haul those goods in 2016

Percentage of goods moved by

trucks across the border

U.S. TRADE WITH MEXICO

82%

Trucking and international trade are synonymous. In 2016, truck transported trade accounted for 76% of the value of all surface trade between the U.S. and Canada and Mexico. Since 1995, truck transported trade, both imports and exports, is up 76% with Canada. Even more impressive, truck transported trade with Mexico has skyrocketed 372% since 1995. To haul the nearly $700 billion worth of truck transported trade with both countries took 11.7 million truck crossings in 2016. Bottom line: U.S. trucking benefits significantly from trade across both the northern and southern borders.

The negotiations for a NAFTA 2.0 began on August 16th in

Washington, DC. The negotiators plan to meet seven times before the end of the year and they hope to be finished by mid-January as Mexico has a presidential election in July 2018 and all three countries want this completed well before then. ATA has been providing input to the Office of the United States Trade Representative (USTR) and will continue to do so as formal negotiations continue. The first request from ATA to the negotiators, the USTR, and the Trump Administration is first, do no harm. Beyond that, ATA has requested improved border efficiency. Trade negotiators can reduce all the tariffs they like, but there are big costs if it takes too long for freight to cross the border. Additionally, ATA requested

that the Mexican Truck program remain in place, that freight going into Mexico be permitted to commingle (i.e., more than one Mexican freight broker on one trailer), and drivers from all three countries be permitted to reposition empty trailers in all three countries. NAFTA is a key to the U.S. and North America’s economic future and the next five months are crucial. Stay tuned…

ATA’s Stance on Upcoming NAFTA Negotiations By Bob Costello, Senior Vice President and Chief Economist, American Trucking Associations

bob costello

16


The Republican majority in Congress has come to understand the need to provide for rate reduction for the income earned by all businesses, including pass-throughs such as S corporations and partnerships, and not just for regular cor-porations. The proposed 25 percent rate for pass-throughs in the “Better Way” proposal reflects this understanding.

In the case of owners that are active participants in pass-through businesses, we understand that it will be necessary to separate the portion of their pass-through income that represents their wages so it can be taxed at the ordinary rate for individuals. Congressional staff has indicated that unless an acceptable alternative is found, an arbitrary ap-proach of taxing 70% of pass-through income as wages is likely to be adopted, leaving only 30% of the pass-through income eligible for the active business income rate. The arbitrary 30% limit serves as a critical offset in keeping the tax plan revenue neutral, which is a key goal for Congressional Republicans.

Alternatives known to be under discus-sion include the proof of The Republi-can majority in Congress has come to understand the need to provide for rate reduction for the income earned by all businesses, including pass-throughs such as S corporations and partnerships, and not just for regular corporations. The proposed 25 percent rate for pass-throughs in the “Better Way” proposal reflects this understanding.

In the case of owners that are active participants in pass-through businesses, we understand that it will be necessary to separate the portion of their pass-through income that represents their wages so it can be taxed at the ordinary rate for individuals. Congressional staff has indicated that unless an acceptable alternative is found, an arbitrary ap-proach of taxing 70% of pass-through income as wages is likely to be adopted, leaving only 30% of the pass-through income eligible for the active business income rate. The arbitrary 30% limit serves as a critical offset in keeping the tax plan revenue neutral, which is a key goal for Congressional Republicans.

Alternatives known to be under discus-sion include the proof of reasonable compensation approach, the distribution approach, increased investment in busi-ness approach, and the use of surrogate factors to estimate compensation.

Proof of Reasonable CompensationTaxpayers would be allowed to establish the amount that represents reasonable compensation, using specific rules designed to determine the fair market value of the services they provide to the business. These rules would focus on the compensation that an unrelated per-son would earn, performing the same duties in the same industry in the same geographic area. Additional support, including certification by a qualified, in-dependent third party could be required.

Better But Not Best: Grant Thornton Explains Alternatives to “Better Way” Tax Plan Limits on Pass-Through Income By Russell Norris - Grant Thornton LLP


17


Distribution ApproachDistributions to pass-through share-holders to pay taxes that otherwise would have been paid by the business if it were a corporation would be taxed at the business income rate of 25%. Other distributions from the business to its owners would be taxed at individual rates. Remaining profits that are re-tained in the business would be taxed at the business income rate of 25%.Increased Investment in BusinessAn amount equal to the increased investment in the business, plus any distributions to pass-through sharehold-ers to pay taxes that otherwise would have been paid by the business if it were a corporation, would be eligible for taxation at the business income rate, with the remainder taxed at individual rates. This is similar to the distribu-tion approach but uses the difference between investment in the business at the beginning and ending of the year instead of tracking distributions.

Use of surrogate factors to estimate compensationSurrogate factors, such as W-2 wages and related costs or fixed asset invest-ment as a percentage of income or revenues, could be used to estimate a percentage of pass-through income to be taxed at individual rates. The high-er the percentage of W-2 wages and related costs or fixed asset investment the greater the contribution of those factors to the revenues and profit of the business, leaving a smaller portion of income or revenues attributable to the services of the active investor and reducing the percentage of income required to be taxed at the individual rate. Translation of the percentages into a ratio to apply to partnership income would have to be developed.

Grant Thornton position:Grant Thornton believes that it is essential that an alternative be found to a rule that would limit the reduced pass-through rate to 30 percent of pass-through income. While we believe the proof of reasonable compensation alternative will result in the most accu-rate measurements and is most likely to prevent the allocation of inappropriate amounts to ordinary income, we rec-ognize that this alternative establishes a compliance burden and that other alternatives might be preferred. We urge all pass-through entities to consider how these alternatives would affect their active owners, and actively participate in determining which alternative is best for their business entity going forward.


The Forecast report is ATA’s premier economic planning resource. Forecast profiles the current state of the entire freight transportation industry and provides an outlook for all modes during the next decade. Forecast is so respected that it is used by the Federal Government and other modes of freight transportation to understand and prepare for the future.

A sampling of data found in Forecast includes:• Economic Forecast Annual Growth Rate• Domestic Transportation Market by Mode – 2016• Disposition of Freight by Mode – 2016• Freight Forecast Summary – All Modes• Summary of Primary Freight Forecast by Mode – Volume & Revenue• Truck Volume Forecast: For-Hire & Private Motor Carriers• Truck Revenue Forecast: For-Hire & Private Motor Carriers

ATA Member Price: $125 / Non-ATA Member Price: $250

Order today at: www.atabusinesssolutions.com/Economics.aspx

ATA U.S. Freight Transportation Forecast 2017 to 2028

18


© 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd

COMPARISON OF GOP TAX PLANS

Issue House Republican blueprint Trump campaign platform

Individual income

Creates three brackets of:o 12%o 25%o 35%

Creates three brackets of:o 12%o 25%o 35%

Individual tax benefits

Generally repeals itemized deductions but preserves a deduction for home interest and charitable giving

Increases standard deduction but repeals personal exemptions

Consolidate dependent and child benefits into single child and dependent tax credit

Retains the earned income tax credit

Limits itemized deductions to $100,000 per person Increases standard deduction but repeals personal

exemptions Creates $5,000 above-the-line deduction for dependent

care capped at high incomes and refundable for low incomes

Creates $2,000 dependent care accounts with $1,000 match for low-income taxpayers

Investment income

Interest, dividends and long-term capital gains taxed at ordinary income rates, but with a 50% exclusion for effective top rates of:o 6% o 12.5%o 16.5%

Retains top rate of 20% for long-term capital gains and dividends

No special rate for interest income

Estate tax Repeals (does not specify whether it would retain step-up in basis of inherited assets)

Repeals, but imposes tax on capital gain of assets in estate after $10 million exemption

Alternative minimum tax

Repeals both individual and corporate (but retains 90% limit on NOLs)

Repeals both individual and corporate

Corporate rate 20% 15%

Pass-through tax rate

25% rate on active income from a pass-through business with rules to ensure proper amount of income is characterized as compensation and taxed at ordinary individual rates

“Small” business pass-throughs receive 15% rate while retaining pass-through treatment

“Large” business pass-throughs receive the 15% rate only if they elect to be taxed as C corporations with distributions taxed as dividends

Business benefits

Generally repeals tax benefits but specifically retains an R&D credit and LIFO

NOL can be carried forward indefinitely but cannot reduce taxable income below 90% or be carried back

Generally reduces or eliminates all tax benefits except R&D credit

Depreciation 100% expensing for all business equipment, including buildings

Allows full expensing of manufacturing equipment if company forgoes interest deductions

Interest deduction

Allows no deduction for interest expense in excess of interest income with special rules to retain deduction for banks and other financial companies

Allows no deduction for interest expense if expensing equipment

Incentives for domestic activity

Creates full “border adjustability,” assumed to mean no deduction for imported products or components while gross receipts from exported products or components are excluded

Does not propose border adjustability, but Trump has suggested the use of tariffs on foreign products

International 100% exemption for repatriated dividends Imposes one-time tax on previously unrepatriated

earnings of 8.75% for cash and 3.5% for reinvested earnings (with 8-year payment period)

Retains worldwide tax (at 15% business rate) and ends deferral

Imposes 10% one-time tax on unrepatriated earnings

Financial industry

No specific proposals Taxes carried interest as ordinary income

Health care Repeals ACA and all associated taxes Repeals ACA and all associated taxes

Date post:	25-Oct-2019
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

2017 DRIVING THE NUMBERS - trucking.org Docs/About/Organization/ITLC/Newsletter... · Speaker:...

Documents