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KSM Blog | Katz, Sapper & Miller CPA

Optimism Abounds: Happy Days May Be Returning to the Trucking Industry

Posted 5:00 AM by

The trucking industry has been in a slump. Several factors, including a strong dollar, increased capacity, and zero growth in Industrial Production (IP), made 2015 and 2016 a challenging time for transportation. But trends began to reverse course in November 2016, which has led to renewed optimism for trucking owners going forward.

Katz, Sapper & Miller’s Transportation Services Group hosted its annual Trucking Owners Business Roundtable on Feb. 7 at its Indianapolis office. Industry experts presented on industry trends, new solutions to help increase company value, and the potential outcomes of regulatory and legislative changes. Moderated by Tim Almack, partner-in-charge of KSM’s Transportation Services Group, the roundtable featured:

  • Thom Albrecht, President, Sword & Sea Transport Advisors LLC
  • John Lyboldt, President, Truckload Carriers Association (TCA)
  • Chris Henry, Program Manager, TCA inGauge
  • Shannon M. Cohen, Partner, Scopelitis, Garvin, Light, Hanson & Feary
  • Jason Miller, Partner, Katz, Sapper & Miller

The Trucking Economy

“The biggest issue on everyone’s mind is the status of the trucking industry slump and its anticipated end,” said Albrecht. “But after dour messages in 2015 and 2016, I’m here with a happier tune.”

Albrecht believes trucking company owners have the following reasons to be optimistic:

  • Oil prices have begun to recover.
  • History indicated the industrial slump was due to conclude.
  • Wages are set to improve.
  • After two years of decreases, commodity prices are stabilizing, which will boost production.
  • Household debt has gone down.
  • Corporate investment should increase with the anticipated lower tax rates and the return of foreign earnings.
  • Infrastructure spending should increase.
  • Company inventories are strong.
  • The regulatory environment is experiencing pragmatic relief.
  • Tax rates should improve.

“Regardless of the outcome of the recent election, history showed the industrial slump was going to end,” said Albrecht. “There had never been a three-year slump in industrial production.” Adding credence to this theory was IP growth of 0.8% in Dec. 2016, which was its highest rate in 25 months. IP, which Albrecht said is more important to the trucking industry than Gross Domestic Product (GDP), is likely to continue its recovery in 2017, resulting in more freight and tighter capacity.

Other positive signs, according to Albrecht, include the following:

  • Commodities are getting stronger. Copper is starting to rise while wheat, corn, and grains are stabilizing.
  • The number of oil rigs is increasing, which means more goods, like steel, rubber, equipment, and tools, more jobs, more construction, and more hotel occupancy rates.
  • Small businesses are feeling a greater sense of optimism.
  • Improvements to the tax code may boost entrepreneurialism. New businesses have decreased since the 1980s from 12% to around 8%. A slight uptick would affect freight creation and capacity.
  • The housing recovery persists, moving from 5% growth in 2016 to 7%-10% growth in 2017. Many people who went through bankruptcy are regaining their credit status after the seven-year credit freeze. New home production means new freight.
  • Increased housing formations – the creation of new families – generates the need for more housing.

Despite the positive outlook, Albrecht believes there are some concerns, including:

  • Potential trade policies that stifle change.
  • A reduction in exports due to a strong dollar.
  • Rising gas prices and interest rates.
  • Labor force constraints.
  • A lack of growth for auto and aerospace industries.
  • Sluggish global trade.

Albrecht also cautioned that the industry must be amenable to change. “We need to be thinking about disruptions,” he said. He believes brokerage margins are going to get hit and freight flows will change. Gifts of experiences are overtaking gifts of things, so fewer goods are being shipped. People are more comfortable buying large items, such as appliances and electronics, online, which is changing distribution patterns.

For some trucking companies, the start of 2017 may feel the same as 2016, but Albrecht believes overall there is a sense of momentum in the industry. By 2018 – and perhaps as soon as the third quarter of 2017 – the mix of tight capacity and fiscal stimulus could result in a healthy industry.

Opportunities to Build Value

John Lyboldt and Chris Henry of the Truckload Carriers Association (TCA) took the podium to discuss ways trucking organizations can build additional value in their companies by maximizing profitability and leveraging their workforce. Lyboldt encouraged attendees to look at their individual operations and identify methods to realize change. Henry then discussed and demonstrated the inGauge Online Performance Benchmarking project management tool, which helps trucking owners turn data into action.

Based on a need that TCA noticed in the trucking industry, the program was launched in 2015 and collects more than 125 metrics in finance, operations, maintenance, fuel, safety, and HR to provide actionable information. The objectives of the program are to:

  • Provide an intake program for future Best Practice Group (BPG) members.
  • Educate motor carriers on expenses, reporting, profit, and more.
  • Modernize existing BPG reporting capabilities.
  • Improve circulation of results to front-line managers.
  • Combine quantitative and qualitative data.

One of the program’s main goals is to help trucking companies address and overcome obstacles such as effectively gathering the required data and assessing comparability to like-sized companies. Measuring these metrics enables organizations to determine their stature in the industry and how their outcomes measure up to the competition.   

Henry said that gathering greater amounts of data would lead to more successful benchmarking, resulting in continuous improvement.

Legislative Forecasting

Shannon M. Cohen of Scopelitis, Garvin, Light, Hanson & Feary followed the TCA presentation by shining a light on what to expect with state and federal regulations. With a new administration, it is hard to forecast anticipated regulations and legislative philosophy.

As for federal regulation, Cohen believes:

  • Electronic Logging Device (ELD) rules will go forward as written.
  • Hours of Service (HOS) Restart will hold steady but there may be further changes.
  • No practical effects will occur with regard to driver training initiatives.

Cohen noted the rest is conjecture. Nobody knows what will happen with issues like infrastructure spending, Twin 33s, wage and hour preemption, and joint employment. The interplay of state and federal governments is yet to be determined.

Other frequent topics of discussion within the industry include emerging technologies, autonomous vehicles, the use of drones, and the long-term results of the sharing economy on shipping volume.

Lease Accounting

The final presentation of the roundtable featured Jason Miller, a partner in KSM’s Transportation Services Group, providing an overview of current lease accounting, new lease standards, the financial statement impact for trucking companies, and planning.

Miller discussed the previous bright-line test used to determine proper accounting for capital or operating leases and how the methodology was considered broken, resulting in inconsistencies in accounting. The goal of the new lease standard, effective for non-public companies for 2020, is to simplify the accounting for leases to increase transparency and comparability. Miller stated that education is key to understanding, and preparing for, the impact the new lease standards will have on a company’s financial statements.

To prepare, trucking companies should take inventory of current leases, understand their impact on financial statements, look for opportunities to restructure leases, and assess the value of buying versus leasing.

About the Author
Tim Almack is the partner-in-charge of Katz, Sapper & Miller's Transportation Services Group. Tim audits and reviews financial statements and advises numerous trucking clients in accounting, reporting, internal controls, analysis of cash flow and other operational matters. Connect with him on LinkedIn.

 

About the Author
David Roush is president of KSM Transport Advisors, LLC, part of the Katz, Sapper & Miller Network. With 30-plus years of experience, David’s focus includes freight networks, financial management, operational metrics and optimization strategies. Connect with him on LinkedIn.

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