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Capitalizing on the Rebound: The Trucking Industry’s Push to Maximize Growth

February 16, 2018

Transportation Services Group

As 2017 came to a close, the trucking industry breathed a collective sigh of relief. After two challenging years, trends indicated a rebound in the industrial segment helping to improve production. Core issues remain – primarily with regard to the advanced average age of U.S. truck drivers and frequent employee turnover – but the overarching sentiment among owners and operators is one of a positive outlook.

To discuss the industry’s ups and downs and bring together company leaders, Katz, Sapper & Miller’s Transportation Services Group hosted its annual Trucking Owners Business Roundtable on Feb. 3 at its Indianapolis office. Experts offered presentations on industry trends, strategies to improve employee turnover ratios, and the changing legal and tax landscape. Moderated by Tim Almack, partner-in-charge of KSM’s Transportation Services Group, the roundtable featured:

  • Chris Johnson, Director/Analyst – Transportation and Logistics, Cleveland Research Company
  • Ray Haight, Co-founder, TCA inGauge
  • Chris Henry, Program Manager, TCA inGauge
  • Troy Hogan, Director, Katz, Sapper & Miller
  • Braden Core, Partner, Scopelitis, Garvin, Light, Hanson & Feary
  • Alaina Hawley, Associate, Scopelitis, Garvin, Light, Hanson & Feary
  • Ryan Wright, Associate, Scopelitis, Garvin, Light, Hanson & Feary

A Source for Optimism

“Volume is outpacing capacity, which is a good sign,” said Chris Johnson. In the domestic transport market, growth has steadily accelerated. Johnson noted several key points:

  • In the spot market, carriers have transitioned away from burdensome contracts and limited their exposure.
  • Spot freight volumes have increased, creating excess demand.
  • Truckload capacity, therefore, is thin versus a year ago as volume outpaces capacity.
  • Spot rates are up 20 percent to 30 percent year-over-year.
  • Load-to-truck ratios are growing.
  • The average truckload pricing should increase four percent to six percent year-over-year.

While Johnson noted these are positive signs for truckload capacity, some of the industry’s underlying issues remain. The average age of U.S. truck drivers is still around 55, as the industry employs a greater percentage of persons 65 or older (6.1 percent) than 20-to-24-year-olds (4.9 percent).

During his presentation, Johnson also touched on the Less-Than-Truckload (LTL), rail/intermodal, parcel, international, and airfreight markets. Of note:

  • The LTL market is extremely consolidated, so the pricing environment remains stable.
  • Fuel prices have not had a significant impact on rail/intermodal markets, and providers in that space are currently focused on reducing labor and improving profitability more than increasing service opportunities.
  • The parcel market remains in high growth as e-commerce continues its momentum. As a result, the airfreight market is experiencing a renaissance.

History was on the industry’s side heading into 2017, as there had never before been a three-year slump in industrial production. Although the economy slowed down, it never reached the dire outcomes of a recession. As 2017 progressed, labor and retail markets steadily improved, and inventories showed signs of growth. At the beginning of 2017, prognosticators believed the industry was due to gain momentum. Using the past five months as indication, they were right.

The Impact of Turnover

Using his company’s staggering decrease in turnover percentage as a case study – from 120 percent to 20 percent in two years – Ray Haight’s presentation focused on how a concentration on turnover reduction can positively impact all facets of a business. In the process of reducing turnover, his organization experienced workforce stabilization, doubled operating ratio, and improved safety.

Haight pressed attendees to consider a different paradigm. “We do not think of retention from the driver’s perspective,” he said. Leadership must focus on the issues that matter to employees and employ a more holistic approach. Haight believes it is imperative for owners to concentrate on building a culture and process that all employees can buy into. “When you have 100 percent turnover,” said Haight, “your people are not going to believe what you’re saying.”

Other key points of Haight’s presentation included:

  • Companies that focus on their people can recognize a strategic advantage in the market.
  • Carriers with low Compliance, Safety, Accountability (CSA) scores and lower insurance costs typically have greater profitability and less turnover.
  • Companies need to know where they are in the marketplace with regard to salaries and strategies, as well as the mission of the company. Accurate pay levels communicate the right message.

In summary, by maintaining transparency with employees and providing them what they need, such as training and support, Haight believes companies instill mutual value that promotes culture and reduces turnover. “Your employees want to be treated like professionals.”

Building a High-Performance Team

Chris Henry of inGauge delivered a succinct presentation on the nine key traits of high-performing trucking companies, based on benchmarking platform information. Key traits Henry addressed included:

  • Top performers know how to add by subtraction. Before implementing new software programs or adding new processes, these companies first understand capacity and methods to eliminate redundancy.
  • Top performers invest in tangible and intangible assets to create differentiation for their company. Building proprietary tools to position your company for the future are of greater value than simply adding more drivers.
  • Top performers understand how to separate daily activities so they find time to work on their business, not just in their business.
  • Top performers embrace the concept of meritocracy, understanding that good ideas can come from anyone in your business.

Henry also offered several predictions for 2018 based on his company’s data, including:

  • Organic revenue growth between eight percent and 22 percent.
  • Up to 14 percent improvement in gross margin results.
  • An increase in driver and non-driver payroll.
  • Shorter haul lengths.
  • Higher driver to non-driver ratios.
  • Continued driver retention issues.

Tax and Legal Implications

Recent tax reform and the fluctuating legal landscape were also topics of great discussion, with numerous answers still to be determined. On the tax side of the equation, Troy Hogan noted that passing of the recent tax bill has only highlighted how many IRS regulations remain unclear. Current forms are meager, and experts in the field are still working toward speculating on how the bill will impact the industry.

What is known about tax reform at this time includes the following:

  • The C corporation tax rate has been reduced, and the AMT tax was repealed.
  • Pass-through entities will be eligible for a Qualified Business Income deduction of up to 20 percent, subject to limitations.
  • Like-kind exchanges of personal property have been eliminated, but an increase in accelerated bonus depreciation will offset the impact in the mid-term.
  • Two percent itemized deductions have been suspended, so companies should consider implementing a per-diem program to lessen the potential tax impact for their employee drivers.

From employment classification to immigration to state reaction to a shifting federal environment, Braden Core, Alaina Hawley, and Ryan Wright of Scopelitis, Garvin, Light, Hanson & Feary shared how political changes in the last year have led to legal changes in the trucking industry.

Core noted that with the new administration and recent federal appointees, guidance has overall become friendlier for trucking companies. But changes on the federal level are not necessarily aligning on the state level, so outcomes are still in flux. “For the most part,” said Core, “there is current favorable legislation for the trucking industry on the state level.”

Wright highlighted some key state legislative trends, including efforts to penalize companies for the misclassification of workers and the trend toward multiple employer liability. The focus of Hawley’s presentation was on extraterritoriality and how state laws can conflict, as well as best practices for addressing potential concerns.

The trucking industry experienced an increase in volume, a growing focus on benchmarking data, and a shift in federal guidance in 2017 leading industry representatives to be cautiously optimistic about the coming year. Although long-standing factors and concerns remain, the business environment for 2018 is promising.

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