You’re taking the leap from being someone’s employee to brokering on your own. So what should you expect when switching from an employer’s Form W-2 to a Form 1099?
The New Year is loaded with all kinds of new and shifting developments. It almost feels like a gamble to report the news lest the information is no longer relevant in a few weeks. But for the moment, here’s what we have.
United States – Mexico – Canada Agreement (USMCA)
November 30, 2018 marked the official agreement between the United States, Mexico, and Canada on a new trade policy when leaders of all three countries signed off on it at the G-20 Summit in South America. The renegotiation of the North American Free Trade Agreement (NAFTA) has added a few new chapters addressing digital trade, anti-corruption, and good regulatory practices to protect small and medium-sized enterprises. Since NAFTA originally went into effect in 1994, it was undeniably in desperate need of modernization. Today’s technological advancements and developments have been identified and addressed fairly extensively to protect intellectual property in each country.
As far as transportation goes, there’s unanimous agreement that this new agreement is a good thing. For the most part, it’s very similar to the existing NAFTA, but the updated text aims to streamline transportation standards. Primarily, it’s aiming to implement more technology to expedite shipping and transportation procedures. The expectation is that the USMCA should translate into faster shipping times and relieve some pressure currently placed on logistic companies that cross international borders.
The only major concern associated with this otherwise good news is Section 232 of the Trade Expansion Act of 1962—the 25 percent tariff on steel and the 10 percent tariff on aluminum. The Motor and Equipment Manufacturers Association claims that this piece of the agreement chokes the United States’ ability to invest in more manufacturing and workforce development, which then affects the transportation industry. Many are calling on the Trump administration to include language to exempt Mexico and Canada from Section 232 to keep those channels open and running.
While there’s no other language that concerns supply chain experts, everyone is still well aware that unforeseen issues could arise once USMCA officially goes into effect. That won’t happen until the agreement goes through the Trade Promotion Authority procedures and Congress signs off on the bill.
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China and the United States
As of December 1, 2018, President Trump and President Xi of China came to a verbal agreement that brought cautious relief to those following the situation. Trump and Xi have agreed to try to come to a compromise regarding treatment of intellectual property and technology transfer issues by March 2, 2019. A new compromise will then allow for renegotiation of tariff rates for both countries. Until then, the U.S. has paused the tariff increase for the New Year and will keep the 10 percent rate, and China has promised to begin purchasing from the U.S. agriculture sector. Considering the fact that China was our main export for soybeans in 2017, it is a welcomed relief, but we’ll believe it when the orders come through. We might be able to expect to see China source the US for pork, as outbreaks of African Swine flu are hitting their herds hard. That is still an unknown, but should agricultural exports pick up, that will help relieve serious economic pressures on small farms and rural communities.
Effects of ELD Mandate
Speaking of unknown effects until implementation, the ELD Mandate has been in effect for a year now and we pretty much saw real-life consequences as early as Q1.
Earlier this year the load-to-truck ratios were significantly higher than the previous year. Tie that into the trucker shortage, and it means a lot of freight was sitting around waiting to be moved. This forced shippers to up their rates, which they then passed that cost along to consumers. The last half of this year did see a down-turn from load-to-truck ratios, but consumers shouldn’t expect price decreases.
A few companies who raised prices are familiar names: Amazon increased their Prime membership due to hiked shipping costs. Grocery store name brands like Hormel Foods, General Mills, Tyson Foods, Betty Croker, Haagen-Dazs and PepsiCo have all raised their prices, and others such as Hershey, Procter & Gamble, and Mondelez are slated to raise their prices as well.
The ELD Mandate also messed with paychecks. Drivers aren’t willing to sit around for more than 2 hours to be unloaded while miles are money and their time window is limited. This has created a new culture of drivers/carriers who purposefully avoid specific chains or manufacturers who are notoriously disrespectful drivers’ time. While comfortable lounges are nice, all the free soda and available showers don’t make up for eating into 5 hours of a shift.
The ELD Mandate has had some positive influence. Since the data is now digital, truckers are able to prove beyond doubt that they’ve been kept waiting at warehouses and are now more likely to receive compensation. And about 60 percent of drivers do believe the safety implications the mandate was intended to enable have been reached.
The other 40 percent feel like safety measures are getting worse, with drivers plowing on through bad weather, driving while exhausted for every last available minute, and speeding to cover more miles. ELD actually has reported that following long unloading detainments, drivers do drive an average of 3.5 miles faster. Clearly, some adjustments need to be made.
There has been talk that rather than repeal the ELD Mandate, the Federal Motor Carrier Safety Administration revisit and update the Hours-of-Service (HOS) of Drivers Rule. Ideally, the 30-minute break rule will be nixed, and drivers will be allowed “to use multiple off-duty periods of three hours or longer in lieu of having 10 consecutive hours off-duty.” Since nearly 75 percent of drivers reported they’re detained at a warehouse for longer than 2 hours at least once a week, this should help make that time work as breaks rather than count against drivers allotted driving window. The public call for concerns has closed, and we should have more information about the results of what might happen to HOS later in 2019.
The restrictions the ELD Mandate has placed is overall not so terrible. In fact, the limitations it’s put on shipping goods in a timely manner has brought about the biggest positive of 2018:
Increased Pay for Drivers
The pay for over-the-road drivers has not been great, with the United States averaging about a $40,000 salary. The shortage of drivers and the restrictions of the ELD Mandate has caused some companies to drive up sign-on bonuses as much as $6 grand and increase salaries.
Unfortunately, even with these salary increases, when adjusted for inflation, drivers are still making about 50 percent less than they were in the 1970s. But it looks like we can expect these pay increases to continue as long as the ELD Mandate stays in effect. For those who are going into truck driving, or intend to stay in the game for a few more years, they should experience some better compensation. The US is already short about 60,000 truckers, and ForeignPolicy expects that in less than a decade that number will be about 174,000.
2019 will hopefully provide us with some happier numbers about salaries. Maybe the future of over the road truck drivers will be as attractive as it once was.
Stay Tuned to LDI’s Blog Feed
We’ll be revisiting these topics and surely much more each quarter throughout 2019 to update you on the state of affairs in transportation.
The end of Q1 will undoubtedly have some interesting tariff updates with China and some real-time transportation data about the US/Mexico/Canada border.
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Stay up to date with the world of trucking by tuning into these renowned podcasts.
Podcasts are perfect for over-the-road entertainment. Truckers know this, but podcasts are ideal for anyone with a 20 to 30 minute work commute (brokers and dispatchers, looking at you). Lunch breaks are a good time to catch an episode, or, my favorite, the time it takes to get in a nice cardio work out. I love music, but occasionally, I need to learn something new.
Sometimes the branches of logistics can feel disconnected from each other. Brokers, drivers, and dispatchers all live in very different environments, but podcasts can bring us back together. Learn about something new going on in your truckers’ world, and keep up with what your truckers are talking about right now.
Here’s a list of some of the most popular trucking podcasts out there today. The first few are specifically about trucking, so they tie us all together. Each podcast has a spin that makes it a winner, so read about each one and check out the websites to sample an episode or two. If you’re looking to expand your podcast playlist and want to keep up on what’s important to your drivers, add these podcasts to your Stitcher list:
This podcast works for everyone in logistics. Buck Ballard and his son Don Ballard are both truckers who love talking about trucking, topics truckers find interesting, and offer some trucking business advice. They keep the content pretty fresh with a new episode released each week, so they aren’t scraping the bottom of the barrel for anything to talk about, and forethought is put into each episode. The Trucking Podcast has a website what expands on the details of each episode. Whenever the Ballards publish an episode that resonates with you, you can visit the website and read more about the topic.
Host Todd McCann is a 20-year trucking veteran who talks about his own insights and views on truck driving. He releases one episode a month that lasts about an hour and a half, so these episodes come at you slowly, but they’re fun to listen to. Trucker Dump makes the list on all the best trucker podcasts, and once you listen, you’ll get it. While it’s geared towards truck drivers, it doesn’t hurt for everyone else to be tuned in. Why? McCann gives a trucker’s personal experience about shippers/receivers, customer experiences, and more. This kind of information provides insight on how others are running their businesses, sometimes inefficiently. That can prompt you to do an audit on your own business when he hits on a certain topic that could relate to you. When you find that topic, go to his website, click on the episode, and the content is right there for you to review.
This is a trucking podcast for truck drivers released every Friday morning. This is a trucking culture kind of podcast: the hosts are funny, they talk about the industry, and vent about issues and frustrations truckers face every day. TalkCDL brings current attention to safety issues, emerging technology, and evolving rules and regulations. If you have any kind of question about what’s going on in the life of a trucker, these hosts have covered it.
How to listen: Apple Podcasts
Shifting gears a bit, this serial fiction podcast makes the trucker lists because it blends the world of trucking with the sexy appeal of crime thrillers. Alice Isn’t Dead is a 48-episode podcast about an over-the-road trucker on a journey across the country to search out a wife he long thought dead. Much like Trucker Dump, this podcast is wildly popular among truckers and it spans interest beyond just over-the-road drivers. This podcast is especially attractive to the logistic industry for obvious reasons. Since the series has officially wrapped, you can binge listen to the whole thing now.
Your Turn: What Are You Listening To?
Now we want to hear from you: what podcasts are you listening to? Do you have any other trucker-oriented suggestions? Or do you have something outside of trucking you’re recommending to everyone right now?
Both my dad and my father-in-law are over-the-road truckers, and here are the podcasts they’re quick to recommend:
My dad loves learning about economics, but when it comes to actually recommending a podcast for the general public, he doesn’t hesitate to suggest Freakonomics. Economist Steven Levitt and journalist Stephen Dubner look into all kinds of obscure topics and view them from multiple sides. They interview experts, dig up research, and present it all in an interesting way. The topics these guys cover have prompted some rather memorable conversations around the dinner table.
My father-in-law is the kind of guy who never meets a stranger. He immediately has something interesting and fun to talk about. When someone has that kind of personality, you have to wonder where they’re getting their info. Enter Stuff to Blow Your Mind, a podcast that talks about anything and everything in minuscule detail. Hosts Robert Lamb and Joe McCormick do their due diligence to deliver interesting, researched, and speculated takes on topics from neuroscience to art and everything in between.
What podcasts do you recommend? Share a link in the comments.
Demand for transportation is up, but the margins always seem to be shrinking. How is it possible to make a profit when margins are so thin?
No sweat. There are a few fast ways to increase your company margins during these changing times. We have a list of the 3 best practices to get more out of your small trucking company and even take advantage of the bright future ahead.
1. Leverage Industry Relationships
A surefire way to increase profit margins is to actively engage with those you do business with. Pick up the phone and start a Joint Business Planning discussion. Talk with your closest partners so you both come up with profit goals that align with each other. When one of you achieves, you both achieve.
SMB Business-to-business expert Francesca Nicasio reports that having a discussion with your partners can produce more cost effective outcomes than not. By inviting vendors to think of you as a partner, they’re more likely to help improve your workflow and suggest ways to streamline your business.
Joint Business Planning can benefit you and assure your partners you’re serious about the health of your business. A logistic broker who treats you like a partner is more likely to help increase your business and profit margins. A good broker will keep you updated in the industry, assist in lead generation, and offer their marketing resources to help you succeed. Companies who play the low-cost game and don’t offer these services are feeling the pressure in this market, so it’s important to form strategic partnerships that benefit each other.
Brian Abel, a financial advisor specializing in the trucking industry, recommends evaluating brokers carefully. He says one of the best indicators of a trustworthy firm is to be certain a broker is Transportation Intermediaries Association (TIA) certified. The certified TIA broker is bound to the TIA Code of Ethics to help maintain a community of trustworthy and transparent business partners of brokerages and 3PLs.
Now time to look inwards:
2. Maintain Retention and Reduce Attrition
One of the easiest ways to secure cash flow and predict profits is to work with the same customers over and over again. Your established book of business already has a few favored customers, so let them know you appreciate them. More often than not, regular communication will take this far. David Finkle, co-author of Scale: Seven Proven Principles to Grow Your Business and Get Your Life Back, says that a well-timed call, card, or visit lets the customer know you appreciate them actively purchasing from you.
On the flip side, if your customers aren’t benefiting you, perhaps it’s time to stop benefiting them. Finkle recommends that if your top customers’ margins are covering costs for your bottom customers, it’s better to cut ties and move on.
Don’t just take our word that these strategies are effective. Heartland Express (HTLD) refocused their business strategy for 2018 and experienced drastic results. They cut ties with less profitable lanes and focused solely on their most profitable customers. While HTLD experienced a significant drop in revenue year over year from 2017 to 2018, their operating ratio (OR) dropped by 9% and their adjusted OR dropped by nearly 11%. Because they pushed their OR down so far, HTLD actually increased their net income by over $11 million.
There’s a bright side to Heartland cutting ties with so many customers: their loss is smaller operations gain. Because of these cuts, HTLD haven’t been able to take full advantage of the strong demand for over the road truckers. That means the demand for freight is up and it’s yours for the taking.
Now to grab that low-hanging fruit:
3. Streamline Operations to Reduce Spending
Business optimization can produce game changing results, especially in industries with slim margins. If your office spends an exorbitant amount of time entering the same info into separate software systems, that’s money lost on finding and booking lanes.
Knowing how and where your time and resources are being spent can help optimize your business operations to make the most dollars per hour. The easiest way to do this? Princeton Consultants president and CEO Steve Sashihara says “use efficient technology.”
Transportation Management Software (TMS) is a huge asset for small trucking companies. The better the software, the better streamlined your operational process will be. A good TMS system will have invoicing and collections, dispatch services, legal and compliance, Bid, RFPs, pricing, and customer contracts all in one application. Make certain you choose a software that integrates with load boards, GPS integrated tracking, EDI capabilities, and analytic software to run reports. The fewer the clicks it takes to get between screens, the better.
Sashihara has seen enough good software systems streamline business operations to be a firm believer in investing in it. He specifically cites that the transportation industry has been able to transform struggling operations into profitable companies thanks to optimizing their fleet scheduling. By using real-time data plus historical knowledge, it’s easier for trucking companies to smartly predict price increases and act on them.
The Small Business Advantage
Heartland Express might have shrunk, but that doesn’t mean your small trucking company is going to. In fact, with increase in freight volumes and robust orders, margins are on the rise. Small trucking businesses are in the best position to take advantage of those margins. According to financial research specialist Mary Ellen Biery, “most general freight companies in the US are small businesses with less than 20 employees and […] their size might position them to adjust to market needs.” Hot spot markets and contract rates are expected to grow about 10 to 12 percent year over year. Those rising rates with the fairly stagnant growth of professional truck drivers means those already in the role are in position to benefit from this bright future.
Small trucking operations are in the best position to take advantage of this tight market. Since there is a lot more freight than capacity, act on these three things to make certain you get the best slice of the pie:
- Leverage Industry Relationships: work with partners who want to succeed with you.
- Maintain Retention and Reduce Attrition: work with customers who provide value to you and cut ties with those who cost you.
- Streamline Operations: make the most money per hour by investing in the right transportation management software that will reduce your workload and increase your bookings and invoicing.
If you’re ready to act on these three things and want to learn more about building a successful partnership, contact us at LDI to learn about our carrier program.
One of our business development specialists will be happy to hear about your existing business, your goals for growing, and have a conversation about how we can help you get there.