15 May New Rule Could Aid Trucking Company Owners Thinking About Selling
Kyle Griffith, CBI – New York Business Brokerage
Independent owner/operators and smaller trucking companies are facing a new challenge. Recently implemented rules by the Federal Motor Carrier Safety Administration (FMCSA) could raise costs and reduce driver availability. The policy changes, designed to enforce rest periods for long-haul truck drivers, could result in higher costs for express delivery services. Because the initiative will be particularly burdensome for smaller trucking companies, many may consider selling.
New federal mandates for electronic driving logs (EDL) on most tractor-trailer rigs make it easier to track and limit the time that drivers spend on the road. According to The Wall Street Journal, trucking industry representatives worry that a reduction in driving hours will cause a drop in productivity that will worsen the current capacity shortage. Some shippers are already paying a premium to get their freight on trucks in a timely manner. Smaller and independent carriers may have the toughest time making the transition since many larger trucking companies are already using the electronic logs. Stricter hours-of-service enforcement may force some firms to consider selling trucking company assets and leave the industry.
Reduced Productivity
The mandatory installation of EDLs has been sold as a way to improve safety by reducing driver fatigue. This policy will have a major impact on the industry.
Trucking companies that are already dealing with a driver shortage may have trouble keeping up with workloads as electronic logs help enforce limits on the time that drivers can spend behind the wheel. There are estimates that productivity may drop by as much as 6 percent.
As a result, companies will require additional drivers in order to meet the current work requirements. Trucking firms will also have to take proactive steps to keep the drivers that they already have. This may be difficult in an industry with a high turnover rate. Companies may have to increase wages significantly and offer other incentives. Smaller firms may not be able to absorb the higher labor costs. Limiting driving hours may also increase the time spent away from home. The cumulative effects may cause smaller owners to sell delivery business trucks and other assets before seeking other types of employment.
Added Maintenance Costs
The FMCSA estimates that compliance with EDLs will cost the industry approximately $975 million in installation and maintenance expenses. Another $604 million must be absorbed by the industry for the cost of trucks and drivers needed to meet productivity shortfalls. The installation of EDLs increases maintenance costs for independent and smaller companies between $100 and $600 per truck plus service fees. This additional cost could be burdensome for small-business owners that operate on thin margins.
Many may have to sell their trucking businesses, which they have spent years building. In the past, the use of paper logs allowed these companies to manipulate entries in order to boost allowable hours. The earnings allowed them to stay in business. Selling their trucking company may be the best option given the challenges posed by the new regulations.
A report by industry and market research firm IBISWorld indicates that owner-operators will have a difficult time complying with the new requirements because of the costs. Earning just enough money to stay in business, many smaller firms do not have the capital required to purchase, install and service EDLs. Although freight rates are expected to rise overall because of EDL implementation, raising trucking fees in a competitive market to offset the additional costs may be disastrous for the business. Smaller firms that cannot increase their rates or absorb the cost may have to leave the industry and sell delivery business trucks and equipment.
While many truckers are taking a wait-and-see approach, surveys indicate a significant number of drivers and carriers plan to sell their trucking business and leave the industry rather than try to comply with the new rules. Many have already left and ceased operation citing the additional costs.
If you are thinking of selling your trucking service, you should contact an experienced business broker. A knowledgeable broker can help you properly value your company and maximize your selling price when you sell.
If you would like to discuss this article or schedule a private and complementary consultation, please contact Kyle at kyle@nybbinc.com or 631-339-0249.
