Major parcel carriers are sounding the warning bell on possible significant service disruptions this holiday season, which could dramatically decrease capacity as soon as November 8. This also comes on the heels of announcements of free holiday shipping from Target, Walmart and Amazon to boost sales. With annual ecommerce sales expected to peak during Q418 under already constrained less-than-truckload conditions, losing another 7-10% of total LTL capacity will impact everyone.

What does this mean for you?

You already may be experiencing freight rejections. Many 3PLs are actively directing customers to alternate carriers to keep freight moving. This is tightening capacity across the entire domestic LTL network, an effect felt by all shippers, not just parcel carrier users. As available capacity lessens during the Q4 peak season, rates will rise. Shippers should expect to pay more this season, which means consumers will too.

What can you do about it?

  • Strengthen your bench – many shippers prefer specific LTL carriers, whether for price, service or speed. Despite having a favorite, savvy shippers often establish relationships and rates with multiple LTL carriers to ensure they always have options for moving their goods.
  • Plan ahead – the LTL shipment you’re used to tendering same-day might not move as planned. Give LTL providers as much notice as possible so they can maximize trailer space and routes to move your shipment on time.
  • Know your ‘stuff’ – providing inaccurate information to carriers regarding shipment dimensions, weight or class that impacts their asset utilization is a quick way to get kicked to the curb. It’s also a way to get your shipments left on the dock while working out the details. When competing for capacity, the easiest shippers often get the space.
  • Ask for help – using multiple LTL carriers under different rates without a transportation management system is tricky and time-consuming. Look to leverage a system or 3PL for easy quoting and dispatch that doesn’t break the bank.

How can FreightRover help?

FreightRover’s SmartLTL offers multiple quick fixes for shippers responding to the looming LTL capacity dilemma:

  • Capacity options – The system provides shippers immediate access to multiple carriers specializing in all US regions.
  • Rates – Shippers can leverage their existing carrier rates or use pre-established carrier rates without individual contract negotiations needed.
  • Speed – SmartLTL offers quick quote-to-tender capabilities in under 60 seconds. Shippers receive immediate quotes from multiple carriers and can sort by rate or speed of delivery.
  • Efficiency – Easy data saves accelerate shipment builds. Create the information once, save it, and use the easy search and click option for creating future shipments.
  • In-system shipment tracking – Shippers receive a tracking link at shipment dispatch to monitor their shipment or can leverage the customer service team for shipment information.
  • One-click invoice approval – SmartLTL publishes invoice amounts online for easy review without the unnecessary paperwork.
  • Streamlined payments – FreightRover acts as a third party to issue carrier payments, so shippers move to one payee. This eliminates the need for long carrier onboardings and managing multiple carrier pay terms.

Perhaps most important, regarding the impending capacity question, FreightRover can get shippers operating in the platform within 24 hours. Launch includes three easy steps: 1) agreement signatures, 2) quick system tutorial, and then 3) shipment builds begin.

The system doesn’t require subscription fees or licenses, so shippers only pay a low fee per shipment for SmartLTL access. They can use the system permanently or until LTL capacity returns to normal.

It’s always good to have a Plan B when it comes to shipping. Block some time to think about your alternative strategy as the capacity crunch lingers. SmartLTL is here to help. It makes a great Plan B, but after trying it, we think you’ll consider it your new Plan A.

In the last five years, nearly $600 million has been awarded in independent contractor misclassification lawsuits in trucking. Adding insult to injury, the April 2018 decision in Dynamex Operations West Inc. v. California Supreme Court ruled that the ABC Test must be applied in analyzing whether workers are employees or independent contractors. The ruling applies rigid guidelines for classification and presumes workers are employees unless proven otherwise. This volatile legal environment has many wondering if independent contractors can be utilized by transportation providers at all.

Worker misclassification is a costly issue. However, by understanding the law and addressing risks, independent contractors can provide tremendous business benefits. Plus, eliminating the use of owner-operators would increase the current driver shortage by seven times overnight. The industry needs independent contractors to meet shipper demand, but companies must know how to work with them.

Employee vs Independent Contractor

Let’s start with the basics. The level of control a business has over a worker defines classification.

Employees are hired for a regular, continuous period. They work for an employer who maintains control over the work performance and product.

Independent contractors typically work under contract for a defined period. They perform a service for a company while maintaining their own financial independence. The contractor controls how the service is delivered and the final product.

Understanding the ABC Test

ABC is one of the most common tests used to classify workers. The test generally applies to compensation considerations. Under the ABC Test, independent contractors must meet three criteria:

  1. The hiring business does not control or direct the worker’s service performance (A test);
  2. Work performed is outside the usual course of business for the hirer (B test);
  3. The worker operates an independent enterprise from the hiring entity (C test).

The B test draws the most concern and elicits the question, can independent contractor drivers work for trucking companies that also have drivers as employees?

There are a few things to consider that leave California’s verdict under debate. First, while about two-thirds of states use the ABC Test, the Dynamex case was specific to drivers in California. Second, California applied the ABC Test in its ruling regarding minimum wages, overtime, meal and rest breaks, and wage statement violations. This application of the test omits other variables commonly used to establish independent contractor autonomy. Third, the Court left it open that other types of businesses involving product delivery may be viewed as outside of the usual course of the hiring company’s work even if they provide a similar service. Fourth, California’s application of the B test could conflict with economic regulation prohibited under the Federal Aviation Administration Authorization Act, which provides a broader definition of the B test. The FAAAA already struck down applications of the ABC Test in Massachusetts that limited the rights of independent business owners. Overall, California’s ABC Test raises as many questions as it answers.

Assessing Worker Status

In addition to the ABC Test, government agencies also frequently use the Common Law Test and the Economic Reality Test. The ABC Test may be the most stringent, but also the most ambiguous. Businesses seeking to classify workers as independent contractors would be wise to assess that decision using the Common Law and Economic Reality tests as well, which provide additional clarity.

The Common Law Test is primarily used by the Internal Revenue Service. It looks at who has control of the work – the business or the contractor. It assesses 20 factors, not all of which must be present to assign classification. Factors include:

  • Instructions and sequence – who determines how the work is performed?
  • Training – is ongoing training required from the hirer to ensure work is performed in a certain way?
  • Services rendered – must the work be performed personally, or can it be subcontracted/given to the contractor’s employees?
  • Hours of work – who sets the hours when services are performed?
  • Profit and loss – is time and labor pay provided regardless of who gains or loses economically based on the work provided?
  • Location – who chooses where services are performed?
  • Relationship duration – at service completion, can the worker move on to other projects outside of the hirer?
  • Integration of services – do provided services significantly impact overall daily business success?
  • Payment method – are workers paid by project or by regular intervals (hour, week or month)?
  • Business expenses – who is responsible for paying the worker’s business expenses?
  • Investments – who provides the tools, equipment, materials, and facilities to execute the project?
  • Service availability – is the worker free to provide services to the general public while partnering with the hiring entity?
  • Right to terminate and quit – does the employer have discretion to discharge the worker or can the worker quit without a breach of contract?

The Economic Reality Test establishes an employer-employee relationship when a worker economically depends on a business as services are provided. The test uses five factors collectively and examines the strength of each factor to determine a worker’s status. Factors include:

  • Degree of control – who controls the worker and the work product?
  • Opportunities for profit or loss – who profits from the success or failure of the business?
  • Investment in facilities – who pays for the facilities, tools and equipment?
  • Relationship permanency – is the relationship duration indefinite or periodic?
  • Skills and initiative – are the worker’s skills benefiting one business or being leveraged in the open market to support multiple businesses?

The three tests help the government protect workers. However, the government aims to avoid overly regulating the business of employers or independent contractors. Therefore, government entities typically assess the entire working relationship to make classifications. Factors indicating employee status may be balanced by other factors indicating independent contractor status. The major takeaway – failing to meet a factor among the tests may not necessarily change employment classification. However, better safe than sorry, and transportation providers should consult with their legal counsel to act on the criteria for risk mitigation.

What’s the Solution?

Should trucking just do away with independent contractors? No company wants to pay several million dollars in misclassification lawsuits. Companies also don’t want to miss out on millions in freight revenues and adding employee drivers is difficult, expensive, and time consuming. One possible solution? Modify business practices to shift more entrepreneurial control to independent contractors. For help with that, there’s FreightRover’s CarrierHQ.

CarrierHQ provides an online marketplace of fleet services designed for one-truck operations all the way to the largest carriers in the US. The technology was created specifically to address the industry’s increasing struggle to maintain the independent contractor model. When assessing who has control of the worker, CarrierHQ offers flexibility to fleets working to establish contractors as truly independent. Here’s how:

  • Autonomous enterprise operations – contractors have access to business formation services to create and manage their own business entity (LLC) and may apply for their DOT authority through CarrierHQ (requires Auto Liability insurance). By managing their own business under their DOT authority, they are capable of offering their services in the open market and aren’t affiliated with the hiring fleet’s DOT number the same as employee drivers.
  • Payment method – CarrierHQ offers driver settlement services. The benefits are twofold. First, contractors have the option to select how they want to be paid – weekly or by trip (addressing the pay by project consideration). Second, hiring fleets leverage a third party to provide differentiation between how contractor and employee pay is processed. Contractors with their DOT authority also can access FreightRover Factoring to further control the speed of their settlements.
  • Investments – CarrierHQ provides access to affiliate leasing entities for equipment needs. This allows contractors to acquire trucks and trailers for lease or purchase independent of the hiring fleet.
  • Business expenses – contractors can sign up for Comdata fuel cards with limits established by their credit score rather than using a card with financial attachments to the hiring fleet. This addresses classification concerns stemming from fuel advances or price-based access to fuel stations and per-gallon costs. Physical Damage, Occupational Accident, and Non-Trucking Liability insurance are available for purchase in the contractor’s name as well. Using a series of questions and answers, contractors receive quotes from multiple insurance providers to self-select their plan based on coverage and cost. The system delivers insurance certificates electronically to the driver and the hiring fleet. Online access to Auto-liability insurance is coming soon.
  • Control of the work – hiring fleets can launch a private load board inside CarrierHQ. Through a mobile app, contractors self-select freight eliminating the error of forced dispatch and supporting contractor control over the profits and losses of their business. Contractors determine what work they perform and how they perform it while still providing capacity to the hiring fleet.

CarrierHQ provides the blend of control and choice the industry has desperately needed. Fleets take back control of their business and have new means of addressing the potential dangers of worker misclassification. Contractors have an online marketplace providing choice around their work and flexibility on how they manage their enterprise. Independent drivers remain entrepreneurs, not employees. These contractors present more rewards, with more manageable risk, and the industry keeps moving forward.

Interested in learning more? Let’s connect to discuss how CarrierHQ can benefit your overall classification risk strategy.

Schedule a demo | Email sales@freightrover.com | Call 866-621-4145

 

FreightRover’s PayEngine provides a mutually beneficial supply chain finance program for companies and their vendors. Companies benefit from extended pay terms to improve working capital while providing their suppliers with tailored options for accelerated receivables.

Despite the wins supply chain finance provides both parties, many companies hesitate to implement a structured payable program due to balance sheet concerns. Poorly managed programs can result in trade payables reclassifications to debt, which negatively impact leverage ratios and debt covenants.

PayEngine’s program meets all trade payables accounting standards to protect a company’s balance sheet and bottom line. Following is our guide to understand the difference between a trade payable and debt in a supply chain finance program.

The First Question:
Has the economic substance of the trade payable changed?

When accountants review payables classifications on the balance sheet, they look at each of the following categories to assess if the trade payable has been modified in such a way that it is creating a financing cash inflow that benefits the company. Accountants will look at the categories collectively to assess the entire supply chain finance program as well.

Terms:

  • Settlement of trade payables cannot take place at a date later than or for an amount other than what is stated on the original invoice upon submission to a third-party payor. Doing so would be considered borrowing, which is debt.
  • A new trade payables arrangement cannot change the terms between a supplier and a third-party payor that’s inconsistent with normal trade payables terms.
  • The company cannot participate in or influence term negotiations between the supplier and third-party payor. The vendor and third-party must negotiate directly.

Population Impacts:

  • A trade payables arrangement must apply to a broad range of suppliers. However, the program does not need to include all suppliers. Companies can extend days to pay without all vendors accepting the new terms if most suppliers do comply.
  • Supplier participation in a supply chain finance program must be voluntary. If enrolling is required to maintain a relationship with the company, a debt reclassification may be required.
  • Should a large majority of suppliers impacted by extended pay terms select an accelerated pay option, which marks a significant change from the previous arrangement, this could trigger a debt reclassification. For example, if a company extends terms from 30 days to 120 days and now most of their supplier base elects to monetize receivables and did not prior to the change, this would require review as potential debt.

Benchmarks:

  • Companies can extend pay terms to align days payable outstanding or other working capital ratios with peers without changing the structure of their payables to debt financing. As a reference point, the US average across the largest 1000 companies currently is 57 days.
  • Trade payables should not include the accrual of interest prior to when the trade payables become due. Late payments can incur interest without reclassification impact.

Credits:

  • A company must retain its negotiation rights with the vendor directly and have the ability to withhold payment. Application of credits must be consistent with past practices. For example, if a company places a freight claim against a carrier, they should have the ability to withhold payment to the carrier until the issue is resolved. If a third-party payor compensates the carrier prior to the completion of the claim negotiation, and the company must arrange for a credit that’s inconsistent with how they’ve traditionally done business with the carrier, there could be a debt implication.
  • Whether or not a vendor decides to monetize their receivable cannot impact the company’s cost of goods sold or services received from a vendor. The third-party’s arrangement with the vendor and company must be independent of the other party’s interests. Therefore, a company cannot pay a vendor more to offset the cost of accelerated receivables.

Legal Characteristics:

  • Companies cannot change the legal characteristic of trade payables. Events that indicate characteristic changes include: immediate draw-down of credit lines, altering trade payable seniorities, securing trade payables through collateral, or incorporating default provisions.
  • In general, trade payables cannot have guarantees. However, in the case of a parent company being “jointly and severally liable for a subsidiary’s obligation,” a reclassification may not be required if it is the sole indication of a debt trait.

Impact of Third-Party Payor:

  • Implementing a structured payables program may be part of a larger accounting outsourcing strategy. This could include using a third-party platform like FreightRover’s PayEngine, which includes posting invoices and assigning accounts for fund withdrawals as payables reach their maturity date.
  • Rates paid to the third-party payor by the company cannot vary based on things like the number of vendors selecting a quick pay option or number of invoices sold to the third-party.
  • Red flags for debt reclassifications include: the third-party receiving new rights, if the third-party has influence on which invoices get paid, or if the third-party can withdraw funds from the company’s other accounts without consent if sufficient funds become unavailable.

If you are interested in learning more on trade payables or modifying your vendor payments using PayEngine’s technology and supply chain finance program, visit www.freightrover.com/pay, email info@freightrover.com, or call 866-621-4145.

More Women Truck Drivers: A Solution to Many Industry and Gender Challenges
I recently attended a national transportation conference, where a featured panel included a high-level discussion with leaders from three prominent trucking fleets. As they candidly discussed the challenges present in the industry, the driver shortage took center stage. I noticed as they discussed ideas around recruiting and retaining drivers, they didn’t refer to any drivers as women. “He,” “him,” “men,” “guys,” “the boys” – not a single reference to females. While I’m certain the phrasing wasn’t intentional, it does speak volumes about what’s missing in our industry – more women.

Addressing the Driver Shortage
According to the American Trucking Associations, trucking currently is about 50,000 drivers short, a number expected to more than triple by 2026. Despite comprising 50% of the US population, women only hold about 6% of truck driving jobs. This leaves a massive pool of untapped human capital to address the driver shortage.

It’s hard to be what you can’t see, especially when most recruiting advertisements feature men. I asked an agency specializing in driver recruitment advertising why that is. They stated that many fleets don’t request advertising geared toward females because the cost per hire increases for women. However, it’s important to assess the total value of a hire over an extended time.

According to Ellen Voie, President and CEO of Women in Trucking, women tend to stay with fleets longer, engage in less risky behavior, and value team collaboration and goals. Considering the whole picture, the return on investment of hiring a safe, goal-oriented, team player that prefers to stay with the same carrier for as long as possible should be very high.

Closing the Pay Gap
On average, women earned 28% less than men in the United States in 2017 according to the Pew Research Center. While the gap is closing overall, trucking represents a great avenue for closing the disparity even quicker. With most trucking compensation plans using per mile rates, productivity rules. Additionally, transportation wages are increasing, with driver pay up about 12% year over year. Trucking provides a fantastic avenue for women to earn equal wages in an industry with increasing compensation trends.

Women as Entrepreneurs
The US is home to 11.6 million women-owned businesses worth $1.7 trillion in revenue and employment for 9 million people. Women-owned businesses are growing at five times the national average. However, more than 50% of female business starts are in the health and human services sector. Logistics has been identified as a high-growth, high-wage industry where women aren’t aggressively starting businesses. In a market desperate for additional trucks, independent contractors and owner-operators hold the flex capacity shippers need. Many of today’s largest US fleets started with a single truck. Women as independent contractors provides a new avenue for entrepreneurs with high market demand already established.

Changing Lifestyles
Women historically haven’t entered the industry in large volumes because trucking hasn’t always supported raising a family or being a care provider. Equipment also hasn’t been designed with women in mind. Those things are changing. Shippers are redistributing networks to create more daily runs. Carriers are working to provide nightly or weekly home time to their drivers. Equipment manufacturers also are modifying truck designs to be more inclusive for all driver types and builds. Automatic trucks also have become prevalent in the industry.

More women also are looking for second careers. As Boomers continue to enter retirement, they average just $15,000 in savings. They also are living longer on retirement benefits as costs continue to rise. Retirement benefits are typically lower for women as they often earn less during their careers. According to an article published in The Atlantic, Social Security replaces only 40% of an earner’s income when they retire, when 70% is required to live comfortably. With more fleets offering no-cost or low-cost CDL training programs, trucking provides an easy-access alternative career for women. Hitting the open road and seeing every part of the United States while being paid seems like a retirement plan worth some consideration.

Breaking Down Barriers
Technology providers like FreightRover also help lessen the barriers preventing more women from joining the industry. FreightRover’s CarrierHQ pay-as-you-go insurance program offers upfront capital cost savings of more than 80%. Paired with per gallon fuel savings, low factoring rates, and business formation in under 48 hours, launching a fleet has become much quicker and more efficient. FreightRover’s partnership with Urgent Care Travel also offers reduced-cost medical access for drivers and their families at multiple locations throughout the US. Women can better care for themselves and their families while still being on the road.

Trucking needs more women. They represent one of the most viable solutions to truly address the capacity crunch. And, women need trucking. Equal pay, entrepreneurial opportunities, and a different career for evolving lives – trucking supports efforts to create better equality for women. When I attend the next transportation conference, I hope to hear a lot more mentions of “she,” “her,” and “women” when it comes to drivers and other careers in transportation.