Fuel - Enough Said?

A note from Jeff Lovelady, CPA

Fuel, enough said! You know I was talking to my wife the other day and it costs us $30 per day to drive two cars to North Little Rock. You trucking owners out there hear that and probably laugh considering you are paying thousands of dollars per day in fuel costs. I know this has put a damper on our personal budget which means we do not go and do as much as we did this time last year. This impacts the economy because we choose to stay at home and not spend the money or not buy and consume as much as we were before fuel spiked up. This also impacts the tonnage of freight that is hauled because I am sure more people are just not purchasing like they were over the last few months. I have heard smatterings of “things are picking up”, “trucks are tight”, let us not get overly excited because I think this little rise in demand is just in the normal course of business, I have not heard of any major breakthroughs on freight rates other than the normal increase due to the rising fuel surcharge and the time of year. Definitely not increases that would make a major impact.

I have a question for some of you carriers out there, why would you haul a load that did not have a fuel surcharge added as a separate line item on a freight bill? In other words, as owners of companies you make decisions and a good customer is one that works with you to develop a relationship that is a win-win. The win on their side is a rate that they can save money on, on your side a rate that is commensurate with your impeccable service and a rate that is properly broken down so you can manage your company and if a customer does not want to see a fuel surcharge listed on a freight bill then maybe you should rethink your customer base. With the competiveness in the industry and operating ratios running over 100%, “Because the customer wants it that way”, just does not cut it in my book. Find a customer that will work with you. They need to get over it because fuel is here to stay and is now number two on your list of largest expenses right behind driver wages and benefits. I understand some of this is easier said than done but you also need to understand that managing your company and making hard decision about whether or not to haul for a customer can make or break a company. Tough economy leads to tough decisions. Now here is the bad part, this rise in fuel cost is mostly the result of speculators playing the futures market to make a buck! Demands not driving it because demand is down. Get the speculators that can not take delivery of wet gallons out of the market. According to the Energy Market discussion and analysis on CSPAN yesterday, 71% of the transactions in the Energy sector are speculators as compared to 37% a year ago.

Asset Protection Tip

Tip from Richard Bell.

As a form of asset protection, attorneys have advised our firm to reorganize S-Corporations and Q-subs to Limited Liability Companies for asset protection purposes, pursuant to some state laws, that favor LLC's over S-Corporations, in collection of judgments rendered against the entity due to insufficient insurance coverages. If you would like to discuss this topic further please contact Richard Bell 501.753.9700.

Texas Margin Tax

Trucking companies continue to agonize over the June 15th date for filing and paying the Texas Franchise Tax. Most clients have seen their tax bills double, which in todays economy could be a kiss of death. The Texas Margin Tax, which is based on the concept of figuring your gross margins, and then multiplying a sales tax rate of 1% is onerous to the trucking company, since they are not a service provider, and cannot deduct as cost of goods, expenses for fuel, repairs, insurance etc. The tax does allow a deduction for salary wages and benefits, thus the margin is about 70% of the gross, taxed at 1%, then prorated for the mileage applicable to Texas vs. the entire mileage for all states. Pretty bad stuff.