Quick Hits & Finding Margin

The flat, stagnant, ho-hum, freight market – whatever phrase you want to use – continues on. We are all ready for the market to turn more provider friendly. And we are all really ready for the government to stop changing the rules on us again and again.

Today we are hitting on a few legal updates impacting trucking and logistics companies, and on a recommendation that may help you find more margin in your operation.

Part 1 – Legal Quick Hits:

Non-Competes.

No doubt you have seen a lot in your industry news lately about non-compete agreements. Most notably the FTC issued a rule banning non-competes with few exceptions. It took all of one day for the FTC’s rule to get challenged in court. The U.S. Chamber of Commerce, along with other trade associations and businesses challenged the rule, claiming the FTC does not have the authority to enforce this rule. Regardless of the Chamber’s lawsuit, the rule would not go into effect until early September if it goes into effect at all. If I am a trucking or logistics company, I am not changing my practices based on the FTC’s rule until August. I would give the Chamber’s challenge time to see if the FTC’s rule is going to hold up or not. That being said, regardless of the FTC’s rule, states and courts have already been pushing back on non-competes for a few years now. Trucking and logistics companies are likely better off using confidentiality agreements to protect information, and limited, tailored non-solicitation agreements to protect critical accounts, rather than traditional non-competes.

DOL Overtime Rule Changes

The U.S. DOL raised its overtime exemption salary thresholds effective 7/1/24. You probably know already the DOL has 4 exemptions to the federal overtime rules: (A) the executive exemption, (B) the administrative exemption, (C) the professional exemption, and (D) the highly compensated employee exemption. There are multiple factors that employers must meet for each exemption, including a minimum salary requirement. The DOL is raising the salary threshold for the exemptions effective 7/1/24. See the DOL’s table below (the Standard Salary Level column means that is the minimum salary an employee must make to qualify for the executive, administrative, or professional exemption). Typically speaking, in interstate trucking and logistics most overtime claims are about dispatchers and brokers. These threshold changes from the DOL can be an opportunity for you to review your exempt v non-exempt classifications for your team.

DATESTANDARD SALARY LEVELHIGHLY COMPENSATED EMPLOYEE TOTAL ANNUAL COMPENSATION THRESHOLD
Before July 1, 2024$684 per week (equivalent to $35,568 per year)$107,432 per year, including at least $684 per week paid on a salary or fee basis.
July 1, 2024$844 per week (equivalent to $43,888 per year)$132,964 per year, including at least $844 per week paid on a salary or fee basis.
January 1, 2025$1,128 per week (equivalent to $58,656 per year)$151,164 per year, including at least $1,128 per week paid on a salary or fee basis.
July 1, 2027, and every 3 years thereafterTo be determined by applying to available data the methodology used to set the salary level in effect at the time of the update.To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update.

Corporate Transparency Act

It hasn’t been talked about as much, but Congress passed the Corporate Transparency Act in 2021 requiring privately- owned businesses to disclose their owners to the U.S. Treasury Department to help federal, state, local, and tribal law enforcement perform their national security, intelligence, and law enforcement duties. The law went into effect on 1/1/24 for new companies formed in ’24. Any business formed in ’24 must disclose its owners to the Treasury Department within 30 days of formation. Companies formed prior to ’24 must comply by 12/31/24. This new federal law continues the trend in the U.S. to require more and more disclosures from private businesses. Similar to the FTC rule though, many businesses and trade associations have challenged these disclosure requirements in court. One group of businesses in Alabama won, but the court only ruled the requirements did not apply to those specific businesses. The court did not shut down the requirements for anyone else. However, the court’s ruling shows that the challenges to the requirements have merit. Considering that, if I am a privately-owned business that existed prior to ’24, I am waiting to file my disclosures until August or September to see if any other court challenges are successful. If I form a new business in ’24 though, the law is in effect now, and I am filing my disclosures as required by the law within 30 days of formation. The disclosures themselves are relatively simple – owner names, birth dates, an identification number (e.g., drivers license number, passport number, etc.) and contact information, but the requirement that such information be disclosed is frustrating to many no doubt.

Part 2 – Finding Margin:

I read Adam Grant’s Think Again recently (good read; I recommend it), and a passage stuck out to me that I wanted to
share:

“… [P]eople often become attached to best practices. The risk that once we’ve declared a routine the best, it becomes frozen in time. We preach about its virtues and stop questioning its vices, no longer curious about where its imperfect and where it could improve. Organizational learning should be an ongoing activity, but best practices imply it as reached an endpoint. We might be better off looking for better practices.” See page 216.

In the current freight market with little room for increasing rates, businesses can still find margin internally. We have worked with clients to find margin internally a number of ways, but one in particular stuck out recently: Internal Process Audits.

Internal Process Audits

When was the last time you verified one of your critical internal processes was working the way you think it is supposed to work? Have you set out your order-to-cash process, your dispatch process, your load planning process, your office hiring process, your recruiting process, and so on at a step-by-step level? Interviewing your team members one by one, mapping out what happens in your system, mapping out the people touch points in each process, often leads to finding work redundancies, learning systems may be underutilized, and/or the old way of doing something could be brushed up. You can find time drains and pain points in the process. You can find cost savings for yourself. You can find an idea that works in one part of your business (e.g., a billing and collections practice with Customer A) and expand it to more of your business (e.g., ask Customers B and C is they are okay with doing something similar to Customer A). We recommend setting aside some time, especially in a tough market like this, to review your processes by asking good questions, mapping out each step, and critically looking and thinking of ways you can get time, errors, complications, pain out of your processes. We covered this concept in our latest Grawe Pod episode, and we would love to teach your team how to do a critical process review to find improvements – and margin.

Reach out to us today. We are happy to help.

New Podcast Episodes

Check out the website or your favorite podcast repository for the latest episodes of the Grawe Pod. We have a few new episodes, including a discussion on driver qualification guidelines.

The Grawe Group, LLC is here to bring peace of mind to you and your business. We are a professional services firm focused on the transportation industry. With a team of experienced executives, we provide general counsel, interim and fractional leadership, and special project services for trucking and logistics companies. From legal and risk management matters, to operational, financial, and leadership challenges, the Grawe Group has the practical expertise in trucking and logistics to help you build sustainable success.

Check out the Grawe Pod, transportation’s general counsel podcast, for discussions on challenges industry leaders face in their business and how to address them. Now available on iTunes, Spotify, and other major podcast outlets!