Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The folks in the supply chain management ecosystem are a pragmatic bunch. That pragmatism includes not allowing tax consequences to drive capital investment decisions. That said, many companies will find the tax bill about to be signed into law by President Trump amply rewarding, even if they don't invest a dime in capital equipment next year.
However, if they do spend a dime—or a lot more than that—they will find Uncle Sam to be more generous than he's been in the past.
The most sweeping tax reform bill in 31 years, which passed the House Tuesday, the Senate early yesterday morning, and the House again yesterday following a re-vote on procedural grounds, bestows significant benefits on businesses. Companies that are "C" corporations—which include all Fortune 500 companies and many small businesses—will be taxed at 21 percent starting in 2018, compared to the current range of 15 percent to 35 percent. The bill is a booster shot for smaller concerns that operate as "pass-through" entities. For example, most third-party logistics (3PL) warehouse companies are structured as pass-throughs, which means they pay taxes from business income and expenses on their personal tax returns. Those businesses stand to benefit both from a cut in most individual income tax rates and a 20-percent deduction on what the bill calls "qualified business income" from pass-through enterprises.
Businesses in service industries such as health care, legal, and professional services cannot claim the pass-through deduction. The deduction starts to phase out at certain income thresholds, and it is set to expire, along with most individual tax reductions, at the end of 2025.
The bill nearly doubles, to $1 million, the size of the so-called Section 179 expense deduction, which allows businesses to write off the full amount of equipment investments in the year they are made. The new law also increases to $2.5 million (from $2.03 million) the spending limits above which companies would be ineligible for the deduction.
In addition, all companies can fully deduct the cost of equipment purchases the first year the asset is placed into service. The major difference is that the Section 179 language is permanent, while the full depreciation benefit on all equipment purchases expires after five years. All of the new expensing provisions exclude investments in facilities such as warehouses and distribution centers, which are governed by different, and highly complex, depreciation schedules.
Pat O'Connor, an attorney for the International Warehouse Logistics Association (IWLA), which represents third-party public warehouse operators, said the new Section 179 spending caps represent a "true small-business tax incentive," because larger businesses that would normally spend above that threshold won't qualify for the deduction.
The Tax Foundation, which touts itself as the nation's leading independent tax policy research group, said in a report three days ago that the plan would spur an additional $1 trillion in growth over the next decade. Of that, $600 billion would come from the bill's permanent provisions and $400 billion from its temporary provisions, according to the group's forecast. The measure would add 0.29 percent to U.S. GDP over the next 10 years and create 339,000 full-time equivalent jobs, the Tax Foundation projected.
Not surprisingly, IWLA, most of whose members are structured as pass-through entities, is thrilled by what it has analyzed so far. The tax breaks granted to pass-throughs could incent IWLA members, who are normally cautious about spending, to loosen their purse strings, because they will have more capital to plow back into their businesses, Steve DeHaan, the group's president and CEO, said in a phone interview yesterday. Most IWLA members already re-invest available capital into their businesses, and the more favorable tax treatment will give them more reason to do so, especially as customers demand more services from their providers, DeHaan said.
"I see this as very positive for 3PL employees and leadership," DeHaan said. IWLA has not yet analyzed the impact of depreciation provisions on its members, he added.
On the transport side, where asset purchases are the norm, the ability to expense investments may free companies from being forced to give tax considerations as much weight in capital spending as they have in the past. The bill's language "will give transportation companies much more flexibility in making capital expenditures, permitting more of a focus on business reasons for such decisions rather than having to focus on tax consequences," James H. Burnley IV, Transportation Secretary under President Reagan and for many years an attorney in private practice in Washington, said in an e-mail.
Alan B. Graf Jr., CFO of Memphis-based transport giant FedEx Corp., said in a conference call with analysts Tuesday that FedEx may boost its $5.9 billion fiscal year 2018 capex budget if tax reform is enacted, though such a step-up would require a significant pickup in economic activity. The company also reported on Tuesday very strong fiscal second-quarter earnings, sending the price of its shares soaring nearly $9 a share in yesterday's trading.
Large truckers may not make immediate use of the tax bill's provisions, because they are still looking for drivers to fill the seats of the trucks they have. Large fleets are more concerned with driver recruitment and higher freight rates than they are in leveraging the bill's benefits to make additional equipment purchases, Benjamin J. Hartford, transport analyst for Robert W. Baird & Company Inc., an investment firm, said.
Randy Mullett, who runs his own lobbying firm after years as chief Washington lobbyist for the former trucking and logistics giant Con-way Inc. and then Greenwich, Conn.-based XPO Logistics Inc., which acquired Con-way in 2015, said the bill's expense provisions are a "small-business issue" more suited to independent owner-operators and micro fleets rather than large operators. Mullett said, though, that the language may goose truck and trailer investment as freight demand picks up and rates rise. The tax reductions also may free up capital for more mergers and acquisitions activity, he said.
NOT FOR EVERYONE
The tax breaks in the bill are not to everyone's liking. Most agree on the need to reform the complex and outdated tax code to streamline the process for consumers and allow businesses to more effectively compete. Yet many have objected to what they consider $1.5 trillion in budget-busting giveaways to corporations that are already performing quite well and not in need of additional stimulus. Many independent economists also question the Trump administration's forecasts of the law's impact on economic growth, especially by the middle of next decade, when some business and personal tax benefits expire.
The need for more fuel on the economic fire will likely be a matter of debate within the material handling sector. That segment is enjoying a bullish run, as the e-commerce boom ignites demand for more and larger warehouses and distribution centers, and for the systems and equipment needed to support a radical shift to the so-called omnichannel fulfillment model.
For example, the Conveyor Equipment Manufacturers Association (CEMA) said that booked orders for conveyor equipment in October rose 40.3 percent compared to October 2016, while shipments, otherwise known as "billed sales," increased by 29.3 percent over the same period, CEMA said.
"For the past couple of years, we've been on a record pace," said Bob Reinfried, CEMA's executive vice president. That's because warehouses have been investing in systems that allow them to handle high volumes of small e-commerce orders instead of pallet-sized loads, Reinfried said. "The strength of the market now is in unit handling, while the bulk side of the business has been relatively flat for a while," he said.
The expensing changes will "be a huge feature that will stimulate capital improvements in small to medium-sized companies," Mark K. Nelson, president of Nelson Equipment, a conveyor systems and pallet rack supplier in Shreveport, La., said. However, Scott Hennie, president of the Hudson, Ohio-based consulting firm Elite Supply Chain Solutions, and a board member of the Material Handling Equipment Distributors Association (MHEDA), said the overall impact may be limited, because buyers have already been opening their wallets.
"I don't believe that successful businesses wait on Washington to make their purchasing or strategic decisions," said Hennie. "Businesses, generally, are not going to stall or move their business based on what is decided by political bureaucrats."
Given surging demand for material handling equipment and systems, a tax incentive is more likely to sustain the current trend than trigger large jumps in new orders, said Philip Evers, a logistics professor at the University of Maryland's Robert H. Smith School of Business.
"A tax cut could certainly spur investment in some of those new technologies, but industrial buyers won't necessarily buy more expensive equipment than whatever will get the job done," Evers said. "They're more attuned to purchasing what's needed, nothing more."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.