What changed in this filing

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Item 1. Business

2022-02-28 compared with 2021-03-05 · 118 added, 96 removed, 309 unchanged (41% of the section changed)

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We are strategically focused on continuing to integrate into the supply chain of our customers and reducing our seasonal and cyclical volatility. Our 2018 acquisition of Landair Holdings, Inc., Landair Transport, Inc., Landair Logistics, Inc., and Landair Leasing, Inc., (“Landair”), is an example of that commitment. Landair is a leading dedicated truckload carrier and supplier of transportation management, warehousing, and logistics inventory management systems.

As our fleet has grown over three decades and our service platform matured, several important trends dramatically affected the truckload industry and our business.

As our fleet has grown over three and a half decades and our service platform matured, several important trends dramatically affected the truckload industry and our business.

First, supply chain patterns became more fluid in response to dynamic changes in labor and transportation costs, ocean freight and rail-intermodal service standards, retail distribution center networks, governmental regulations, and other industry-wide factors.

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Fourth, a confluence of regulatory constraints, safety and security demands, and scarcity of qualified driver applicants, negatively impacted our asset productivity and reinforced what a precious resource professional truck drivers are (and we believe increasingly will be) in our industry.

Results for 2020 reflect a number of operational adjustments that were executed as part of our strategic plan, including:

In 2020, we implemented a number of operational adjustments as part of our strategic plan, including:

1) the disposition of three separate facilities within our terminal network, 2) a fleet reduction of approximately 600 tractors and 1,100 trailers, 3) the disposition and discontinuation of our Factoring reportable segment and 4) a reduction in force of our non-driver employees.

As a result of these strategic changes, it is difficult to compare the 2020 results to prior years.

As a result of these strategic changes, it is difficult to compare 2020 to other years.

We are proud of the operational improvements we have made, especially in light of headwinds we faced around the COVID-19 pandemic, rising casualty insurance costs and the challenging supply shortage of professional drivers.

We believe we have made significant progress in achieving our strategic plan, but remain focused on six initiatives that fall under the following key tenets:

We believe we have made significant progress in achieving our strategic plan, but remain focused on seven initiatives that fall under the following key tenets:

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Rigorous Capital Allocation Process and Reduce Leverage.

Our senior management continually evaluates capital investment opportunities against available capital and acceptable leverage levels, and material investments must pass return on investment and capital investment committee approval processes.

In addition, reducing our leverage ratio has been a primary strategic goal.

Our leverage ratio decreased in both 2020 and 2019 as compared to the respective prior years, as we remain focused on investing capital when we can obtain acceptable returns while reducing our leverage.

Rigorous Capital Allocation Process.

Our senior management evaluates capital investment opportunities against available capital and acceptable leverage levels, and material investments must pass return on investment and capital investment committee approval processes. Our leverage ratio decreased in both 2021 and 2020 as compared to the respective prior years, as we remain focused on investing capital when we can obtain acceptable returns while maintaining our current leverage.

We believe our disciplined investment review has contributed to our improved results by allocating capital to more profitable business units and downsizing other units into greater profitability.

In the first quarter of 2022, due to our improved results, we have implemented a quarterly cash dividend program of $0.0625 per share, subject to quarterly approval by our Board of Directors, and adopted a 10b5-1 plan for the purchase of up to $30.0 million in shares subject to defined trading parameters, under our current stock repurchase program authorizing the purchase of up to $38.0 million of our Class A common stock.

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We will continue to seek out technology to improve efficiencies and expand our resources while still providing enterprise wide visibility for critical operating functions.

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The Company experienced its safest year on record in 2021, as measured by accident rates.

The DOT accident rate per million miles, as defined by the Federal Motor Carrier Safety Administration ("FMCSA"), decreased 11% year over year and was the lowest in the Company’s history.

The critical accident rate per million miles, certain accident types defined internally by the Company, decreased 17% year over year and was the lowest in the Company’s history.

We believe that the key to the improved safety results is a combination of continual training, consistent and proactive coaching, utilizing proven safety technologies, and consistent collaboration between all of our business units.

Also, the expansion of our safety training program is expected to allow us to further increase new driver training, provide specific training, and sustain consistent messaging around the culture of safety. 

We are looking forward in the coming year to be part of several pilot programs, including the Safe Driver Apprenticeship Program and a new pilot with E-Smart, an advanced driver assistance system.

We also have developed a robust 2022 enterprise safety tactical plan that will continue to drive sustainability across our enterprise.

We believe the ongoing execution of our strategic plan has contributed to the substantial improvement in operating results and profitability we have generated over the past several years.

Some of the significant successes resulting from our strategic planning efforts include the Landair Acquisition in 2018; consolidation of our sales force and back-office operations;

Some of the significant successes resulting from our strategic planning efforts include the Landair Acquisition in 2018; consolidation of our back-office operations;

enhancements to recruiting, retention, and business intelligence;

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and sale of TFS. Each of these accomplishments positively impacted the success of the key initiatives identified above, our overarching financial goals, and ultimately, the Company. However, we still have significant work ahead to achieve our goals, deliver a strong and stable product for our customers, provide a bright future for our employees and independent contractors, and create meaningful value for our stockholders.

We operate a relatively new tractor fleet and employ sophisticated tractor technology that enhances our operational efficiencies and our drivers' safety. Our company-owned tractor fleet has an average age of approximately 1.9 years, which compares favorably to an average U.S.

Class 8 tractor age of approximately 7.3 years in 2019.

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Lastly, to further our goal of becoming more critical throughout the supply chain, we offer day-to-day warehouse management services through our Warehousing reportable segment.

At this point we own no Warehouse facilities but either lease space coterminous with the underlying contract or manage the customer's facility.

At this point we own no Warehouse facilities but either lease space coterminous with the underlying customer contract or manage the customer's facility.

Our combined asset based and non-asset based capabilities, allow us to transport many types of freight for a diverse customer base.

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In addition, because we calculate average freight revenue per tractor using all of our tractors, it takes into account the percentage of our fleet that is unproductive due to lack of drivers, repairs, and other factors.

A summary of these metrics for our Expedited segment for 2019 and 2020 is as follows:

A summary of these metrics for our Expedited segment for 2021 and 2020 is as follows:

Average freight revenue per total mile

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Average freight revenue per tractor per week

A summary of the key performance metrics for our Dedicated segment for 2019 and 2020 is as follows:

A summary of the key performance metrics for our Dedicated segment for 2021 and 2020 is as follows:

Average freight revenue per total mile

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TEL is a tractor and trailer equipment leasing company and used equipment reseller.

We have accounted for our investment in TEL using the equity method of accounting and thus our financial results include our proportionate share of TEL's net income since May 2011, or $3.9 million in 2020 and $7.0 million in 2019.

Refer to Note 15, "Segment Information," of the accompanying consolidated financial statements for further information about our reporting segment's operating and financial results.

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We are a major carrier for transportation companies such as parcel freight forwarders, less-than-truckload carriers, and third-party logistics providers that require a high level of service to support their businesses, as well as for traditional truckload customers such as manufacturers, retailers, and food and beverage shippers. 

We had one customer that accounted for more than 10% of our consolidated revenue in 2020 and 2019, and was serviced by our Expedited, Dedicated, and Managed Freight segments.

Our top ten customers accounted for approximately 48% and 45% of our total revenue in 2020 and 2019, respectively.

We had no customers and one customer that accounted for more than 10% of our consolidated revenue in 2021 and 2020, respectively. Such customer for 2020 was serviced by our Expedited, Dedicated, and Managed Freight segments.

Our top ten customers accounted for approximately 53% and 48% of our total revenue in 2021 and 2020, respectively.

Within our asset based transportation service offerings (Expedited and Dedicated), we operate tractors driven by a single driver and also tractors assigned to two-person driver teams.

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and (iv) regulatory requirements that limit the available pool of drivers.

Despite our reduced fleet, driver recruitment and retention remained extremely challenging in 2020, as the COVID-19 pandemic has slowed the ability to train, test, and license drivers.

Other employment opportunities have attracted professional drivers away from trucking. Our average number of teams as a percentage of our fleet decreased for 2020 as compared to 2019.

Our average open tractors, including wrecked tractors, increased to 4.7% for the year ended December 31, 2020, from approximately 3.8% for the year ended December 31, 2019.

Despite our reduced fleet, driver recruitment and retention remained extremely challenging in 2021, as the COVID-19 pandemic has continued to slow the ability to train, test, and license drivers.

Other employment opportunities have attracted professional drivers away from trucking. Our average number of teams as a percentage of our fleet increased for 2021 as compared to 2020.

Our average open tractors, including wrecked tractors, increased to 7.3% for the year ended December 31, 2021, from approximately 4.7% for the year ended December 31, 2020.

We believe having a happy, healthy, and safe driver is the key to our success, both in the short term and over a longer period.

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Obtaining equipment from independent contractors and under operating leases effectively shifts financing expenses from interest to "above the line" operating expenses.

We continue to educate our drivers and non-driver personnel regarding the Federal Motor Carrier Safety Administration ("FMCSA") Compliance Safety Accountability program ("CSA"). We believe CSA, in conjunction with other U.S.

We continue to educate our drivers and non-driver personnel regarding the FMCSA Compliance Safety Accountability program ("CSA"). We believe CSA, in conjunction with other U.S.

Department of Transportation ("DOT") regulations, including those related to hours-of-service and ELDs, has reduced and will likely continue to impact effective capacity in our industry as well as negatively impact equipment utilization.

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We are not a party to any collective bargaining agreement.

At December 31, 2020, we employed approximately 3,500 drivers and approximately 1,400 non-driver personnel.

At December 31, 2020, we engaged approximately 200 independent contractor drivers.

At December 31, 2021, we employed approximately 3,000 drivers and approximately 1,500 non-driver personnel.

At December 31, 2021, we engaged 159 independent contractor drivers.

Revenue Equipment

At December 31, 2020, we operated 2,461 tractors and 5,647 trailers.

Of such tractors, 1,485 tractors were owned, 784 tractors were financed under operating leases, and 192 tractors were provided by independent contractors, who own and drive their own tractors.

Of such trailers, 4,115 trailers were owned, 1 trailer was financed under an operating lease, and 1,531 trailers were financed under finance leases. Furthermore, at December 31, 2020, approximately 79% of our trailers were dry vans, and the remaining trailers were refrigerated vans.

At December 31, 2021, we operated 2,291 tractors and 5,331 trailers.

Of such tractors, 1,467 tractors were owned, 665 tractors were financed under operating leases, and 159 tractors were provided by independent contractors, who own and drive their own tractors.

Of such trailers, 4,607 trailers were owned, 103 trailers were financed under an operating lease or as short-term rentals, and 621 trailers were financed under finance leases. Furthermore, at December 31, 2021, approximately 79% of our trailers were dry vans, and the remaining trailers were refrigerated vans.

We believe that operating high quality, late-model equipment contributes to operating efficiency, helps us recruit and retain drivers, and is an important part of providing excellent service to customers.

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We also order most of our equipment with uniform specifications to reduce our parts inventory and facilitate maintenance.

At December 31, 2020, our tractor fleet had an average age of approximately 1.9 years, and our trailer fleet had an average age of approximately 4.9 years.

At December 31, 2021, our tractor fleet had an average age of approximately 2.1 years, and our trailer fleet had an average age of approximately 5.1 years.

We equip our tractors with a satellite-based tracking and communications system that permits direct communication between drivers and fleet managers.

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This has substantially increased our costs of operation.

Currently, tractor and trailer manufacturers are experiencing significant shortages of semiconductor chips and other component parts and supplies, including steel, forcing many manufacturers to curtail or suspend their production, which has led to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, and which could lead to, among other things, higher maintenance expense and driver retention.

Industry and Competition

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Historically, in times of high fuel prices or decreased consumer demand, however, rail-intermodal competition has been more significant.

Our industry is subject to dynamic factors that significantly affect our operating results. These factors include the availability of qualified truck drivers, the volume of freight in the sectors we serve, the price of diesel fuel, and government regulations that impact productivity and costs. Recently, our industry has experienced volatile freight demand, scarcity of qualified truck drivers, decreased fuel costs, a depressed used tractor market, and regulations that limit productivity.

In 2020, the rates declined from 2019, and costs such as driver pay for many trucking companies, including us, remained higher than pre-2017 periods.

Based on our assessment of future regulatory changes, driver demographics, and expected growth rates of our major customers and sectors, we expect the freight environment for 2021 to be robust.

Our industry is subject to dynamic factors that significantly affect our operating results. These factors include the availability of qualified truck drivers, the volume of freight in the sectors we serve, the price of diesel fuel, and government regulations that impact productivity and costs. Recently, our industry has experienced volatile freight demand, increased fuel costs, tight new and used equipment market, scarcity of qualified truck drivers, and regulations that limit productivity.

In 2021, the rates increased from 2020, and costs such as driver pay also increased.

For at least the first few months of 2022, we anticipate a strong freight market accompanied by constrained capacity due to a national driver and equipment shortage.

We expect cost pressure to persist even if freight demand moderates.

We believe large and diversified companies, like ourselves, are best positioned to capitalize on the current industry environment, because we can offer significant capacity commitments to major customers, safe and comfortable new equipment to drivers, and optimized routing and other business analytics to make the most of our drivers' federally limited operating hours.

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agencies. Our company drivers and independent contractors also must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours-of-service. Such matters as weight and equipment dimensions are also subject to U.S.

regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers' hours-of-service, ergonomics, or other matters affecting safety or operating methods. Other agencies, such as the Environmental Protection Agency ("EPA") and the Department of Homeland Security ("DHS") also regulate our equipment, operations, and drivers.

regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers' hours-of-service, ergonomics, or other matters affecting safety or operating methods. Other agencies, such as the Environmental Protection Agency ("EPA"), the Department of Homeland Security ("DHS"), and the U.S.

Department of Defense also regulate our equipment, operations, drivers, and environment.

The DOT, through the FMCSA, imposes safety and fitness regulations on us and our drivers, including rules that restrict driver hours-of-service. Changes to such hours-of-service rules can negatively impact our productivity and affect our operations and profitability by reducing the number of hours per day or week our drivers may operate and/or disrupting our network. However, in August 2019, the FMCSA issued a proposal to make changes to its hours-of-service rules that would allow truck drivers more flexibility with their 30-minute rest break and with dividing their time in the sleeper berth.

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In June 2020, the FMCSA adopted a final rule substantially as proposed, which became effective in September 2020.

Certain industry groups have challenged these rules in court, and it remains unclear what, if anything, will come from such challenges.

Any future changes to hours-of-service rules could materially and adversely affect our operations and profitability.

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Therefore, it is uncertain if, when, or under what form any such rule could be implemented.

The FMCSA also recently indicated its intent to perform a new study on the causation of crashes.

Although it remains unclear whether such a study will ultimately be undertaken and completed, the results of such a study could spur further proposed and/or final rules in regards to safety and fitness.

The FMCSA also indicated that it is in the early phases of a new study on the causation of crashes.

Although it remains unclear whether such study will ultimately be completed, the results of such study could spur further proposed and/or final rules in regards to safety and fitness.

In addition to the safety rating system, the FMCSA has adopted the CSA program as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain safety-related standards.

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Under the CSA, these scores were initially made available to the public in five of the seven categories.

However, pursuant to the FAST Act, which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.

However, pursuant to the, Fixing America's Surface Transportation Act (the "FAST Act"), which was signed into law in December 2015, the FMCSA was required to remove from public view the previously available CSA scores while it reviews the reliability of the scoring system.

During this period of review by the FMCSA, we will continue to have access to our own scores and will still be subject to intervention by the FMCSA when such scores are above the intervention thresholds. A study was conducted and delivered to the FMCSA in June 2017 with several recommendations to make the CSA program more fair, accurate, and reliable. In June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response to the study.

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We will continue to promote improvement of these scores in all seven categories with ongoing reviews of all safety-related policies, programs, and procedures for their effectiveness.

The FMCSA published a final rule in December 2015 that required the use of ELDs or automatic on board recording devices (“AOBRs”) by nearly all carriers by December 2017 (the "2015 ELD Rule"). Enforcement of the 2015 ELD Rule was phased in, as states did not begin putting tractors out of service for non-compliance until April 2018. However, carriers were subject to citations, on a state-by-state basis, for non-compliance with the rule after the December 2017 compliance deadline.

Use of AOBRs was permitted until December 2019, at which time use of ELDs became required.

Since we had proactively installed AOBRs on nearly 100% of our tractor fleet, implementation of the 2015 ELD Rule did not impact our operations or profitability or our use of AOBRs.

We ultimately had ELDs (not AOBRs) installed on 100% of our fleet by the December 2019 deadline. We believe that more effective hours-of-service enforcement under the 2015 ELD Rule may improve our competitive position by causing all carriers to adhere more closely to hours-of-service requirements and may further reduce industry capacity.

In the aftermath of the September 11, 2001 terrorist attacks, the DHS and other federal, state, and municipal authorities implemented and continue to implement various security measures, including checkpoints and travel restrictions on large tractors.

Transportation Security Administration ("TSA") adopted regulations that require a determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat.

This could reduce the pool of qualified drivers who are permitted to transport hazardous waste, which could require us to increase driver compensation, limit our fleet growth, or allow tractors to sit idle.

These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our non-revenue miles.

As a result, it is possible we could fail to meet the needs of our customers or could incur increased expenses to do so.

In December 2016, the FMCSA issued a final rule establishing a national clearinghouse for drug and alcohol testing results and requiring motor carriers and medical review officers to provide records of violations by commercial drivers of FMCSA drug and alcohol testing requirements. Motor carriers are required to query the clearinghouse to ensure drivers and driver applicants do not have violations of federal drug and alcohol testing regulations that prohibit them from operating commercial motor vehicles.

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Upon implementation, the rule may reduce the number of available drivers in an already constrained driver market.

Pursuant to a new rule finalized by the FMCSA, effective November 2021, states are required to query the Clearinghouse when issuing, renewing, transferring, or upgrading a commercial driver's license and must revoke a driver's commercial driving privileges if such driver is prohibited from driving a motor vehicle for one or more drug or alcohol violations.

In September 2020, the Department of Health and Human Services (“DHHS”) announced proposed mandatory guidelines to allow employers to drug test truck drivers and other federal workers for pre-employment and random testing using hair specimens.

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We currently perform urine testing and will continue monitor any developments in this area to ensure compliance.

In November 2015, the FMCSA published its final rule related to driver coercion, which took effect in January 2016.

Under this rule, carriers, shippers, receivers, or transportation intermediaries that are found to have coerced drivers to violate certain FMCSA regulations (including hours-of-service rules) may be fined up to $16,000 for each offense.

Other rules have been recently proposed or made final by the FMCSA, including (i) a rule requiring the use of speed limiting devices on heavy duty tractors to restrict maximum speeds, which was proposed in 2016, and (ii) a rule setting forth minimum driver training standards for new drivers applying for commercial driver’s licenses for the first time and to experienced drivers upgrading their licenses or seeking a hazardous materials endorsement, which was made final in December 2016, with a compliance date in February 2020.

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In July 2017, the DOT announced that it would no longer pursue a speed limiter rule, but left open the possibility that it could resume such a pursuit in the future.

In 2019, U.S.

Congressional representatives proposed a similar rule related to speed-limiting devices.

The effect of these rules, to the extent they become effective, could result in a decrease in fleet production and driver availability, either of which could adversely affect our business or operations.

Congressional representatives proposed a bill in 2019 that would lower the age requirement from 21 to 18 for interstate commercial driving if certain requirements are met, which received support from the ATA during a February 2020 Senate hearing.

It is unclear how long the process of finalizing such a bill will take, however, if one comes to fruition at all.

Meanwhile, the FMCSA announced in September 2020 that it is seeking public comment on a new pilot program to allow drivers aged 18, 19, and 20 to operate commercial motor vehicles in interstate commerce.

In March 2014, the Ninth Circuit Court of Appeals held that California state wage and hour laws are not preempted by federal law.

The case was appealed to the Supreme Court of the United States, which in May 2015 refused to review the case, and accordingly, the Ninth Circuit Court of Appeals decision stood.

However, in December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision, and while the Ninth Circuit Court of Appeals has since upheld the FMCSA’s decision, it still remains uncertain whether it will stand.

Other current and future state and local laws, including laws related to employee meal breaks and rest periods, may also vary significantly from federal law.

In May 2021, however, the Cullum Owings Large Truck Safe Operating Speed Act was reintroduced into the U.S.

House of Representatives and would require commercial motor vehicles with a gross weight of more than 26,000 pounds to be equipped with a speed limiter that would limit the vehicle’s speed to no more than 65 M.P.H.

The effect of these rules, to the extent they become effective, could result in a decrease in driver availability, which could adversely affect our business or operations.

The Infrastructure Investment and Jobs Act (“IIJA”), signed into law by President Biden in November 2021, created an apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

The provision drew certain mechanics from the bills introduced in Congress in 2019 related to lowering the age requirements for interstate commercial driving.

The FMCSA announced the establishment of this apprenticeship program in January 2022 in an effort to help the industry’s ongoing driver shortage.

The program is open to 18 to 20-year-old drivers who already hold intrastate commercial driver's licenses and sets a strict training regimen for participating drivers and carriers to comply with.

Motor carriers interested in participating must complete an application for participation and submit monthly data on an apprentice’s driver activity, safety outcomes, and additional supporting information.

It remains unclear whether any regulatory changes will stem from the apprenticeship program.

In December 2018, the FMCSA granted a petition filed by the ATA and in doing so determined that federal law does preempt California’s wage and hour laws, and interstate truck drivers are not subject to such laws.

The FMCSA’s decision has been appealed by labor groups and multiple lawsuits have been filed in federal courts seeking to overturn the decision.

In January 2021, the Ninth Circuit upheld the FMCSA's determination that federal law does preempt California's meal and rest break laws, as applied to drivers of property-carrying commercial motor vehicles. Other current and future state and local laws, including laws related to employee meal breaks and rest periods, may also vary significantly from federal law.

Further, driver piece rate compensation, which is an industry standard, has been attacked as non-compliant with state minimum wage laws and lawsuits have recently been filed and/or adjudicated against carriers demanding compensation for sleeper berth time, layovers, rest breaks and pre-trip and post-trip inspections, the outcome of which could have major implications for the treatment of time that drivers spend off-duty (whether in a truck’s sleeper berth or otherwise) under applicable wage laws.

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Tax and other regulatory authorities, as well as independent contractors themselves, have increasingly asserted that independent contractors in the trucking industry are employees rather than independent contractors, for a variety of purposes, including income tax withholding, workers' compensation, wage and hour compensation, unemployment, and other issues.

Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractors and to heighten the penalties of companies who misclassify their employees and are found to have violated employees' overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply. Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractors as employees would help states with these initiatives. 

The most recent example being the Protecting the Rights to Organize ("PRO") Act, which was passed by the House of Representatives and received by the Senate in March 2021 and remains with the Senate's Committee on Health, Education, Labor, and Pensions.

The PRO Act proposes to apply the "ABC Test" for classifying workers under Federal Fair Labor Standards Act claims.

It is unknown whether any of the proposed legislation will become law or whether any industry-based exemptions from any resulting law will be granted.

Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice, extend the Fair Labor Standards Act to independent contractors, and impose notice requirements based upon employment or independent contractor status and fines for failure to comply. Some states have put initiatives in place to increase their revenues from items such as unemployment, workers' compensation, and income taxes, and a reclassification of independent contractors as employees would help states with these initiatives. 

Recently, courts in certain states have issued decisions that could result in a greater likelihood that independent contractors would be judicially classified as employees in such states.

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While AB5 was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to invalidate AB5.

While this preliminary injunction provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law.

The Ninth Circuit Court of Appeals rejected the reasoning behind the injunction in April 2021, ruling that AB5 is not pre-empted by federal law, but granted a stay of the AB5 mandate in June 2021 (preventing its application and temporarily continuing the injunction) while the CTA petitioned the United States Supreme Court (the “Supreme Court”) to review the decision.

In November 2021, the Supreme Court requested that the U.S.

solicitor general weigh in on the case.

The injunction will remain in place until the Supreme Court makes a decision on whether to proceed in hearing the case. While the stay of the AB5 mandate provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law.

It is also possible AB5 will spur similar legislation in states other than California, which could adversely affect our results of operations and profitability.

In September 2020, the U.S.

Court of Appeals for the Ninth Circuit heard oral arguments in the case to decide whether the preliminary injunction should remain in effect.

A decision on the matter is expected soon.

Further, class actions and other lawsuits have been filed against certain members of our industry seeking to reclassify independent contractors as employees for a variety of purposes, including workers' compensation and health care coverage.

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Certain of our facilities have waste oil or fuel storage tanks, and fueling islands.

A small percentage of our freight consists of low-grade hazardous substances, which subjects us to a wide array of regulations.

A certain portion of our freight consists of low-grade hazardous substances, which subjects us to a wide array of regulations, and another portion consists of high security cargo such as arms, ammunition, and explosives, which subjects us to a myriad of regulatory requirements concerning the storage, handling and transportation of hazardous materials, chemicals, and explosives.

Accidents or malfeasance involving these services or cargo, or a failure of a product (including as a result of cyberattack), could cause personal injury, loss of life, damage or destruction of property, equipment or the environment, or suspension of operations, any of which could materially and adversely affect our operations and profitability.

Additionally, increasing efforts to control emissions of greenhouse gases may have an adverse effect on us.

Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances, if there are releases of hazardous substances we transport, if soil or groundwater contamination is found at our facilities or results from our operations, or if we are found to be in violation of applicable laws or regulations, we could be subject to cleanup costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

In August 2011, the National Highway Traffic Safety Administration ("NHTSA") and the EPA adopted final rules that established the first-ever fuel economy and greenhouse gas standards for medium-and heavy-duty vehicles, including the tractors we employ (the "Phase 1 Standards"). The Phase 1 Standards apply to tractor model years 2014 to 2018 and require the achievement of an approximate 20 percent reduction in fuel consumption by the 2018 model year, which equates to approximately four gallons of fuel for every 100 miles traveled. In addition, in February 2014, President Obama announced that his administration would begin developing the next phase of tighter fuel efficiency and greenhouse gas standards for medium-and heavy-duty tractors and trailers (the "Phase 2 Standards"). In October 2016, the EPA and NHTSA published the final rule mandating that the Phase 2 Standards will apply to trailers beginning with model year 2018 and tractors beginning with model year 2021. The Phase 2 Standards require nine percent and 25 percent reductions in emissions and fuel consumption for trailers and tractors, respectively, by 2027. We believe these requirements will result in additional increases in new tractor and trailer prices and additional parts and maintenance costs incurred to retrofit our tractors and trailers with technology to achieve compliance with such standards, which could adversely affect our operating results and profitability, particularly if such costs are not offset by potential fuel savings.

We cannot predict, however, the extent to which our operations and productivity will be impacted.

In October 2017, the EPA announced a proposal to repeal the Phase 2 Standards as they relate to gliders (which mix refurbished older components, including transmissions and pre-emission-rule engines, with a new frame, cab, steer axle, wheels, and other standard equipment). The outcome of such proposal is still undetermined as the EPA continues to consider Congressionally requested investigations into the legality of the proposal and the merits of an anti-glider study that was published shortly after the proposal became official.

Additionally, implementation of the Phase 2 Standards as they relate to trailers has been delayed due to a provisional stay granted in October 2017 by the U.S.

Court of Appeals for the District of Columbia, which is overseeing a case against the EPA by the Truck Trailer Manufacturers Association, Inc.

regarding the Phase 2 Standards.

The final rule was effective in December 2016, but has since faced challenges and delays.

Additionally, implementation of the Phase 2 Standards as they relate to trailers has been challenged in the U.S.

Court of Appeals for the District of Columbia.

In November 2021, a panel for the U.S.

Court of Appeals for the District of Columbia ruled in favor of the association challenging the standards and vacated all portions of the Phase 2 Standards that applied to trailers, and consequently, the Phase 2 Standards will only require reductions in emissions and fuel consumption for tractors.

The Company’s new tractor purchases in 2021 complied with the emission and fuel consumption reductions required by the Phase 2 Standards.

Even though the trailer provisions of the Phase 2 standards have been removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards.

In January 2020, the EPA announced it is seeking input on reducing emissions of nitrogen oxides and other pollutants from heavy-duty trucks.

The EPA is aiming to release proposed rulemaking for the new plan, commonly referred to as the “Cleaner Trucks Initiative,”

later in 2020, and may take final action in 2021.

The EPA is targeting 2027 for these new standards to take effect.

and anticipates taking final action as soon as 2022.

The EPA is targeting 2027 for these new standards to take effect and is also working on enacting more stringent greenhouse gas emission standards (beginning with model year 2030 vehicles) by the end of 2024.

The California Air Resources Board ("CARB") also adopted emission control regulations that will be applicable to all heavy-duty tractors that pull 53-foot or longer box-type trailers within the state of California. The tractors and trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling, resistance tires and retrofitted with SmartWay-approved aerodynamic technologies. Enforcement of these CARB regulations for model year 2011 equipment began in January 2010 and have been phased in over several years for older equipment. We currently purchase Smart Way certified equipment in our new tractor and trailer acquisitions.

In addition, in February 2017 CARB proposed California Phase 2 standards that generally align with the federal Phase 2 Standards, with some minor additional requirements, and as proposed would stay in place even if the federal Phase 2 Standards are affected by action from President Trump’s administration.

In February 2019, the California Phase 2 standards became final.

Thus, even if the trailer provisions of the Phase 2 Standards are permanently removed, we would still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.

Thus, even though the trailer provisions of the Phase 2 Standards were removed, we will still need to ensure the majority of our fleet is compliant with the California Phase 2 standards, which may result in increased equipment costs and could adversely affect our operating results and profitability.

CARB has also recently announced intentions to adopt regulations ensuring that 100% of tractors operating in California are operating with battery or fuel cell-electric engines in the future.

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Compliance with these regulations could increase the cost of new tractors and trailers, impair equipment productivity, and increase operating expenses. These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could increase our costs or otherwise adversely affect our business or operations.

In June 2020 CARB also passed the Advanced Clean Trucks (“ACT”) regulation, requiring original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024.

In June 2020 CARB also passed the Advanced Clean Trucks (“ACT”) regulation, which became effective in March 2021 and generally requires original equipment manufacturers to begin shifting towards greater production of zero-emission heavy duty tractors starting in 2024.

Under ACT, by 2045, every new tractor sold in California will need to be zero-emission.

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That being said, President Biden has indicated his intent to make a green infrastructure package a top priority for his administration.

Any measure in furtherance thereof could draw from the Moving Forward Act, a $1.5 trillion infrastructure bill that passed the U.S.

House of Representatives in June 2020, but is still waiting to be heard by the U.S.

The Moving Forward Act incorporated and expanded upon the Investing in a New Vision for the Environment and Surface Transportation in America (INVEST in America) Act, a nearly $500 billion bill intended to rebuild and reimagine U.S.

transportation and infrastructure that was passed out of the House Committee on Transportation and Infrastructure in June 2020.

It is unclear whether these legislative initiatives will be signed into law and what changes they may undergo prior thereto.

However, adoption and implementation of the same could negatively impact our business by increasing our compliance obligations and related expenses.

President Biden has also indicated an intention to make substantial changes to the current US tax laws during his administration, including changes to the way capital gains are treated.

Any changes to US tax laws may have an adverse impact on our business and profitability.

Any measure in furtherance thereof could draw from the Build Back Better Act (the “BBB”), which passed the U.S.

House of Representatives, but is facing resistance in the U.S.

As currently proposed, the BBB would impact transportation by allocating funds to address various industry related issues such as port congestion and traffic safety enforcement.

The bill also promotes a myriad of low-emission programs, transit services and clean energy projects, as well as funding for climate change research.

It is unclear whether these legislative initiatives will be signed into law and what changes they may undergo.

However, adoption and implementation could negatively impact our business by increasing our compliance obligations and related expenses.

President Biden also has indicated an intention to make substantial changes to the current U.S.

tax laws during his administration, including changes to the way capital gains are treated.

Any changes to U.S.

tax laws may have an adverse impact on our business and profitability. 

The United States Mexico Canada Agreement (“USMCA”) was entered into effect in July 2020.

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However, given the amount of North American trade that moves by truck, it could have a significant impact on supply and demand in the transportation industry, and could adversely impact the amount, movement, and patterns of freight we transport.

With the FAST Act originally set to expire in September 2020, Congress had noted its intent to consider a multiyear highway measure that would update the FAST Act.

However, in September 2020 Congress approved a one year extension of the FAST Act, now set to expire in September 2021.

If Congress fails to reauthorize the FAST Act or pass updated replacement legislation by the September 2021 deadline, and proceeds to manage transportation policy via short-term legislative directives, there will be uncertainty that could have a negative impact on our operations.

Given COVID-19’s considerable effect on our industry in 2020, the FMCSA issued various temporary responsive measures throughout the year in order to combat the same, including, without limitation, those related to hours of service, commercial driver’s licenses and medical certifications.

The IIJA was signed into law by President Biden in November 2021. The roughly $1.2 trillion bill contains an estimated $550 billion in new spending, which will impact transportation.

In particular, it dedicates more than $100 billion for surface transportation networks and roughly $66 billion for freight and passenger rail operations.

Among provisions in the law specific to trucking is the aforementioned apprenticeship program for drivers younger than 21 to eventually qualify to drive commercial trucks in interstate commerce.

It remains unclear how the IIJA will be implemented into and effect our industry.

The IIJA may result in increased compliance and implementation related expenses, which could have a negative impact on our operations. 

Given COVID-19’s considerable effect on our industry, the FMCSA issued and/or extended various temporary responsive measures throughout the year.

Although, to date, these measures have largely been enacted in order to assist industry participants in operating under adverse circumstances, any further responsive measures remain unclear and could have a negative impact on our operations.

In November 2021 the U.S.

Department of Labor’s Occupational Safety and Health Administration (“OSHA”) published an emergency temporary standard (the “Emergency Rule”) requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require any employees who remain unvaccinated to produce a negative COVID-19 test result on at least a weekly basis before coming to work. The Emergency Rule has been blocked by the Supreme Court.

Any future vaccination, testing or mask mandates that are allowed to go into effect, could, among other things, (i) cause our unvaccinated employees to go to smaller employers, if such employers are not subject to future mandates, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain drivers.

Any vaccination, testing or mask mandates that are interpreted as applying to drivers would significantly reduce the pool of drivers available to us and our industry, which would further impact the extreme shortage of available drivers. Accordingly, any vaccination, testing or mask mandates, if allowed to go into effect, could have a material adverse effect on our business, financial condition, and results of operations.

Fuel Availability and Cost

The cost of fuel trended lower in 2020 as compared to 2019, as demonstrated by a decrease in the Department of Energy ("DOE") national average for diesel to approximately $2.55 per gallon for 2020 compared to $3.06 per gallon for 2019.

There were $0.3 million of fuel hedging losses in 2020 compared to none in 2019 as a result of no fuel hedge agreements being in place during 2019.

The cost of fuel trended higher in 2021 as compared to 2020, as demonstrated by an increase in the Department of Energy ("DOE") national average for diesel to approximately $3.29 per gallon for 2021 compared to $2.55 per gallon for 2020.

There were $0.4 million of fuel hedging gains in 2021 compared to $0.3 million of losses in 2020.

We actively manage our fuel costs by routing our drivers through fuel centers with which we have negotiated volume discounts and through jurisdictions with lower fuel taxes, where possible. We have also reduced the maximum speed of many of our trucks, implemented strict idling guidelines for our drivers, purchased technology to enhance our management and monitoring of out-of-route miles, encouraged the use of shore power units in truck stops, and imposed standards for accepting broker freight that includes minimum rates and fuel surcharges.

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In periods of declining prices, the opposite is true.

In addition, from time-to-time customers attempt to modify their surcharge programs, some successfully, which can result in recovery of a smaller portion of fuel price increases.

In addition, we incur additional costs when fuel prices rise that cannot be fully recovered due to our engines being idled during cold or warm weather, empty or out-of-route miles, and for fuel used by refrigerated trailers that generally is not billed to customers. In addition, from time-to-time customers attempt to modify their surcharge programs, some successfully, which can result in recovery of a smaller portion of fuel price increases.

Rapid increases in fuel costs or shortages of fuel could have a materially adverse effect on our operations or future profitability.

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Because the fixed price is determined based on market prices at the time we enter into the hedge, in times of increasing fuel prices the hedge contracts become more valuable, whereas in times of decreasing fuel prices the opposite is true.

At December 31, 2020, we had forward futures swap contracts on approximately 0.8 million gallons of diesel to be purchased in 2021, or approximately 1.8% of our projected annual 2021 fuel requirements. We currently have no forward futures swap contracts beyond 2021. 

The fair value of our fuel hedging contracts at December 31, 2020, represented a $0.2 million asset compared to $0.0 million at December 31, 2019 as no forward futures swap contracts existed at that time.

In the transportation industry, results of operations generally follow a seasonal pattern.

Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather.

At the same time, operating expenses generally increase, and tractor productivity of the Company's fleet, independent contractors, and third-party carriers decreases during the winter months due to decreased fuel efficiency, increased cold-weather-related equipment maintenance and repairs, and increased insurance claims and costs attributed to higher accident frequency from harsh weather.

These factors typically lead to lower operating profitability, as compared to other parts of the year.

For the reasons stated, first quarter results historically have been lower than results in each of the other three quarters of the year, excluding charges.

Over the past several years, we have seen increases in demand at varying times, primarily related to restocking required to replenish inventories that have been held significantly lower than historical averages. Beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the length of the holiday season (consumer shopping days between Thanksgiving and Christmas).

However, cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry.

At December 31, 2021, we had no forward futures swap contracts on diesel. We had no fuel hedging contracts at December 31, 2021, and at December 31, 2020, the fair value of our fuel hedging contracts represented a $0.2 million asset.

Our tractor productivity decreases during the winter season because inclement weather impedes operations, and some shippers reduce their shipments after the winter holiday season.

Our Expedited segment, historically has experienced a greater reduction in first quarter demand than our other operations.

Revenue also can be affected by bad weather, holidays and the number of business days that occur during a given period, since revenue is directly related to available working days of shippers.

At the same time, operating expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident frequency, increased claims, and more equipment repairs.

In addition, many of our customers, particularly those in the retail industry where we have a large presence, demand additional capacity during the fourth quarter, which limits our ability to take advantage of more attractive spot market rates that generally exist during such periods.

Further, despite our efforts to meet such demands, we may fail to do so, which may result in lost future business opportunities with such customers, which could have a materially adverse effect on our operations.

Recently, the duration of this increased period of demand in the fourth quarter has shortened, with certain customers requiring the same volume of shipments over a more condensed timeframe, resulting in increased stress and demand on our network, people, and systems.

If this trend continues, it could make satisfying our customers and maintaining the quality of our service during the fourth quarter increasingly difficult.

We may also suffer from natural disasters and weather-related events, such as tornadoes, hurricanes, blizzards, ice storms, floods, and fires, which may increase in frequency and severity due to climate change, as well as other man-made disasters.

These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies, destroy our assets, or adversely affect the business or financial condition of our customers, any of which could have a materially adverse effect on our results of operations or make our results of operations more volatile.

Weather and other seasonal events could adversely affect our operating results.

Additional Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business