What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-02-22 compared with 2020-02-25 · 127 added, 83 removed, 288 unchanged (42% of the section changed)

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of Iowa, Heartland Express Services, Inc., Heartland Express Maintenance Services, Inc., Midwest Holding Group, LLC and Millis Transfer, LLC.

On July 6, 2017, Heartland Express, Inc.

of Iowa acquired Interstate Distributor Co.

("IDC"), which was subsequently merged into Heartland Express, Inc.

of Iowa effective October 1, 2017.

On December 31, 2018, A & M Express, Inc.

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We operate our consolidated operations under the brand names of Heartland Express and Millis Transfer.

We primarily provide

nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to California.

We primarily provide nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to

Approximately 99.9% of our operating revenue is derived from shipments within the United States ("U.S.") with the remainder being Canada.

We do not have any operations in Mexico.

We focus on providing quality service to targeted customers with a high density of freight in our regional operating areas.

We also offer limited temperature-controlled truckload services, which are not significant to our operations and were reduced to serving select dedicated customers in 2019.

We focus on providing high quality service to targeted customers with a high density of freight in our regional operating areas.

We also offer limited temperature-controlled truckload services, which are not significant to our operations and have been reduced to serving select dedicated customers specifically in the western part of the U.S.

Further, we do not operate a non-asset-based freight brokerage business.

We generally earn revenue based on the number of miles per load delivered and the revenue per mile paid.

We believe the keys to success are maintaining high levels of customer service and safety, which are predicated on the availability of experienced drivers and late-model equipment.

We believe the keys to success are maintaining high levels of customer service and safety, which are generally predicated on the availability of experienced drivers and late-model equipment.

We believe that our service standards, safety record, and equipment accessibility have made us a core carrier to many of our major customers, as well as allowed us to build solid, long-term relationships with customers and brand ourselves as an industry leader for on-time service.

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Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.

Approximately 80% of our terminals are located within 200 miles of the 25 largest cities in the US.

Approximately 80% of our terminals are located within 200 miles of the 25 largest cities in the U.S.

We believe our geographic reach and terminal locations assist us with driver recruiting and retention, efficient fleet maintenance, and consistent customer engagement.

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Gerdin in 1978 and became publicly traded in November 1986.

Over the thirty-three years from 1986 to 2019, we have grown our revenues to $596.8 million from $21.6 million and our net income has increased to $73.0 million from $3.0 million.

Much of our growth has been attributable to expanding service for existing customers, acquiring new customers, and continued expansion of our operating regions.

Over the thirty-four years from 1986 to 2020, we have grown our revenues to $645.3 million from $21.6 million and our net income has increased to $70.8 million from $3.0 million.

Much of our growth has been attributable to expanding service for existing customers, acquiring new customers, and continued expansion of our operating regions through new and existing customers as well as strategic acquisitions.

More information regarding our total assets, revenues and profits for the past three and five years can be found in our “Consolidated Statements of Comprehensive Income” and “Selected Financial Data” that are included in this report.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last six years, Millis Transfer, occurring on August 26, 2019.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last seven years, Millis Transfer, occurring on August 26, 2019.

These eight acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, and pursue new customer relationships in new markets.

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We believe future growth depends upon several factors including the level of economic growth and the related customer demand, the available capacity in the trucking industry, our ability to identify and consummate future acquisitions, our ability to integrate operations of acquired companies to realize efficiencies, and our ability to attract and retain experienced drivers that meet our hiring standards.

Our Chief Operating Decision Maker (“CODM”), Michael Gerdin, our President and Chief Executive Officer, oversees and manages all of our transportation services, on a combined basis, including previously acquired entities.

Our operations department focuses on the successful execution of customer expectations and providing consistent opportunities for our drivers, in conjunction with maximizing equipment utilization.

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Serving the short-to-medium haul market permits us to use primarily single rather than team drivers and dispatch most loads directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes.

Approximately 75% of our loads are less than 500 miles in length of haul.

Substantially all of our revenue is, and for the last three fiscal years has been, generated from within the U.S.

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We do not have, nor have we during the last three fiscal years had, any long-lived assets permanently located outside the U.S.

We operate twenty-eight terminal facilities throughout the contiguous U.S.

We operate twenty-six terminal facilities throughout the contiguous U.S.

in addition to our terminal and corporate headquarters in North Liberty, Iowa.

These terminal locations are strategically located to concentrate on regional freight movements generally within a 500-mile radius of the terminals.

This allows us to meet the needs of our customers in those regions while allowing our drivers to primarily stay within an operating region which provides them with more “ home time.

” This also allows us to service and maintain revenue equipment at our facilities on a frequent basis.

This allows us to meet the needs of our customers in those regions while allowing our drivers to primarily stay within an operating region which provides them with more “home time.” This also allows us to service and maintain revenue equipment at our facilities on a frequent basis.

Personnel at the individual terminal locations manage these operations based on the overall corporate operating and maintenance goals and objectives.

Our CODM evaluates the operational efficiencies of the Company's transportation services and operating performance of terminals on a combined basis based on consolidated operating ratio and reports detailing all of the Company’s load movements, rate per mile, and non-revenue miles.

Both Heartland Express and Millis Transfer operate centralized computer networks and regular communication to achieve enterprise-wide load coordination.

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These awards include:

• FedEx Express Core Carrier of the Year

• FedEx Express Core Carrier of the Year (10 years in a row)

• FedEx Express Platinum Award (99.96% On-Time Delivery)

• FedEx Ground Superior Performance Award

• Lowe's - One-Way Store Carrier of the Year

• Quaker/Gatorade - 2018 Carrier of the Year (Central West Region)

• Quaker/Gatorade - 2018 Carrier of the Year (Southwest Region)

During 2019, we were also recognized with the following safety, operational, diversity, community service, and environmental awards:

• MillerCoors National Logistics & Transportation Supplier of the Year

• Quaker/Gatorade - Central West Region Carrier of the Year

• Unilever - 2019 Carrier of the Year

• DHL - 2019 National Truckload Carrier of the Year

• Hills Pet Nutrition for Commitment, Dedication, and Outstanding Service

During 2020, we were also recognized with the following safety, operational, community service, and environmental awards:

• BP Driving Safety Standards Award 2019

• Logistics Management Quest for Quality Award (our sixteenth award in seventeen years)

• Logistics Management Quest for Quality Award (our seventeenth award in eighteen years)

• Commercial Carrier Journal Top 250 Award (#39)

• 2020 Women on Boards "W" Winning Company

Magazine's 2019 Most Influential Corporate Board Directors - Tahira K.

Hira and Brenda Neville

• Wreaths Across America Honor Fleet

• US EPA SmartWay Excellence Award (our fifth award in the last seven years)

EPA SmartWay Excellence Award

Our primary customers include retailers and manufacturers.

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During 2019, our 25, 10, and 5 largest customers were approximately 75%, 52%, and 36%, of our operating revenues respectively.

Our broad capacity network and customer base has allowed us to remain appropriately diversified as only one customer, Walmart Inc., accounted for more than 10% of our operating revenues in 2019 at 10.9%, and the same one customer accounted for more than 10% of our operating revenues in 2018 at 12.5%.

Our broad capacity network and customer base has allowed us to remain appropriately diversified and no customer accounted for more than 10% of our operating revenues in 2020.

One customer accounted for more than 10% of our operating revenues in 2019 at 10.9% and 2018 at 12.5%.

The nature of our primary traffic (appliances, automotive parts, consumer products, paper products, packaged foodstuffs, and retail goods) generally causes it to be distributed with relative uniformity throughout the year.

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We rely on our workforce in achieving our business objectives.

As of December 31, 2019, we employed approximately 4,050 people compared to approximately 3,450 people throughout the year ended December 31, 2018.

The increase in employees as of December 31, 2019 was generally due to the Millis Transfer acquisition.

During the year ended December 31, 2020, we employed an average of approximately 3,780 people compared to approximately 4,050 people during the year ended December 31, 2019.

The decrease in employees as of December 31, 2020 was generally due to a decline in drivers due to the challenging qualified driver recruiting and retention environment experienced during 2020 along with the ongoing right-sizing of support staff following the acquisition of Millis Transfer.

We also contracted with independent contractors to provide and operate tractors which provides us additional revenue equipment capacity, although not material to our operations.

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and (iii) minimize safety problems through careful screening, mandatory drug testing, continuous training, the use of electronic logging devices ("ELDs"), and financial rewards for accident-free driving.

We also seek to minimize turnover of our employee drivers by providing modern, comfortable equipment, and by regularly scheduling "home time." Our drivers are generally compensated on the basis of miles driven including empty miles.

We also seek to minimize turnover of our employee drivers by providing quality pay for their time with additional pay for safety, modern equipment, and by regularly scheduling "home time." Our drivers are generally compensated on the basis of miles driven including empty miles.

This provides an incentive for us to minimize empty miles and at the same time does not penalize drivers for inefficiencies of operations that are beyond their control.

Millis Transfer has operated Millis Training Institute since 1989.

In addition to hiring experienced drivers, the acquisition of Millis Transfer in 2019, included a CDL training school.

They have operated Millis Training Institute since 1989.

Millis Training Institute is a driver training program dedicated to identifying, training, and developing capable individuals into obtaining their commercial driving license and becoming professional truck drivers.

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Competition for professional drivers that meet our qualification standards is challenging due to the current trend of decreasing numbers of qualified drivers in our industry.

This driver training program currently provides a source of qualified professional drivers for Millis Transfer and will become an additional source of potential professional drivers for Heartland as we expect to expand upon the current training program.

This driver training program currently provides a source of qualified professional drivers for Millis Transfer and will become an additional source of potential professional drivers for legacy Heartland as we expect to expand upon the current training program in 2021.

We are not a party to a collective bargaining agreement.

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Our comprehensive driver compensation program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

Our driver pay package generally includes future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

In addition to the scheduled pay increases based on years of continued service, we have increased the base pay package twice during the last three years.

Our driver pay package generally includes guaranteed minimum pay for our newest drivers, future pay increases based on years of continued service with us, increased rates for accident-free miles of operation, detention pay, and other pay programs to assist drivers with unproductive time.

In addition to the scheduled pay increases based on years of continued service, we have increased the base pay package three times during the last four years.

We believe that our driver compensation package, compared to others in our industry, is consistently among the best in the industry.

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This is evidenced by us being awarded the U.S.

Environmental Protection Agency SmartWay Excellence Award five times in the last seven years.

We seek the flexibility to buy and sell tractors (and trailers) opportunistically to capitalize on new and used equipment markets, size our fleet to the volume of attractive freight, and manage cash tax expense.

Environmental Protection Agency SmartWay Excellence Award six times in the last eight years.

We have historically owned our tractors and trailers and do not lease revenue equipment, other than when we have acquired companies that have utilized leases.

Historically, we have paid cash for the acquisition of new revenue equipment.

These strategies allow us the flexibility to buy and sell tractors (and trailers) opportunistically to capitalize on new and used equipment markets, size our fleet to the volume of attractive freight, and manage cash tax expense.

One method we use to accomplish these goals is to depreciate our new tractors (excludes assets acquired through an acquisition) for financial reporting purposes using the 125% declining balance method, in which depreciation is higher in early periods and tapers off in later periods.

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However, it can contribute to volatility in gain on sale of equipment and quarterly earnings per share.

At December 31, 2019, most of our over-the-road sleeper berth tractor fleet was equipped with idle management controls.

At December 31, 2020, the majority of our operating tractor fleet was equipped with idle management controls.

All over-the-road tractors are equipped with mobile communication systems that comply with the latest ELD regulations.

This technology allows for efficient communication with our drivers regarding freight and safety, and provides the ability to manage the needs of our customers based on real-time information on load status.

Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance.

Our mobile communication systems also allow us to obtain information regarding equipment for better planning and efficient maintenance time as well as information regarding driver performance and efficiency.

As of December 31, 2020 the average age of our tractor fleet was 1.7 years compared to 1.8 years at December 31, 2019.

The increase in tractor age during 2019 was primarily attributed to the acquired tractors from the Millis Transfer acquisition in August 2019.

Although the Millis Transfer average age was higher than the historical Heartland average tractor age, the Millis Transfer average age was still below the industry average.

We have historically operated the majority of our tractors while under warranty to minimize repair and maintenance cost and reduce service interruptions caused by breakdowns.

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at which we have negotiated price discounts.

In addition, bulk fuel sites are maintained at the majority of our twenty-nine terminal locations.

In addition, bulk fuel sites are maintained at the majority of our twenty-seven terminal locations.

We strategically manage fuel purchase decisions based on pricing of over-the-road fuel prices, bulk fuel prices, and the routing of equipment.

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We believe exposure to environmental cleanup costs is minimized by periodic inspection and monitoring of the tanks.

We also have insurance policies in place for the operation of our tanks located at terminal locations.

Increases in fuel prices can have an adverse effect on the results of operations.

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For the years ended December 31, 2020 and 2019, fuel surcharge revenues were $61.7 million and $75.0 million, respectively.

Department of Energy ( “ DOE ” ) average price of fuel decreased 4.0% in 2019 compared to 2018, which had a corresponding positive impact on our net fuel cost, before the impacts of improved fleet efficiency, for the years ended December 31, 2019 and 2018, respectively.

Additionally, overall fuel efficiency has improved during 2019 and 2018 due to adding more fuel-efficient late-model tractors to the operating fleet, which include various idle management technologies.

Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and

idling time will directly impact our operating results.

The DOE average price of fuel has decreased 1.5% to $3.01 through February 17, 2020 as compared to the 2019 average price.

Department of Energy (“DOE”) average price of fuel decreased 16.5% in 2020 compared to 2019, which had a corresponding positive impact on our net fuel cost, before the impacts

of improved fleet efficiency, for the year ended December 31, 2020 compared to 2019.

Fuel consumed by empty and out-of-route miles and by truck engine idling time is not recoverable and therefore any increases or decreases in fuel costs related to empty and out-of-route miles and idling time will directly impact our operating results.

The decrease in the DOE diesel fuel prices seen in 2020 was mostly due to a 15.7% average price decrease during the second quarter of 2020 compared to the first quarter of 2020.

Fuel prices remained fairly consistent during the third and fourth quarters of 2020, although they began to increase in late 2020.

This trend of fuel price increases has continued through February 2021.

The latest DOE diesel fuel price in February 2021 is up 8.9% compared to the end of 2020 and is up 12.7% compared to the 2020 yearly average.

Competition and Industry

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We operate in a cyclical industry.

Demand for our freight services generally accelerated in the second half of 2017 and remained elevated throughout all of 2018 (peak in mid-2018 and began to decline in the second half of 2018), which resulted in tight freight capacity.

Demand for our freight services was elevated throughout all of 2018 (peak in mid-2018 and began to decline in the second half of 2018), which resulted in tight freight capacity.

Throughout 2019, the general demand for freight services was at a level much lower than what was experienced throughout 2018.

Also, winter weather played a larger role in our freight volumes during the first quarter of 2019 compared to the same quarter of 2018.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during 2018.

Although not as intense currently as compared to 2018, competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

During 2020, the demand for freight services was volatile.

Freight volumes in early 2020 were comparative to seasonal volumes of the first quarter of 2019.

Then in March 2020 the demand for freight services dramatically increased as concerns over the COVID-19 pandemic escalated.

In response to the outbreak of COVID-19, there was a short term drop in the demand for freight services in early second quarter of 2020, due to many businesses temporarily shutting down or scaling back operations with much of the working population of the United States working from home.

By the end of the second quarter of 2020, demand for freight services began to improve as most businesses implemented their respective responses and protections against the pandemic which continued to build throughout the back half of 2020.

This led to an overall increase in freight demand and favorable pricing environment as freight rates increased throughout the second half of 2020.

The trucking industry has been faced with a qualified driver shortage.

The pandemic events of 2020 intensified an already challenging qualified driver market.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during the second half of 2020.

Competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.

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In order to attract and retain experienced drivers who understand the importance of customer service, we have sought to solidify our position as an industry leader in driver compensation in our operating markets.

We have implemented two driver pay increases within the past three years (October 1, 2017 and July 7, 2018).

We have implemented three driver pay increases within the past four years (October 2017, July 2018, and October 2020).

Our comprehensive driver compensation and benefits program rewards drivers for years of service and safe operating mileage benchmarks, which are critical to our operational and financial performance.

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Safety and Risk Management

We are committed to promoting and maintaining a safe operation.

Our safety program is designed to minimize accidents and to conduct our business within governmental safety regulations.

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We act as a self-insurer for auto liability involving property damage, personal injury, or cargo based on defined insurance retention of $1.0 million under our Millis policy or $2.0 million under our Heartland policy for any individual claim based on the insured party, accident date, and circumstances of the loss event.

Within the Heartland policy, there is an additional $1.0 million aggregate self-insurance corridor for claims between $2.0 million and $3.0 million.

For the Heartland policy claims, liabilities in excess of these amounts are covered by insurance up to $100.0 million.

For the Millis policy claims, we retain liability for claims between $3.0 million and $10.0 million, while liabilities in excess of these amounts are covered by insurance up to $100.0 million.

Within the Heartland policy, there is an additional one-time $1.0 million aggregate self-insurance corridor for auto liability claims between $2.0 million and $3.0 million.

For both Heartland and Millis claims, liabilities in excess of these deductibles are covered by insurance up to $60.0 million, including

retention of 50% of exposure from $5.0 million to $10.0 million.

We retain any liability in excess of $60.0 million.

We act as a self-insurer for workers' compensation liability claims based on defined insurance retention of $1.0 million.

We act as a self-insurer for property damage to our tractors and trailers.

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It also would extend by two hours the duty time for drivers encountering adverse weather, and extend the shorthaul exemption by lengthening the drivers’ maximum on-duty period from 12 hours to 14 hours.

It is unclear how long the process of finalizing a final rule will take, if one does come to fruition.

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

Since that time, we have seen a slight increase in the productivity of our drivers.

Any future changes to HOS rules could materially and adversely affect our operations and profitability.

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Currently, these scores do not have a direct impact on a carrier’s safety rating.

However, the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by causing high-quality drivers to seek employment with other carriers, (ii) cause our customers to direct their business away from us and to carriers with higher fleet rankings (iii), subject us to an increase in compliance reviews and roadside inspections, or (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.

reviews and roadside inspections, or (iv) cause us to incur greater than expected expenses in our attempts to improve unfavorable scores, any of which could adversely affect our results of operations and profitability.

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

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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 late June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the

CSA program in response to the study.

In late June 2018, the FMCSA provided a report to Congress outlining the changes it may make to the CSA program in response to the study.

Such changes include the testing and possible adoption of a revised risk modeling theory, potential collection and dissemination of additional carrier data, and revised measures for intervention thresholds.

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However, any changes that increase the likelihood of us receiving unfavorable scores could adversely affect our results of operations and profitability.

In May 2020, the FMCSA announced that effective immediately it is making permanent a pilot program that will not count a crash in which a motor carrier was not at fault when calculating the carrier’s safety measurement profile, called the Crash Preventability Demonstration Program (“CPDP”).

The CPDP expands the types of eligible crashes, modify the Safety Measurement System to exclude crashes with not preventable determinations from the prioritization algorithm and note the not preventable determinations in the Pre-Employment Screening Program.

Under the program, carriers with eligible crashes that occurred on or after August 2019, may submit a Request for Data Review with the required police accident report and other supporting documents, photos or videos through the FMCSA’s DataQs website.

If the FMCSA determines the crash was not preventable, it will be listed on the Safety Measurement System but not included when calculating a carrier’s Crash Indicator Behavior Analysis and Safety Improvement Category measure in SMS.

Additionally, the not preventable determinations will be noted on a driver’s Pre-Employment Screening Program report.

The FMCSA published a final rule in December 2015 that required the use of ELDs or automatic onboard recording devices ("AOBRs") by nearly all carriers by December 2017 (the "2015 ELD Rule").

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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 will be 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.

The final rule became effective on January 4, 2017, with a compliance date of January 6, 2020.

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.

The final rule became effective in January 2017, with a compliance date in January 2020.

In December 2019, however, the FMCSA announced a final rule extending by three years the date for state driver’s licensing agencies to comply with certain Drug and Alcohol Clearinghouse requirements.

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This new action will allow states’ compliance with the requirement, which was set to begin January 2020, to be delayed until January 2023.

That being said, the FMCSA has indicated that it will allow states the option to voluntarily query Clearinghouse information beginning January 2020.

The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule, however.

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

That being said, the FMCSA has indicated that it will allow states the option to voluntarily query

Clearinghouse information beginning January 2020.

The compliance date of January 2020 remained in place for all other requirements set forth in the Clearinghouse final rule.

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

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.

However, the proposal also requires a second sample using either urine or an oral swab test if a hair test is positive, if a donor is unable to provide a sufficient amount of hair for faith-based or medical reasons, or due to an insufficient amount or length of hair.

The proposal specifically requires that the second test be done simultaneously at the collection event or when directed by the medical review officer after review and verification of laboratory-reported results for the hair specimen.

DHHS indicated the two-test approach is intended to protect federal workers from issues that have been identified as limitations of hair testing, and related legal deficiencies identified in two prior court cases.

The American Trucking Associations (“ATA”) has voiced concerns with the new guidelines, characterizing them as “weak” and “misguided,” and specially taking issue with the second sample requirement, which the ATA feels diminishes the value of hair testing.

It is unclear if, and when, a final rule may be put in place.

Any final rule may reduce the number of available drivers.

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 HOS rules) may be fined up to $16,000 for each offense.

In addition, 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 (FMCSA officials have recently reported, however, that they are delaying implementation of the final rule by two years).

However, in May 2020, the FMCSA approved an interim rule delaying implementation of the final rule by two years which extends the compliance date to February 2022.

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.

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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 also proposed a bill in 2019 that would pave the way for commercial drivers younger than 21 to drive trucks across state lines.

This new bill, which would lower the age requirement of 21 to 18 for interstate commercial driving if certain requirements are met, received support from the American Trucking Associations ("ATA") during a February 2020 Senate hearing.

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.

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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 thus it’s uncertain whether it will stand.

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.

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Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for those that engage independent contractor drivers 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.

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 contractor drivers as employees would help states with these initiatives.

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How AB5 will be enforced is still to be determined.

While it 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.

In January 2021, however, the California Supreme Court ruled that the ABC Test could apply retroactively to all cases not yet final as of the date the original decision was rendered, April 30, 2018.

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.

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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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 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.

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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 standards for the new plan, commonly referred to as the “Cleaner Trucks Initiative,” later in 2020, and may take final action as soon as 2021.

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.

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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.

In addition, in February 2017 CARB proposed California Phase 2 standards that would 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 addition, in February 2017 CARB proposed California Phase 2 standards that would 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 were affected by action from President Trump’s administration.

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

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Federal and state lawmakers also are considering a variety of other climate-change proposals.

Compliance with such regulations could increase the cost of new tractors and trailers, impair equipment productivity, and

increase operating expenses.

Compliance with such 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.

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

While ACT does not apply to those simply operating tractors in California, it could affect the cost and/or supply of traditional diesel tractors and may lead to similar legislation in other states or at the federal level.

In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors may idle.

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Executive and Legislative Climate

The regulatory environment has changed under the administration of President Trump.

In January 2017, the President signed an executive order requiring federal agencies to repeal two regulations for each new one they propose and imposing a regulatory budget, which would limit the amount of new regulatory costs federal agencies can impose on individuals and businesses each year.

In December 2019, the DOT announced a final rule indicating it is codifying this directive on our industry.

This rule and any other anti-regulatory action by the President and/or Congress, may inhibit future new regulations and/or lead to the repeal or delayed effectiveness of existing regulations.

Therefore, it is uncertain how we may be impacted in the future by existing, proposed, or repealed regulations.

The United States Mexico Canada Agreement (“USMCA”) has been ratified by the United States and Mexico, but must be ratified by the Parliament of Canada before it enters into effect.

It is still uncertain how President Biden’s leadership will impact our industry.

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 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.

The USMCA is designed to modernize food and agriculture trade, advance rules of origin for automobiles and trucks, and enhance intellectual property protections, among other matters, according to the Office of U.S.

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It is difficult to predict at this stage what could be the impact of the USMCA on the economy, including the transportation industry.

However, given the amount of North American trade that moves by truck, if the USMCA enters into effect, 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 set to expire in September 2020, Congress has noted its intent to consider a multiyear highway measure that would update the FAST Act.

However, if Congress fails to reauthorize the FAST Act or pass updated replacement legislation by the September 2020 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.

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.

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.

For further discussion regarding laws and regulations, refer to the "Risk Factors" section under Item 1A of Part I of this Annual Report.

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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