What changed in this filing

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Item 1A. Risk Factors

2025-02-24 compared with 2024-02-26 · 32 added, 69 removed, 162 unchanged (38% of the section changed)

4 unchanged sentences

Effective May 1, 2023, the Company entered into a three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company.

The Company subsequently extended the 2019 Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023.

For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended 2019 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $10 million for the policy period ended April 30, 2023.

Effective May 1, 2023, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company.

For commercial trucking claims incurred on or after May 1, 2023 through April 30, 2026, the 2023 Initial Excess Policy provides for an aggregate deductible of $18 million over the thirty-six-month term ending April 30, 2026.

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These third party arrangements provide coverage on a per occurrence or aggregated basis.

In recent years, there has been a significant increase in the occurrence of trials in courts throughout the United States involving catastrophic injury and fatality claims against commercial motor carriers that have resulted in verdicts in excess of $10 million.

Over the past decade, there has been a significant increase in the prevalence of trials in courts throughout the United States involving catastrophic injury and fatality claims against commercial motor carriers that have resulted in verdicts in excess of $10 million.

Within the transportation logistics industry, these verdicts are often referred to as “Nuclear Verdicts.” The increase in Nuclear Verdicts has had a significant impact on the cost of commercial auto liability claims throughout the United States.

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Further, the Company retains liability of up to $2,000,000 for each general liability claim, $250,000 for each workers’ compensation claim and $250,000 for each cargo claim.

In recent years, the amount of cargo theft throughout the freight transportation and logistics supply chain in the United States has significantly increased.

The Company has experienced, and may continue to experience, increases in the amount of cargo theft, resulting in increased exposure to liability from cargo claims.

In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims.

The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage.

A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various legal defenses and other factors including the extent to which such carriers maintain their own insurance coverage.

A material increase in the frequency or severity of accidents, cargo claims, including further increases in the amount of cargo theft, or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

Dependence on third party insurance companies.

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As disclosed in a Current Report on Form 8-K filed by the Company on February 28, 2022, the largest Landstar independent commission sales agency by revenue referenced above, while based in the United States, has significant administrative operations located in Ukraine.

The administrative operations of this agency were significantly disrupted during the onset of the Russian invasion of Ukraine.

The administrative operations of this agency were significantly disrupted during the onset of the Russian invasion of Ukraine and continue to be affected by the ongoing conflict.

The Company also has another of its largest independent commission sales agencies, as measured by revenue, that is based in the United States but conducts a portion of its administrative operations in western Ukraine.

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At any given time, we face known and unknown cybersecurity risks and threats that are not fully mitigated, and we may discover vulnerabilities as we continuously work to enhance our cybersecurity risk management program.

A significant incident, including system failure, security breach, disruption by malware or ransomware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.

A significant incident, including system failure, security breach, disruption by malware or ransomware, or other damage, could interrupt or delay our operations, damage our reputation with customers, agents, third party capacity providers, employees, vendors, investors or other stakeholders, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.

Although the Company maintains cybersecurity and business interruption insurance, the Company’s insurance may not be adequate to cover all losses that may be incurred in the event of a significant disruption or failure of its information technology systems.

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Any inability to negotiate satisfactory terms with one of these key vendors or any other significant disruption to or termination of a relationship with one of these key vendors could disrupt the Company’s operations and impose significant costs on the Company.

Adoption of artificial intelligence (“AI”).

The adoption of AI and other emerging technologies may become significant to operating results in the future.

While AI and other technologies may offer substantial benefits, they may also introduce additional risk.

If we are unable to successfully adapt to, implement and utilize such emerging technologies as effectively as competitors, our results of operations may be negatively affected.

Economic, Competitive and Industry Risks

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In addition, Landstar hauls a significant number of shipments that have either been imported into the United States or are destined for export from the United States.

There is significant uncertainty in the marketplace as to the potential actions of the U.S.

government with respect to international trade policy and the potential for significant tariffs to be enacted, particularly with respect to trade between the United States and, respectively, Mexico, Canada and China.

Any decision by the U.S.

government to adopt actions such as a border tax on imports, an increase in customs duties or tariffs, the renegotiation of U.S.

trade agreements or any other action that could have a negative impact on international trade could cause a reduction in the volume of freight shipped by many Landstar customers.

Any changes in tax and trade policies in the United States and corresponding actions by other countries could adversely affect our financial performance.

government to adopt actions such as an increase in tariffs or customs duties, a border tax on imports, the renegotiation of U.S.

trade agreements, in particular, the United States-Mexico-Canada Agreement, or any other action that could have a negative impact on international trade could cause a reduction in the volume of freight shipped by many Landstar customers.

Any changes in tax and trade policies in the United States and corresponding actions by other countries, including a retaliatory increase in tariffs on goods destined for export from the United States, could adversely affect our financial performance.

Substantial industry competition.

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Status of independent contractors.

In recent years, the topic of the classification of individuals as employees or independent contractors has gained increased attention among federal and state regulators as well as the plaintiffs’ bar.

Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as

independent contractors or employees for either employment tax purposes (e.g., withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (most notably, workers’ compensation benefits).

Recently, certain states (most prominently, California) have seen significant increased activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors.

For many years, the topic of the classification of individuals as employees or independent contractors has garnered significant attention among federal and state regulators as well as the plaintiffs’ bar.

Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as independent contractors or employees for either employment tax purposes (e.g., withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (most notably, workers’ compensation benefits).

Certain states (most prominently, California) have experienced significant activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors.

There are many different tests and standards that may apply to the determination of whether a relationship is that of an independent contractor or one of employment.

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There can be no assurance that legislative, judicial, administrative or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of BCO Independent Contractors or independent commission sales agents doing business with the Company.

On September 18, 2019, California enacted Assembly Bill (AB) 5 into law, codifying the strict “ABC” test for purposes of determining a worker’s status as an independent contractor or employee under California law.

While new in California, versions of the ABC test have existed in a number of other states over the years and have been challenged in various courts as violating the federal government’s exclusive right to regulate trucking in certain areas of law and interstate commerce.

The Company continues to monitor and analyze the impact of the new law, which became effective as of January 1, 2020, including what steps may be necessary or advisable to adapt to a changing legal and regulatory environment in California.

The Company has BCO Independent Contractors, Truck Brokerage Carriers and independent commission sales agents who reside in and/or principally operate their business in California that could be impacted by AB 5 or similar laws, which could eventually affect our relationship with them.

Additionally, the new law may have a significant impact on our Truck Brokerage Carriers based in California who utilize owner-operators to provide various types of transportation services such as drayage, regional or local delivery.

Since the Company is neither incorporated nor headquartered in California and the vast majority of BCO Independent Contractors, Truck Brokerage Carriers and independent commission sales agents currently doing business with the Company reside and principally operate outside of California, we do not expect AB 5 to have a material impact on Landstar’s overall network of BCO Independent Contractors, Truck Brokerage Carriers and independent commission sales agents.

Nevertheless, there remains significant uncertainty regarding many aspects of the new law, including how the law will be interpreted and enforced by state and local governments as well as by courts.

Certain states, most notably California, have enacted laws codifying the strict “ABC” test for purposes of determining a worker’s status as an independent contractor or employee under that state’s law.

Versions of the ABC test have existed in a number of other states over the years and have been challenged in various courts as violating the federal government’s exclusive right to regulate trucking in certain areas of law and interstate commerce.

The Company monitors these laws and what steps may be necessary or advisable to adapt to a changing legal and regulatory environment.

Nevertheless, there remains significant uncertainty regarding how these types of laws will be interpreted and enforced by state and local governments as well as by courts.

Potential changes, if any, that could impact the legal classification of the independent contractor relationship between the Company and BCO Independent Contractors or independent commission sales agents could have a material adverse effect on Landstar’s operating model.

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The transportation industry is subject to other potential regulatory and legislative changes (such as the possibility of more stringent environmental, climate change and/or safety/security regulations, limits on vehicle weight and size and regulations relating to the health and wellness of commercial truck operators) that may affect the economics of the industry by requiring changes in operating practices, by changing the demand for motor carrier services or the cost of providing truckload or other transportation or logistics services, or by adversely impacting the number of available commercial truck operators.

In particular, the FMCSA in recent years proposed a number of regulatory changes that affect the operation of commercial motor carriers across the United States.

In particular, the FMCSA may propose regulatory changes that affect the operation of commercial motor carriers across the United States.

It is difficult to predict in what form FMCSA regulations may be implemented, modified or enforced and what impact any such regulations may have on motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company.

For example, in December 2010, the FMCSA introduced the Compliance Safety Accountability (“CSA”) motor carrier oversight program.

Under CSA, the FMCSA monitors seven Behavior Analysis and Safety Improvement Categories, or BASICs, under which a motor carrier may be evaluated against established threshold scores for each such BASIC.

In the event a motor carrier has one or more BASIC scores that exceeds the applicable threshold, the motor carrier has an increased risk of roadside inspection and/or compliance review by FMCSA.

Under the Fixing America’s Surface Transportation Act, or the “FAST Act” signed into law on December 4, 2015, the FMCSA was required to engage the National Research Council to conduct a study of CSA and the Safety Measurement System (“SMS”) utilized by the CSA program.

As a result of the FAST Act, the FMCSA announced the removal of the BASIC scores from public view and that such scores are expected to remain hidden from public view while changes to CSA are considered.

In 2018, the FMCSA announced significant anticipated changes to CSA that if enacted would be expected to have a material impact on the current program.

As of the end of 2023, no such changes to CSA have yet been enacted.

No assurances can be given with respect to the changes that may be made to the CSA program, or any replacement or supplemental program, in the future and what impact new or revised motor carrier oversight programs implemented by the FMCSA could have on the Company, its motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company.

No assurances can be given with respect to what impact new or revised motor carrier oversight programs implemented by the FMCSA could have on the Company, its motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company.

Regulations focused on diesel emissions and other air quality matters.

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Moreover, the extensive nationwide charging/fueling infrastructure and maintenance network that would be necessary to support such operations does not exist.

Nevertheless, federal, state and local governmental agencies may engage in efforts to support legislation and regulations mandating the transition of diesel-fuel based commercial motor vehicles, such as Class 8 tractors operated by the Company’s BCO Independent Contractors

and Truck Brokerage Carriers, to ZEVs.

For example, CARB has adopted two new regulations, the Advanced Clean Trucks (“ACT”) regulation and the Advanced Clean Fleets (“ACF”) regulation, that would mandate the transition of commercial trucking operations in California to ZEVs over time.

CARB’s ACT regulation, as enacted, is intended to accelerate a large-scale transition to medium-and heavy-duty ZEVs.

For example, CARB has adopted a regulation, the Advanced Clean Trucks (“ACT”) regulation intended to accelerate a large-scale transition to medium-and heavy-duty ZEVs.

The regulation includes a manufacturer sales requirement and a reporting requirement that applies to large employers including retailers, manufacturers, brokers and others, as well as fleet owners with 50 or more trucks operating in California.

The following states have also adopted the ACT regulation:

Colorado, Massachusetts, New Jersey, New York, Oregon, Vermont and Washington.

CARB’s ACF regulation is intended to work in conjunction with the ACT regulation to require the deployment of medium- and heavy-duty ZEVs in California.

Components of the ACF regulation, as adopted by CARB, include the following requirements:

Manufacturer sales mandate.

Manufacturers would be required to sell only zero-emission medium- and heavy-duty vehicles in California starting in 2036.

Drayage fleets.

Beginning January 1, 2024, trucks must be required to be registered in the CARB Online System to conduct drayage activities in California.

Any truck that is to conduct drayage activities in California and is added to the California fleet on or after January 1, 2024, is required to be a ZEV.

High priority fleets.

High priority fleets (defined by the regulation to include an entity that owns, operates or directs vehicles in California and has $50 million or more in total gross revenue or a fleet that owns, operates, or directs 50 or more vehicles in its California fleet) are required to either (i) purchase only ZEVs beginning 2024 and, starting January 1, 2025, remove internal combustion engine vehicles at the end of their minimum useful life as specified in the regulation or (ii) use the ZEV Milestones Option to phase-in ZEVs into their fleets to meet ZEV targets as a percentage of their total California fleet according to the following schedule:

ZEV Fleet Milestones by Milestone Group and Year

Percentage of vehicles that must be ZEVs

Milestone Group 1:

Box trucks, vans, buses with two axles, yard tractors, light-duty package delivery vehicles

2035 and beyond

Milestone Group 2:

Work trucks, day cab tractors, buses with three axles

2039 and beyond

Milestone Group 3:

Sleeper cab tractors and specialty vehicles

2042 and beyond

On October 16, 2023, the California Trucking Association (the “CTA”) filed a lawsuit in the Eastern District of California challenging the ACF regulation as, among several alternative theories, preempted by federal law under the Federal Clean Air Act and the Federal Aviation Administration Authorization Act of 1994.

The CTA seeks declaratory relief that the ACF regulation is invalid and unenforceable as well as preliminary and permanent injunctive relief barring the implementation and enforcement of the ACF regulation.

On December 27, 2023, CARB and the CTA reached an understanding that CARB will not take enforcement action as to the drayage or high priority fleet reporting requirements or registration prohibitions under the ACF regulation until U.S.

EPA grants a preemption waiver under the federal Clean Air Act applicable to those regulatory provisions or determines a waiver is not necessary, and CTA agreed not to file a preliminary injunction motion seeking to enjoin enforcement of the challenged provision of the ACF regulation while the waiver request is pending before U.S.

No assurances can be provided regarding whether U.S.

EPA may grant a preemption waiver, when such a decision may be made or the CTA’s litigation challenging the ACF regulation, including the timing of any proceedings relating to the litigation.

To the extent that the ACF regulation remains in effect, no assurances can be given with respect to the extent BCO Independent Contractors will choose to become CARB-compliant by purchasing a ZEV.

Accordingly, many of the Company’s BCO Independent Contractors may not be permitted to haul loads that would require travel within California, which could negatively affect the ability of the Company to service customer freight needs for freight originating from, delivering to or traveling through California.

Furthermore, mandates requiring the transition to ZEVs would create substantial costs for the Company’s third party capacity providers and, in turn, increase the cost of purchased transportation to the Company.

Colorado, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.

Mandates requiring the transition to ZEVs would create substantial costs for the Company’s third party capacity providers and, in turn, increase the cost of purchased transportation to the Company.

An increase in the costs to purchase, lease or maintain tractor equipment or in purchased transportation cost caused by existing or new regulations without a corresponding increase in price to the customer could adversely affect Landstar, including its results of operations and financial condition.

Moreover, irrespective of the enactment of these regulations, no assurances can be provided that the technology advancements that will need to occur to make ZEVs commercially viable for long-haul trucking or the extensive nationwide charging/fueling infrastructure and maintenance network that would be necessary to support such operations will develop in the time frame that would be necessary to enable efforts to comply with legislative or regulatory mandates requiring the transition of diesel fuel-based vehicles to ZEVs.

Moreover, irrespective of the enactment of these types of regulations, no assurances can be provided that the technology advancements that will need to occur to make ZEVs commercially viable for long-haul trucking or the extensive nationwide charging/fueling infrastructure and maintenance network that would be necessary to support such operations will develop in the time frame that would be necessary to enable efforts to comply with legislative or regulatory mandates requiring the transition of diesel fuel-based vehicles to ZEVs.

It is not expected that long-haul trucking operations powered by electricity, natural gas, or hydrogen-based powertrains rather than diesel will become commercially viable at scale throughout North America in the next five years.

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From time to time, various legislative proposals are introduced to increase federal, state, or local taxes.

The Company cannot predict whether, or in what form, any increase in corporate income tax rates, motor fuel tax rates or other tax rates applicable to the transportation services provided by the Company will be enacted and, if enacted, how such increased tax rates may impact the Company.

The Company cannot predict whether, or in what form, any increase in corporate income tax rates, state tax rates, taxes related to the procurement of insurance, motor fuel tax rates or other tax rates applicable to the transportation services provided by the Company will be enacted and, if enacted, how such increased tax rates may impact the Company.

As an example, for every 100 basis point increase in the U.S.

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Moreover, competition from other transportation service companies including those that provide non-trucking modes of transportation would likely increase if state or federal taxes on fuel were to increase without a corresponding increase in taxes imposed upon other modes of transportation.

On August 16, 2022, the Inflation Reduction Act was signed into law by President Biden.

The Inflation Reduction Act establishes a one percent excise tax on stock repurchases made by publicly traded U.S.

On August 16, 2022, the Inflation Reduction Act was signed into law and established a one percent excise tax on stock repurchases made by publicly traded U.S.

corporations.

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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 1A. Risk Factors