Trucking companies with US Payroll Protection Program (PPP) loans may be focused on surviving the coming months, but they should be thinking about spending some forgiven loan money on technology that will help them become more profitable in the future, according to an accounting and tax specialist who has advised trucking and warehousing firms on PPP loans.
Through June 30, 11,738 for-hire trucking firms received PPP loans worth more than $150,000. Those loans preserved 479,000 trucking jobs.
"These companies will have liquidity, and they are going to need to reinvest money back into their businesses," Michael Rofman, a partner with Mazars USA, told the Journal of Commerce. In particular, they should be planning to invest in technology upgrades, Rofman said.
But there's a catch. Firms can't spend PPP money on technology enhancements if they want their loan to be forgiven. Under the program, companies must spend at least 60 percent of PPP funds on payroll-related expenses for loans to be forgiven.
But once a loan is forgiven, firms will be free to spend on telematics, transportation and warehouse management systems, and replacements for legacy systems, Rofman said. Telematics could mean upgrades to ELDs that provide greater fleet management capabilities and visibility to shippers. Small fleets could also install basic routing optimization systems, and other back office fleet management systems that improve efficiency.
"Trucking companies have to move things from point A to point B, but they're also technology companies," he said. "And the really profitable ones are the ones with the best systems. A lot of companies have band-aids on older systems. Now's the time to rip the band-aids off."
Rofman, who heads the New Jersey Transportation and Logistics Group for Mazars, an international advisory firm, believes that despite the effects of the COVID-19 pandemic on freight demand and operations, many truckers will have the money to do just that. "Not all companies were in a position where they needed the cash to maintain operations," he said.
The PPP loans will give asset-based carriers "a position of strength" by bolstering liquidity - i.e., the cash they need to keep running - but they'll still need to make sound investment decisions in order to capitalize. "Once that loan is forgiven, that's extra cash on their balance sheets to do something with," Rofman said. "They need to make sure they spend it on the right things."
That will be difficult for smaller trucking companies used to worrying about how to make payroll week to week, just as many employees live paycheck to paycheck.
"Companies need to figure out how to focus on the near term, not the short term - six to 18 months, not a week at a time," he said. "Banks are nervous and they're tightening the reins."
Companies with the technology to help them forecast future cash flow and anticipated volumes "are the ones likely to inspire more confidence at the banks," Rofman said. "If you can't get reasonable projections to the banks, it really puts you behind your competition."
Source: Journal of Commerce