Financial valuations of truckload carriers have been rising as indicated by the Dow Jones U.S. Trucking Index which climbed in recent months.
The projected windfalls anticipated from the slashing of corporate taxes in the new Trump Tax Measures have already been acted on by companies like FedEx which welcomed the new Bill with a projection that the new tax cuts could boost annual profits by $1.3 billion.
FedEx also immediately indicated that it will increase spending on its various logistics and delivery businesses with the payout that the tax cut will grant.
In its latest forecast for the next decade of freight transportation, the American Trucking Association (ATA) has projected continued growth for freight transportation overall and for the trucking industry.
“The trucking industry is the lifeblood of the U.S. economy. Over 70% of all the freight tonnage moved in the U.S. goes on trucks. Without the industry and our truck drivers, the economy would come to a standstill. To move 10.4 billion tons of freight annually requires over 3.6 million heavy-duty Class 8 trucks and over 3.5 million truck drivers. It also takes over 38 billion gallons of diesel fuel to move all of that freight. Simply – without trucks, America stops.” – American Trucking Association (ATA)
Zacks, a leading investment research firm focusing on stock research and analysis, has described Trump’s Tax Overhaul as “The biggest overhaul of the U.S. tax code in 30 years, is a positive for the transport companies and should propel the sector’s growth in 2018.”
The Corporate tax rate will be lowered from 35% to 21% as a result.
According to Zacks, in the current scenario, capital expenditures cannot be tax-deducted in the year they are incurred. Consequently, U.S. companies need to plan judiciously regarding their capital expenditure. However, companies will be able to deduct their capital expenditures from the taxable income immediately, per the U.S. tax overhaul. Naturally, this aspect hugely favors transports.
As and when the companies are able to reduce capital expenses in the year of their occurrence, their tax bills for the year would be lowered significantly due to higher deductions, leaving more cash in hand for these companies to fund their capital expenditures and acquisitions.
Before the new Tax Billed passed, President Trump brought his tax-reform plan directly to truck drivers in a speech in Pennsylvania.
“When your trucks are moving, America is growing. That is why my administration is taking historic steps to remove the barriers that slow you down,” Trump said. “America first means putting American truckers first.”
The global investment banking company Jefferies projects that trucking is likely to see the biggest impact from the new tax measures. The corporate rate cut would give U.S. transportation companies of all sizes more money to upgrade their fleets with fuel-efficient vehicles. The bill’s increased deductions for capital spending would add another incentive to buy new 18-wheelers, a potential boon for truck makers like Paccar Inc. and Navistar International Corp.