Impact of tax reform on logistics is solid but comes with questions over long-term impact

When the Tax and Jobs Act legislation was signed into law in late 2017, expectations for the benefits it could bring for corporations were fairly high. And now more than a year later, it is becoming clear that was largely for good reason, given the subsequent positive factors that the bill has helped to deliver, in tandem with solid underlying economic output that has been occurring during that time. 

Among the expectations cited by freight transportation logistics stakeholders, in the form of shippers, carriers, and logistics services providers, regarding their expectations for where tax reform would provide a boost for them were for things like increased investment into their businesses, asset depreciation benefits, boosting job numbers and employee pay, and improving their bottom lines, among others.

A noted freight transportation stakeholder that has been ringing the bell of the benefits of tax reform is American Trucking Associations (ATA) President and CEO Chris Spear.

At the NASSTRAC conference in May 2018, the nation’s top trucking lobbyist said that, at that time, the tax reform bill had already seen $3.8 billion reinvested back into the trucking industry in the form of wages, benefits, and new, safer, and more environmentally friendly equipment.

And at the ATA’s October 2018 Management Conference and Exhibition, Spear lauded the trucking industry’s role in driving the first tax reform to the President’s desk in more than three decades, calling it “a measurable victory…for the industry,” while better providing trucking concerns with the ability to “purchase safer, more environmentally-friendly equipment, technologies, and services,” adding that tax reform is “now fueling our nation’s economy.” 

While tax reform has received a positive reception, a New York Times report noted that its impact may turn out to be overstated, observing that the economic growth spurt which occurred during the second and third quarters of 2018 can be viewed as fairly common, while noting that for the same period in 2014, there was higher growth activity. And it added that the growth in 2018 was paced by both consumer and government spending, as opposed to corporate gains.

A recent Logistics Management reader survey of more than 120 logistics and supply chain professionals had somewhat of a measured view of the impacts of tax reform, to date.

Nearly 16% viewed it as positive, which, on the surface, appears low, but only 6.6% viewed it as negative. It was the more ambivalent respondents that comprised the bulk of the survey’s respondents, with 35.2% saying it has had no impact, and 42.6% saying they are unsure.

Reasons cited for tax reform being positive included: a depreciation in assets; having more capital to invest into upgrading operations; customers spending more; savings being used to improve compensation packages and employee retention.

“Tax reform has directly decreased the cost of doing all business, including and positively affective all levels of logistics operationally and managerially,” said a Northeast-based shipper. “As far as we can tell, there is no argument against this evidence-based conclusion.”

Those respondents viewing tax reform as a negative pointed to increased uncertainty, due to the pairing tax reform with tariff concerns, and an increasing amount of resources being pulled away to focus on tariff impacts on supplier shipments, and an increase in payment for freight transportation services.

Richard Armstrong, chairman of supply chain consultancy, Armstrong & Associates, said that, overall, tax reform has provided a nice stimulus for businesses, in helping freight transportation and logistics service providers create more capital for them to work with.

“There are also nice deductions in there for the purchase of new equipment, which can help, but the problem is not equipment and the purchase of equipment, the problem is still driver availability,” he said. “The depreciation deductions are helpful, and it certainly creates some additional working capital for companies. Another place it is helping is with the pass through deductions because a lot of companies, like domestic transportation management service providers and freight brokers, are subsidiaries, allowing the bigger companies to move money around internally. On a whole, it’s been beneficial.”

Lee Klaskow, senior transportation analyst for Bloomberg Intelligence, agreed with Armstrong, noting that tax reform initially was viewed as a positive for boosting economic activity, acting as a near-term stimulus and driving economic activity, as evidenced with 2018 GDP showing an annual gain by 70 basis points. But he also explained that not all businesses leveraged it to the same degree.

“Some companies used it as a one-time bonus, while some bought equipment to take advantage of the accelerated appreciation,” he said. “In 2019, I think a lot of those positives that we saw [from tax reform] last year won’t have the same kind of benefit because we are dealing with a lot of headwinds that are impacting the global economy, whether it be the U.S.-China trade tension, increased protectionism around the globe, Brexit and Italy, and the Federal Government shutdown as things that are weighing on the economy. They are more market-focused in terms of what is going on and the policy levers that are driving that.”