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We look at national trends every week, but sometimes the detail can get lost. Then we look at lane-by-lane reports, and we might miss a broader trend. I decided to look at last week’s rate trends by region. I looked at 15 regions, and compared the rates for the past seven days to the rates for the previous 90 days — that’s the first week in November compared to the entire third quarter. (Note: DAT RateView subscribers can duplicate these results, by running two views of the data, one for seven days and one for the previous 90 days, and then comparing them in a third spreadsheet.)
Comparing the outbound rates from 15 regions to each of the same 15 regions as destinations, gives you 225 (15 x 15) origin-destination pairs. In the first week of November, 64 of those region-to-region pairs had a rate increase of at least 6¢ per mile, and the biggest increases were on lanes that originated in the West, heading to destinations along the East Coast.
Here are the four region-to-region pairs with the biggest rate increases, comparing last week to the third quarter averages:
1. California to New England – up 18¢ per mile
2. Upper Mountain States to Florida and Southern Georgia – up 17¢ per mile
3. Pacific Northwest to Florida and Southern Georgia – up 16¢ per mile
4. Lower Mountain States to Lower Atlantic States – up 16¢ per mile
Rates have been climbing on many west-to-east lanes throughout the fall season. In nearly every case, rates are up by 6¢ per mile or more. On a region-to-region basis, the biggest rate jumps, of 16¢ to 18¢ per mile, are depicted on the map, above. From top left: (1) Upper Mountain to Florida-South Georgia; (2) Pacific Northwest to Florida-South Georgia; (3) California to New England; and, (4) Lower Mountain to Lower Atlantic.
The graph shows 24 region-to-region pairs, with changes in rates for freight movements that originated in four Western regions, labeled by color: Upper Mountain, Lower Mountain, California, and Pacific Northwest. The destinations are in six East Coast regions, listed on the X axis: New England, Upper Atlantic, Lower Atlantic, Carolinas, Florida-South Georgia, and Southeast. Of the 24 region-to-region pairs, only three had declining rates during the first week of November: (1) Lower Mountain to New England; (2) Pacific Northwest to New England; and (3) Upper Mountain to Lower Atlantic.
These results are atypical, so they may surprise longtime freight trend watchers. In recent years, fall freight has peaked in September and October. But in 2016, those patterns don’t seem to apply. For example, there is usually a peak for van freight in June on the spot market, followed by declining activity after the Fourth of July. That peak was muted this year, but so was the decline. Now we are starting November with no sign of a seasonal decline in activity. Instead, the freight economy appears to be heating up, at least on the spot market.
There is a clear trend of west-to-east movement, with increased activity in California, the Pacific Northwest and Mountain regions adding to rate pressure in other U.S. regions. Rates are also rising on seasonal traffic from Canada to the U.S., but rates are falling on lanes entering Canada from all over the U.S., except the Lower Mountain region.
If you are moving freight in the eastern half of the U.S., you may not be seeing much rate movement. In some regions, including the Great Lakes and Upper Midwest, rates were actually down 6¢ per mile or more last week. The strength of those west-to-east lanes has led the overall rate trend, however, and that trajectory has been up solidly for the past several months.
Measured at the national level for trips over 250 miles, spot market van rates are up 8¢ per mile in November, compared to the October average. Rates are up 23¢ per mile since the low point in April, including a 6¢ increase in the fuel surcharge.
We have seen this trend building for a while in the DAT RateView and load board data, and we identified a few factors that are contributing to higher rates:
1. Strong produce harvests, with declines in California being offset by strong numbers elsewhere.
2. Hanjin bankruptcy, resulting in supply chain disruption and increased amounts of inventory transfers, to prevent stock-outs.
3. Weather events, including flooding in Louisiana and the Carolinas, which generate demand for emergency relief, followed by construction supplies and equipment.
4. Some economic improvement, as indicated in recent ISM and other reports.
Refrigerated freight is showing renewed strength, as strong harvests give way to a pre-Thanksgiving surge. The national average rate rose to $1.97 per mile for reefers last week, the highest since early July. Strong potato harvests in southern Idaho, as well as apples from Washington and Michigan, add to a respectable volume of iceberg lettuce from the San Joaquin Valley and the Imperial Valley near Yuma, AZ. California continues to produce strawberries from Santa Maria to Watsonville, as well as a good crop of grapes. Add poultry, dairy products, and refrigerated packaged foods to the mix for Thanksgiving, and demand for reefers should keep
Flatbed freight also shows signs of stability, after a prolonged decline.
The regional views tell us that freight is remarkably strong for this time of year. While the geographic trends may shift in the next four to six weeks, it is reasonable to expect a continuation of the atypically high volume and rates on the spot freight market through the end of the year.
Track changes in spot market freight rates with DAT RateView, which offers real-time spot market and current contract rates, based on more than $28 billion in actual transactions.
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Businesses using the cash method of accounting can defer income into 2017 by delaying end-of-year invoices so payment is not received until 2017. Businesses using the accrual method can defer income by postponing delivery of goods or services until January 2017.
Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2016 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $500,000 for the first $2,010,000 million of property placed in service by December 31, 2016. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.01 million threshold and eliminated above amounts exceeding $2.5 million.
Bonus Depreciation. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.
Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.
Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.
Please contact the office if you have any questions regarding qualified property.
Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here’s a simplified explanation:
Conventions. The tax rules for depreciation include “conventions” or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.
Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.
If you’re planning on buying equipment for your business, call the office and speak to a tax professional who can help you figure out the best time to buy that equipment and take full advantage of these tax rules.
Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees (average annual wages of $52,000 in 2016) may qualify for a tax credit to help pay for employees’ health insurance. The credit is 50 percent (35 percent for non-profits).
Business Energy Investment Tax Credit. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2016, and businesses that want to take advantage of these tax credits can still do so.
Business energy credits include solar energy systems (passive solar and solar pool-heating systems excluded), fuel cells and microturbines, and an increased credit amount for fuel cells. The extended tax provision also established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems. Utilities are allowed to use the credits as well.
Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) are able to take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or per invoice). Businesses with applicable financial statements are able to deduct $5,000. Small business with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic.
Partnership or S-Corporation Basis. Partners or S corporation shareholders in entities that have a loss for 2016 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity’s tax year.
Caution: Remember that by increasing basis, you’re putting more of your funds at risk. Consider whether the loss signals further troubles ahead.
Section 199 Deduction. Businesses with manufacturing activities could qualify for a Section 199 domestic production activities deduction. By accelerating salaries or bonuses attributable to domestic production gross receipts in the last quarter of 2016, businesses can increase the amount of this deduction. Please call to find out how your business can take advantage of Section 199.
Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2016. Call today if you need help setting up a retirement plan.
Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.
Budgets. Every business, whether small or large should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business planning tool.
A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.
Tip: Year-end is the best time for business owners to meet with their accountants to budget revenues and expenses for the following year.
If you need help developing a budget for your business, don’t hesitate to call.
These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2016. If you’d like more information about tax planning for 2017, please call to schedule a consultation to discuss your specific tax and financial needs, and develop a plan that works for your business.
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