Scopelitis Seminar Delves Into Lease Purchase Deals, M&A, ESG and More

Here are five takeaways from the multitude of subjects the seminar covered.

The growing focus on lease purchase agreements

The ongoing task force created by the Federal Motor Carrier Safety Administration to study — investigate? — lease purchase agreements had a recent and largely negative moment in the sun with a public hearing at the Mid-America Trucking Show. Sentiment from panelists at the current Scopelitis seminar has so far not generally been supportive of the contracts, which are seen as either a pathway to truck ownership or an oppressive way fleets secure capacity from drivers who need to work endlessly to stay afloat.

Jeffrey S. Jackson, a Scopelitis partner, said in a short presentation that the deals are "very, very common in the industry for sure, although it's not nearly as common for them to be handled correctly."

"Oftentimes, folks will see lease purchase programs as kind of an automatically safe way to create more and more operators" Jackson said. "But the truth is really much more complex than that." As far as a method of securing capacity, Jackson described lease purchase deals as "not an answer." Rather, they are a "potential business solution" to recruitment challenges.

Jackson said the focus for fleets should be to avoid getting situations where the lease purchase deal results in a misclassification action against them either by a government agency or in a lawsuit by a disgruntled driver. One suggestion: A fleet should not do its own lease purchase deals. It should hire a third-party provider of the contractual arrangement.

The big orange company doesn't see a driver shortage

A notable moment came during a fireside chat at Monday's lunch session. Chris Spear, president of the American Trucking Associations, sat next to Thomas Jackson, general counsel of Schneider National SNDR. Spear and the ATA have been the loudest promoters of the view that there is a driver shortage.

But Jackson begged to differ. "We don't see the driver shortage" he said, turning to Spear. "We believe that truck driver hiring and retention follows freight markets." And now, with a weak freight market, Jackson said, "we're not having a problem hiring drivers." Schneider does so at a clip of 400 to 500 new drivers every week.

That doesn't mean it isn't a challenge. Jackson talked about three recent departures, all of whom joined private fleets. "They're home every night, they have a regular schedule and private fleets pay more than commercial fleets" he said.

Drivers "want to be home at night with their families, and they want to be paid" Jackson said.

From left to right: Chris Spear, ATA; Thomas Jackson, Schneider National;

Mike Kneller, Landstar; Anthony Spalvieri, FedEx; Greg Feary, Scopelitis

More inspections by FMCSA

Stephen Keppler laid out a lot of numbers about safety, and they all pointed to higher crash and death rates. One thing that that has led to is more inspections by FMCSA and, in particular, more inspections on-site to reverse an earlier trend that has proved less valuable.

"FMCSA had done some analysis indicating, well, the off-site inspections are actually pretty good" said Keppler, a co-director of Scopelitis Consulting. "They're helping us conserve resources, save time and money, and we can get more of them done."

But he said that is not the case. "The reality is, they're not as effective as they were when you look at the data" he said. "They were not finding as many critical violations."

The result has been the  shift in recent years toward on-site inspections. The frequency of inspections has increased by the thousands since 2020, Keppler said, with much of that coming in more on-site inspections.

Keppler said inspections are "more comprehensive and more focused." FMCSA is taking more enforcement actions and assigning more negative ratings as a result of these investigations, he added.

The cautious market for M&A

If there's a discussion about mergers and acquisitions in the logistics industry, the conversation isn't complete unless Spencer Tenney of Tenney & Co. is in the mix. And he was on a panel at the Scopelitis seminar that took up the subject.

"What you probably won't see in the next year are these large, industry-shaping, transformational deals" Tenney said, adding that there is "still a tremendous amount of activity in engagement." He echoed a common theme from recent discussions about M&A: that the sharp rise in valuations during the strong freight market of 2021 and into 2022, followed by a sharp decline, has left both sides of the equation shell-shocked. Some sellers wanted to exit the market in 2020 but "got caught up in the cycle" and didn't sell.

"Now what we're seeing is not an ideal market but certainly a much more stable environment than we saw six to 12 months ago" Tenney said. But a problem is that "strategic buyers" who would acquire a logistics company to combine with existing logistics assets, are facing an average cost per mile per truck that has risen in excess of 21% in the past year, he said. "That's not something you can absorb or offset organically."

The result then, according to Tenney, are deals with "a tremendous amount of structure being used to align goals for both buyers and sellers." And while some sellers might not be crazy about that reality, presumably preferring cash transactions, Tenney praised the "open-mindedness that we're seeing both from buyers and sellers to get deals done in this environment."

Is ESG a thing in trucking?

On the Monday lunch panel were representatives of two publicly traded companies: Schneider's Jackson and Mike Kneller, the general counsel of Landstar LSTR. Not surprisingly, their view on the impact of environmental, social and governance standards — ESG — might not line up with those of some smaller companies.

Because Landstar is publicly traded, Kneller said, "we have the ESG element to be concerned with in terms of how our investors perceive us." He said Landstar goes so far as to publicly release its Scope 3 greenhouse gas emissions numbers, which the Environmental Protection Agency defines as "the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain." For Landstar, those emissions are two steps away from the company itself.

That drew a response from Jackson: "Did I understand you correctly that you publish your Scope 3 emissions?" he asked, signaling that it isn't the norm.

Landstar discloses them even though the Securities and Exchange Commission has backed away from requiring that disclosure.

Kneller said the governance portion of ESG is not an issue for Landstar, a statement most companies might make about themselves. The social and environmental components "are where there's a little bit more discussion" he added. And regarding those activities, the discussion mostly focuses on climate change and emissions, according to Kneller.

Landstar has 25,000 customers, he said, and the vast majority don't care about the company's ESG ratings. But the ones that do, he added, are "our largest, most sophisticated multinational customers: the ones that are often are European-based or they are multinational based in the U.S."

The post Scopelitis seminar delves into lease purchase deals, M&A, ESG and more appeared first on FreightWaves.