Q&A of the Virus Impacts on School Bus and Trucking Businesses
The transportation industry is feeling the impact of the COVID-19 crisis in a variety of ways. To assist transportation companies during this uncertain time, the Smith Schafer Transportation Experts are providing a list of the top questions we hear from the industry.
Q: How has the COVID-19 pandemic affected transportation companies?
A: The services of transportation logistics companies are in high demand due to the continued need for movement of food, consumer staples, medical supplies, and other necessities. Carriers may have to reposition their fleets to serve the hardest-hit areas, which can add costs and additional time.
Conversely, the need for school buses and motor coaches has virtually been eliminated as schools remain closed, and long-distance trips continue to be canceled. Costs have decreased in the form of lower salaries and fuel costs, but revenue has also declined significantly. According to IBISWorld April 2020 Report, revenue growth for the public-school bus industry has been adjusted to -1.4% in 2020 due to reduced demand. Industry profitability is expected to be challenged by school closures and the introduction of online classes.
Q: What have we advised our transportation clients to do to lessen the impact on their businesses?
A: We have advised our clients to think long-term. The COVID-19 pandemic is a drastically different situation from 2008 or other economic downturns. We can still weather the storm with proper planning and thoughtful decision making. We recommend the following:
- Cashflow analysis and projections are vital. We recommend creating a 14-week cash flow forecast.
- Be aware of alternate funding sources, such as SBA loans or other federal or state programs.
- State and local funding allocated to industry services are expected to be impacted over the coming years. We recommend planning for additional shortages and reforecast financial plans.
- Understand your drivers and KPIs. This will help you make the best decisions.
Q: Are other transportation clients taking advantage of the CARES Act and the Payroll Protection Program (PPP) to keep their workforce employed?
A: Several of our transportation clients have taken advantage of PPP loans to help their employees. The program requires 75% of the proceeds are used to pay salaries and related costs. However, if school routes or motor coach trips are canceled, it may be challenging to keep employees on the payroll, which could mean that at least a portion of the loan will not be forgiven.
Q: What options are available to transportation businesses who may not survive an economic downturn?
A: These uncertain times have taken a toll on transportation businesses. Some owners are considering selling their business or consolidating. While negotiating a merger or business sale, it is helpful to conduct a valuation. There is more to business value than simply your balance sheet today. Our goal is to make sure you are getting the best purchase price, even during the current crisis. We also recommend consulting with an attorney and contacting lenders and vendors.
Q: Is there an impact from COVID-19 on transportation business retirement plans?
A: Several provisions in the CARES Act directly affect retirement plans for the benefit of plan participants. For example, the Act increases the maximum loan amount that can be taken from a participant’s retirement plan account. However, the adverse effect of COVID-19 on the overall economy will likely also negatively affect the plan sponsor. This could lead to a reduction in or elimination of employer matching contributions. A business that has been forced to lay off a portion of its workforce could be subject to partial plan termination.
Q: What trends have you seen transportation companies using in response to the pandemic?
A: Outside of wages and fuel, one of the highest costs for any transportation company is its fleet. As a result of the pandemic, transportation companies have started to reassess alternative fleet strategies. This could mean the additional capacity for a trucking company that is in high demand or a change in purchasing plans for a school bus or motor coach company where services are dwindling.
The long-term impacts of the COVID-19 pandemic are unknown but will likely include additional safety measures such as health screening, personal protective equipment, and limiting time spent outside the vehicle. We recognize your transportation business may be facing decisions you have never had to face, and we are here to help.
Questions about how COVID-19 is effecting your Transportation Company?
Contact us today to work with a qualified advisor to help you leverage opportunities and make the best decisions for your transportation company. Our Transportation Group, comprised of numerous professionals, is committed to serving over 110 Minnesota transportation entities. Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success.