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Trucking Industry Overview - Accounting Principles, Information Systems, & Industry Operation Procedures

Affected IRM: X.XX.X

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

Accounting Principles

The link between financial accounting and tax accounting is the Schedule M-1 of the Corporate Income Tax Return, Form 1120. Examples of M-1 adjustments that should be reviewed due to differences between financial and tax accounting include:

  • Abandonments
  • Accrued Rent paid to greater than 50 percent stockholder
  • Accrued Wages, Bonus and Vacation Pay of greater than 50 percent stockholder
  • Depreciation variances
  • Indirect and Direct Costs Capitalized (IRC Section 263A)
  • Insurance,
    1. Officers Life Insurance-Increase in Cash Surrender Value
    2. Self Insurance Reserve
  • Interest Expense Capitalized, (IRC Section 263A)
  • Inventory and Parts Writedowns
  • Lease of Equipment (Lease vs Depreciation)
  • Lobbying (Dues to organizations that lobby)
  • Meals expense 50 percent reduction
  • Penalties and Traffic Citations
  • Prepaid/accelerated expenses
  • Tires on new tractors and trailers (deducted for tax, capitalized for book)
  • Writedowns of Asset Values


Information Systems

Freight logistics is an increasingly important tool in maintaining the Nation's ability to effectively compete in the global marketplace. Logistics is premised, among other things, on ever more reliable transportation systems as well as greater use of information technology.

Logistics seeks to eliminate unnecessary inventory from the manufacturing/production process by putting supplies and finished goods in the distribution pipeline for the minimum amount of time possible. As a result, transportation carriers are being asked to perform with precessions never before required. Information technology has taken on increasing importance in managing freight flows.

As the National Commission on Intermodal Transportation reported, "The weakest links in the current transportation system are the points of transfer between the modes." The commission recommended that Federal policies "foster the development of the private sector freight intermodal system and reduce barriers to the free flow of freight, particularly at international ports and border crossings."

To expedite the filing of the Customs Form 7501 and payment of the customs duties, the customhouse broker has the option of using the following information systems: 



Automated Commercial System.
Replaces Form 7501, writing a manual check and delivery of the check and Form 7501.


Automated Broker Interface.
Allows the filings to take place electronically and for the broker to pay duties by check or by electronic transfer.


Automated Manifest System.
Serves as a merchandise inventory and electronic cargo release system through the electronic exchange of information between U.S. Customs and the importing carriers.

Industry Operating Procedures

Trucking is pervasive. It serves as the carrier of choice for most small businesses, especially the very small firms, who rely on package express carriers to meet their transportation and logistics needs.

By revenue, food and food products, lumber or wood products, as well as petroleum or coal account for 34.8 percent of truck traffic. By volume, clay, glass, concrete and stone, farm products, as well as petroleum and coal account for 35.6 percent of truck traffic. Trucking's customer focus has played a key role in helping to create the logistics revolution of the past decade.

Although the popular image of the industry is the tractor-semi-trailer hauling goods long distances over the Interstate highways, this image is not reality for two reasons. First, truck equipment is diverse, dominated by smaller vehicles and a wide variety of equipment types. Second, the bulk of trucking operations is local. About 66 percent of truck tonnage moves distances of 100 miles or less. Local and regional hauls account for almost half of all truck revenues and are the dominant arrangement for private carriers.

Contract Carriers enter into a bilateral agreement with the shipper or consignee for transportation services. The contract defines the services to be provided, the commodities transported, the projected tonnage and the rates charged. Contracts are to contain a specific termination date, not exceeding one year. The contract can be renewed by amendment. The contract carrier can offer freight rates that are lower than a common carrier's published tariff since the rate will be based on the projected tonnage of freight for the year.

Private carriers are corporations who run their own truck fleets to better coordinate their manufacturing processes or better serve their customers and distributors. These firms have decided that it is better to provide their own services rather than use the services of for-hire motor carriers. Local and regional hauls account for almost half of all truck revenues and are the dominant arrangement for private carriers. Most of their operations are moves of less than 100 miles. This industry segment's average length of haul is 51 miles.

Interstate For-Hire/Common Carriers are companies who provide transportation services to the general public. A common carrier must obtain licensing and publish rates through the Surface Transportation Board and the PUC. For-hires travel much farther distances than their private counterparts, with their minimum hauls being from 200 miles to 1,500 miles or more per trip. The average trip is 1300 miles. Distance varies based on the state, territory, or possession being served. A single driver can drive 450 to 500 miles per day. Team or relay driving can go farther in a 24-hour period. Dedicated service can move goods cross-country by the third morning. More normal times are 4- 7 days.

A common carrier may be referred to as the prime carrier.

A Prime Carrier is the principal or overlying common carrier. The prime carrier enters into a contract with a shipper to provide transportation services, but in turn, engages the services of another authorized common carrier or independent contractor (subhauler) to perform the transportation service. They offer service either on a truckload (TL) or on a less-than-truckload (LTL) basis.

Truckload (TL) means the goods of only one customer are being carried on the vehicle. There generally are low startup costs associated with these operations because the truck equipment is the primary expense.

Less-than-truckload (LTL) means a vehicle is carrying the goods of many customers. This service has much higher startup costs because in addition to equipment costs, assembly and distribution facilities must be created to consolidate and then distribute the freight.

Intermodal refers to the use of various forms of transportation (ships, trains, planes and trucks) used to move goods from other countries to the United States and across the continent.

In the 1980's, trucks spearheaded the just-in-time revolution. It was motor carriers and shippers who were the first to experiment with set times for pick up and delivery so that less inventory was needed in the overall production process. In essence, their actions began integrating transportation into manufacturing and distribution as another business process.

Motor carriers face competition from airfreight for high value commodities and from railroads for lower value goods.

On high value goods, the competition pits traditional airfreight services against package express or courier services as well as expedited carriers. Because transportation costs are a small portion of the purchase price of these goods, firms are willing to pay premium rates. In this segment of the industry, delivery is predicated upon strict time and service requirements.

Air freight has an average value of $26 per pound and package express $15 per pound, while trucking's general average shipment value is 35 cents per pound. Here carriers compete for commodities like computers and related goods, fresh flowers and foods, as well as letters and business documents.

On lower value goods, trucks share a dual natured relationship with railroads. They cooperate in providing intermodal services. They also compete to capture market share on goods like automobiles and auto parts, food and kindred products, and intermodal shipments. Weight and distance affect this competition.

In general, under 100 miles, competition occurs only on shipments weighing more than 60,000 pounds.

At 100-300 miles, competition occurs on shipments weigh between 60,000 and 90,000 pounds.

At 300 -500 miles, competition occurs on shipments that weigh between 30,000 and 90,000 pounds.

At 500 miles or more, commodities weigh between 10,000 and 60,000 pounds.
It should be noted that shipments in excess of 50,000 normally require a special permit to operate configured as a single load. The heaviest single trucks usually serve this part of the market or longer combination vehicles that run under more tightly controlled conditions than general trucking.

Because of these vehicles' ability to compete with railroads, the rail industry is keenly interested in assuring that the current competitive market environment is maintained.

For trips under 100 miles, it is private carriers who are providing the competition. For trips over 100 miles, it is the for-hire motor carriers who are doing so. The only exception is for loads weighing between 30,000 and 60,000 pounds moving between 100-200 miles. Here, private trucking seems to be the carrier of choice.

The reason competition is so fierce between trucking and railroads is that while these goods are not the highest value freight for the trucking industry; they are high return for the railroad industry. Railroads see the returns made from these shipments, as well as those made from intermodal shipments, as key to maintaining their profitability.

The relationship between railroads and truck lines is the most complicated of the modes of transportation because trucks have the ability to both generate freight for the railroads and take it away from them.

Railroads and trucks are business partners in providing intermodal services. Trucks provide the short haul connections between the firm sending the freight and the railroad as well between the railroad and the customer receiving the freight. Trains provide the long haul service between origin and destination.

When trucks and trains compete, they compete for types of traffic, mostly the goods which give the railroads their higher profit margins - intermodal, transportation equipment (automobiles - finished products as well as assembly supplies), chemicals, and food products. Intermodal freight is subject to competition from long distance trucking companies. As a result, even when there is a rail/truck business relationship with one motor carrier for an intermodal move, there is a competitive tension with other long distance truckers seeking to capture the same business.


  • Employee leasing is among the fastest growing service industries.
  • Although widespread employee leasing is relatively new, it has been used by the trucking industry for many years. Three factors in particular have contributed to the growth of the employee leasing industry:
    1. Companies want to avoid the administrative work involved in keeping payroll records and filing payroll tax returns.
    2. Small companies are unable to offer the same fringe benefits as larger companies. Leasing organizations, by pooling the leased employees and their own staff, can provide greater benefits at a lower cost.
    3. Employee leasing has been used in pension planning. In a typical employee leasing arrangement, the recipient of the services terminates some or all of its employees and then leases back the same workers for the same jobs, but as employees of the leasing agency. The workers work full time for the recipient, and their duties are indistinguishable from their previous relationship as employees of the recipient.
  • Once this arrangement is entered into, all administrative responsibilities such as payroll preparation, benefits administration, and Federal and state returns, become the responsibility of the leasing organization.
  • The labor leasing company derives its income from administrative fees. They invoice the following elements: wages, employment taxes, workman's compensation, union benefits, meal reimbursement, and an administrative fee.

Shipper's Agents:

  • Originally, shippers' agents were brokers for the railroads to sell space on railroad cars. Today, they are still brokers of railroad transportation. However, they have expanded to include authorized motor carriers and steamship lines.
  • The shipper's agent is a bonafide agent of the shipper who performs the shipper's transportation function. The shipper's agent arranges for and routes the transportation of goods from one point to another. Other duties may include the settlement of claims and payment of the carrier's freight invoices. Ultimate payment of freight bills, however, is the responsibility of the shipper.
  • The shipper's agent does not take possession of the goods transported nor do they issue a bill of lading. Instead, the shipper prepares the bill of lading. Each intermodal carrier engaged in the transportation function (common carrier, steamship company, and railroad) assumes responsibility for the goods while they are in transit.
  • Since the shipper's agent does not take title to the goods, it is important for them to track the movement of each shipment. They do this through a computer network that can track the movement of each shipment by trailer or container number.

Freight Forwarders offer the combination of services provided by a shipper's agent and a common carrier in handling the transportation of goods from one point to another.

Prior to 1975, the ICC regulated the operations of freight forwarders. The ICC defines freight forwarder as a person holding itself out to the public to provide the transportation of property for compensation in interstate commerce. In general, they handle the functions of the shipping department for their client

Freight forwarders usually specialize in the type of freight transported and the type of transportation carriers used. This provides them with expertise in handling the paperwork involved with certain types of transactions.

  1. Common Carriers A freight forwarder performs the same function as a shipper's agent, but operates as a common carrier. As a common carrier, they assume the responsibility for the freight by taking title to the goods and issuing their own bill of lading.

Other services that can be offered to the shipper include cartage, warehousing, the transloading of goods, deconsolidating shipments as the break bulk agent, and clearing customs as the customhouse broker.

  1. Air Freight Forwarders Airfreight forwarders primarily handle the transportation of foreign goods into the country (import) and of domestic goods out of the country (export). At this time, airfreight forwarders are unregulated but IATA sets industry standards.
  2. Consolidators A consolidator purchases container space below the market price established by the carrier and sells the container space to other freight forwarders. The difference between the purchase price and sales price is the profit. The consolidator normally has six months to a year to fill the container space. If the consolidator is unable to fill the container, the carrier does not charge the consolidator for the unfilled space; however, this factor will enter into subsequent negotiations for container space.

When the consolidator packs the goods for the shipper, they will prepare a shipping invoice and a packing list. The shipping invoice will list the items being shipped along with their value, while the packing list will only show the items being shipped. The packing list is provided to the break bulk agent at the destination point so they can breakdown the shipment and compare what was received with what was shipped.

  1. NVOCC An ocean freight forwarder is called an NVOCC (non vessel operating common carrier) and must be registered with the Federal Maritime Commission.

Custom House Brokers
The customhouse broker works for the importer to gain the release of goods from U.S. Customs. The custom house broker will determine the duties payable to U.S. Customs and arrange for the transportation of goods from the ocean or airfreight carrier to the importer (consignee).

  • A customhouse broker may also be a consolidator or freight forwarder. But a consolidator or freight forwarder cannot be a customhouse broker without meeting the licensing requirements of U.S. Customs.
  • While the goods are clearing customs, the airline or Steamship Company retains actual possession of the goods. Generally, a container will not be cleared from U.S. Customs unless all shipments in that container are cleared. However, if the goods are transferred to a bonded customs warehouse or container freight station (CFS), then a single shipment can be released as it clears customs.
  • To expedite the filing of the Form 7501 and payment of the customs duties, the customhouse broker has the option of using the Automated Commercial System (ACS) or using the old system which requires the writing of a manual check and the delivery of the check and the Form 7501. The Automated Broker Interface (ABI) allows the filings to take place electronically and for the broker to pay the duties by check or by electronic transfer. The automated manifest system (AMS) serves as a merchandise inventory and electronic cargo release system through the electronic exchange of information between U.S. Customs and the importing carriers.

In addition to the customs duties, the customhouse broker may also be responsible for arranging the delivery of the freight; providing customs bonds for the insurance of cargo duties or payments to U.S. Customs; and obtaining a release from other agencies.

Chapter 4 | Table of Contents | Chapter 8

Page Last Reviewed or Updated: 05-Mar-2015