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Noncompliance with FMCSA Regulations Can Cost Trucking Firms

Although the cost of compliance with U.S. Federal Motor Carrier Safety Administration (FMCSA) regulations can be high, noncompliance can create even greater financial burdens for trucking companies. In some cases, the violations identified by the FMCSA can lead to criminal charges against owners and managers, major fines and even shutdown of the offending companies. The consequences experienced by trucking firms who fail to comply with these regulations can be devastating and may lead to immediate or eventual financial collapse and bankruptcy for the unfortunate few.

Stronger Penalties for Repeat Offenders

Most issues of noncompliance are resolved through a combination of fines, temporary shutdowns and warnings. In some cases, however, repeated offenses and refusal to comply with FMCSA regulations can lead to court proceedings and ongoing litigation that can cripple or destroy smaller trucking firms. The case of Three Angels Farms and Terri's Farms illustrates the risks taken by companies that refuse to comply with FMCSA orders to shut down their operations.

Three Angels Farms and Terri's Farms

The owners of two Tennessee trucking firms are currently under federal indictment for charges that they willfully violated U.S. Department of Transportation (DOT) regulations and that they conspired to defraud the U.S. and to commit perjury. The Three Angels Farms trucking firm owned by Dorian Ayache and based in Lebanon, Tennessee, was ordered to cease operations in June 2012 due to violations of FMCSA regulations that included the following:

  • Failure to maintain its trucks in proper working order
  • Use of improperly qualified drivers
  • Accidents on Tennessee highways that led to the deaths of several horses

After Three Angels Farms ceased operations under FMCSA orders, Terri's Farm began interstate trucking operations in nearby Murfreesboro under the alleged oversight of owner and operator Theresa Vincent. The FMCSA, however, soon determined that Terri's Farm was simply a front for Dorian Ayache to continue his trucking operations in Tennessee. In September 2012, the government agency moved to shut down Terri's Farm as well and to prevent its over-the-road trucking activities. Indictments for both Vincent and Ayache were handed down earlier this year and could lead to as much as 20 years in prison for each charge of obstruction of justice; the pair is also charged with a number of other criminal infractions that carry lesser sentences.

Hours of Service Regulations Also an Issue

On July 1, 2013, new FMCSA regulations governing hours of services for truck drivers went into effect. These new regulatory requirements are expected to cost the trucking industry as much as $189 million annually in added labor costs and increased paperwork and recording activities. Among the changes included in this updated set of rules were the following restrictions for drivers:

  • Drivers may not start a new workweek period until 34 consecutive hours have passed since their last workweek; these 34 hours must include two periods from 1 a.m. to 5 a.m. according to their home terminal time.
  • Workweeks are limited to 60 hours on duty in seven days or 70 hours on duty in eight days.
  • Workdays are limited to 11 hours of driving time and 14 hours of on-duty time. Workdays must be separated by ten consecutive hours of time off duty.
  • A 30-minute rest break is required for every eight hours on duty.

For smaller interstate trucking firms that typically operate with only a few trucks and drivers, these regulations can prove financially devastating. Non-compliance with the new hours-of-service regulations, however, can be even worse for the health of the company.

Redco Transport Shut Down by FMCSA

The long arm of FMCSA enforcement reaches well beyond fines and warnings for companies that fail to adhere to the new hours of service regulations. In September 2013, FMCSA ordered Redco Transport Ltd in Laredo, Texas, to cease operations and labeled the company a threat to public safety. Redco was originally singled out for investigation due to a number of serious accidents involving the company's cadre of drivers. Redco trucks had been involved in four accidents within a six-month period, one of which killed three people. The FMCSA found evidence of records falsification and failure to comply with the hours of service regulations that were in effect at the time of the accidents. This pattern of willful noncompliance with federal regulations led directly to the FMCSA declaration that the interstate commercial license held by the company constitutes an imminent hazard and the shutdown of Redco's over-the-road trucking operations.

Managing the Monetary Challenges of Modern Trucking

Funding sources for small businesses and trucking companies may be in short supply due to recent downturns in the economy and current tight money conditions throughout the financial world. Factoring can help trucking companies acquire working capital to manage the costs of implementing FMCSA regulations and ensuring that they remain in compliance with all federal and state requirements for safety equipment, driver training and allowable hours of service. This funding solution has been in use for centuries and offers modern transportation firms an alternative to traditional bank loans and other credit-based arrangements.

What Is Factoring?

Factoring uses the value of accounts receivable to provide immediate funding for future payments. Outstanding invoices, purchase orders and other monetary agreements can be sold to alternative funding sources to produce immediate cash for a wide range of financial needs. The process is fast and relatively simple:

  • The business applies for a factoring arrangement with a company that specializes in this form of funding.
  • Rather than using the credit history and financials of the applicant as the sole factors in determining approval, the factoring company instead looks at the creditworthiness of the companies that owe on the outstanding invoices and other financial arrangements.
  • If these companies are found to be acceptable risks, the factoring arrangement is approved and the purchase orders and invoices are transferred to the financing company.
  • The applicant company receives a large percentage of the value of these invoices, purchase orders and other financial instruments; the factoring company retains a small percentage as profit and fees for the arrangement.
  • Approvals generally take only one or two days.
  • The disbursement of the funds for these factoring agreements can often be accomplished within one working week, allowing companies to meet their ongoing monetary requirements and to take advantage of short-term opportunities in the business marketplace.

Factoring can help trucking firms to acquire the working capital necessary to implement new systems and to manage the added costs of FMCSA regulations while fulfilling their existing contractual agreements. When new contracts are negotiated, these trucking companies can integrate the additional expenses of labor and recordkeeping into their new price structures, allowing them to weather the interim period more effectively and with fewer financial obstacles.

Companies like 1st Commercial Credit specialize in providing advanced factoring solutions for trucking firms to help them manage cash flow difficulties without taking on additional long-term debt. These arrangements can provide immediate funding and can help trucking firms remain in compliance with FMCSA regulations to stay operational and profitable in the modern trucking marketplace.