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By David Lawder, additional reporting by Daniel Burns and David Shepardson in New York; Editing by Stephen Coates and Josie Kao

WASHINGTON, (Reuters) – The catastrophic bridge collapse that closed the Port of Baltimore to ship traffic on Tuesday is causing some logistics headaches, but is unlikely to trigger a major new U.S. supply chain crisis as competing East Coast ports are poised to handle more cargo, economists and logistics experts say.

With six people presumed dead after a container ship collision destroyed the Francis Scott Key Bridge, it remained unclear how long the span’s twisted superstructure would block the harbor’s mouth.

But port officials from New York to Georgia were busy fielding queries from shippers about diverting Baltimore-bound cargo from containers to vehicles and bulk material.

“We’re ready to help. We have ample capacity to absorb any surge in container traffic,” Port of Virginia spokesperson Joe Harris told Reuters.

The Norfolk-based port is expected to be a major beneficiary due to its proximity to Baltimore, but ports in Savannah and Brunswick, Georgia, also were poised to absorb some traffic, a spokesperson for the Georgia Ports Authority said.

U.S. Transportation Secretary Pete Buttigieg told MSNBC on Wednesday that while there were many ports on the East Coast, “there is no substitute for the Port of Baltimore being up and running,” as it is the top U.S. port for vehicle imports and exports, including farm and construction machinery.

Treasury Secretary Janet Yellen said a federal supply chain task force was meeting on Wednesday to assess the port’s closure but said the Biden administration “will do everything as quickly as we possibly can” to reopen it.

Supply chain experts say U.S. port infrastructure is more resilient than during 2021 and 2022, when they were understaffed and clogged with ships and containers, spiking prices and contributing to inflation as Americans binged on goods purchases during the COVID-19 pandemic.

“The collapse of the Francis Scott Key Bridge in Maryland is another reminder of the U.S. vulnerability to supply-chain shocks, but this event will have greater economic implications for the Baltimore economy than nationally,” Ryan Sweet, chief U.S. economist at Oxford Economics, wrote in a note.

“We don’t anticipate that the disruptions to trade or transportation will be visible in U.S. GDP, and the implications for inflation are minimal,” he added.

NO SHIPS, NO WORK

The impact on the Port of Baltimore’s more than 2,000 workers who load and unload cargo vessels could be significant if the closure lasts more than a few days.

The dockworkers are day laborers, said Scott Cowan, head of the International Longshoreman’s Association Local 333 in Baltimore, meaning they only work when there is cargo to be moved. He estimated there might be about a week’s work clearing the existing inventory at the port.

After that, the workers could lose a collective $2 million a day in lost wages, he said.

The port directly generates, opens new tab over 15,000 jobs, with an additional 140,000 jobs dependent on port activity, according to Maryland Governor Wes Moore’s office.

VEHICLE PORT

One area of concern is higher shipment costs for imported cars and trucks and for exports of farm tractors and construction equipment as Baltimore is the largest U.S. port for “roll-on, roll-off” vehicle shipments, with over 750,000 cars and light trucks handled by state-owned terminals in 2023, according to Maryland Port Administration data.

Ford Motor Co (F.N), opens new tab and General Motors (GM.N), opens new tab said they would reroute some affected shipments but the impact would be minimal, while Volkswagen (VOWG_p.DE), opens new tab is unaffected because its new Sparrows Point vehicles terminal is located at a former steel mill site on the bridge’s Chesapeake Bay side.

The risk of car price spikes is further dampened by a recovery in automotive inventories to their highest level since May 2020, after being drawn down sharply during the pandemic. The industry’s inventory-to-sales ratio is near its 32-year-average of 1.96 to 1 according to Census Bureau data, and sales incentives have risen in recent months as high interest rates dampen demand.

COASTAL SHIFT

Ryan Peterson, founder and CEO of logistics platform Flexport, said that with Baltimore handling only 1.1 million twenty-foot equivalent containers last year – ranking 12th in the U.S., any impact on container rates and shipping costs from the disruption would be far less than increases caused by cargoes diverted from the Suez Canal because of attacks on Red Sea shipping by the Houthi militant group in Yemen.

But the port outage could contribute to a shift of container traffic to West Coast U.S. ports that was already underway over the past several months because of the lack Asian shippers’ access to the Suez route and reduced capacity in the Panama Canal due to low water levels. Peterson said the potential for an East Coast longshoreman strike in late September – at the height of Christmas-season imports – also has some shippers considering West Coast shipments.

“East Coast volumes are down and there is the ability for those ports to flex up to handle this,” Peterson said.

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The Corporate Transparency Act (CTA) was enacted back in 2021, but few businesses have considered whether they’ll be impacted. Now that the law is officially in effect (as of January 1, 2024), small business owners now need to ensure compliance.

An estimated 32 million businesses will now need to report detailed information about their operations. However, in a survey of its members, the NFIB found that 90% have never heard of these new requirements. This article will outline critical information you need to know.

What is the goal of the Corporate Transparency Act?

The CTA was passed to tackle money laundering, tax fraud and other unlawful activities. Specifically, it targets “non-employer firms,” or entities that have no employees, according to Thomson Reuters. The reasoning is that many “bad actors” have concealed their ownership of corporations, LLCs and similar entities in the U.S. to cover up fraud, financing of terrorism and more.

As a result, many small business owners who have “one-person operations” will need to provide greater transparency into business operations by reporting Beneficial Ownership Information (BOI).

What is a Beneficial Ownership Information Report and who needs to file it?

Millions of small businesses will need to file a BOI Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Specifically, companies created or registered to do business before January 1, 2024, will have until New Year’s Day 2025 to file their initial BOI report, according to the FinCEN.

However, entrepreneurs who created or registered their businesses in 2024 can wait until receiving actual or public notice that their creation or registration is effective to file their BOI report. They will technically have 90 calendar days to file. Any company created on or after January 1, 2025, will need to file their reports within 30 calendar days of receiving actual or public notice that the business is effective.

Both domestic and foreign companies need to file, according to Thomson Reuters, with reporting companies typically including:

• Limited liability partnerships
• Limited liability limited partnerships
• Business trusts
• Most limited partnerships created by filing with a secretary of state or similar office.

Companies stared within the U.S. and required to file a BOI are called “domestic reporting companies,” while entities created in foreign markets but registered to do business in the U.S. are called “foreign reporting companies.”

Domestic reporting companies created before January 1, 2024, have to provide information about the company and its beneficial owners. Any domestic reporting company created on or after January 1, 2024, needs to provide information about the company, its beneficial owners and company applicants.

Which companies are exempt from filing a BOI report?

Exempted companies include securities issuers, domestic governmental authorities, banks, and others that don’t fall into the above categories. “Large operating companies” are also exempted from filing BOI reports, according to Wolters Kluwer. These are entities that:

• Employ more than 20 full-time employees in the U.S.
• Have an operating presence at a physical U.S. office
• Have filed a federal income tax or information return in the U.S. for the previous year, with more than $5 million in gross receipts or sales

What information needs to be reported?

Primary company details:

• Full legal name
• Any trade or “doing business as” names
• Current street address of principal place of business
• Jurisdiction of formation
• Taxpayer identification number

Beneficial owner and company applicant details:

• Full legal name
• Date of birth
• Current residential street address
• Unique identifying number and the issuing jurisdiction from a current U.S. passport, state or local ID document, driver’s license or a foreign passport and an image of the document from which the unique identifying number was obtained

Who is a “beneficial owner” and “company applicant”?

A beneficial owner is anyone who either exercises substantial control over the reporting of the company or who owns at least 25% of ownership interests. A company applicant is someone who directly files the document that creates the domestic reporting company and oversees the filing of the document. Company applicants can only be an individual who directly files the document to create the business entity — or files for the entity to do business in the U.S. The company applicant also can be the person primarily responsible for directing or controlling the filing.

Both beneficial owners and company applicants must report their information directly to FinCEN.

What happens if BOI report information is wrong or needs to be updated?

If information in a report is inaccurate, a new report must be filed within 30 calendar days. The same guidelines apply if existing information needs to be updated. For example, if a beneficial owner’s address has changed, or there has been a legal name change, the BOI report may need to be updated. It also would need to be updated if a company’s main headquarters changes.

 Where can I go for more information and support?

The U.S. Chamber of Commerce encourages small business owners to consult lawyers or tax and accounting specialists if they need help filing their BOI reports.

January 17, 2024 | IWF News |  Warren Shoulberg

New data from the Producer Price Index suggests that costs are coming down on things like softwood lumber as part of an overall decline in material costs.

The wild ride up in construction materials in 2023 may have peaked as the year ended and going into 2024 we could see some declines in those costs, new statistics indicate. 

An analysis of the Producer Price Index by the Associated Builders and Contractors organization shows encouraging news for builders going into the new year. “Construction input prices declined for the second straight month in November,” ABC’s chief economist Anirban Basu said in a statement. “While much of the recent decline is due to record domestic oil production and the resulting precipitous decline in gas and diesel prices, other commodities like iron and steel and lumber products are currently more affordable than they were at the same time last year.”

Softwood lumber prices dropped by almost 6% in November and have declined by nearly 20% versus the same period a year ago. Construction input prices overall decreased 0.3% in November.

Prices of materials going forward, according to Basu in the statement, are equally as encouraging. “This is a welcome development for an industry still dealing with extraordinarily elevated financing costs and rising labor costs due to ongoing worker shortages.”

Businesses and individuals concerned about the confusing 1099-K reporting requirements can breathe a sigh of relief: On November 21, 2023, the IRS announced that the deadline for the new $600 reporting threshold won’t go into effect for the 2023 tax year — and it’s expected to increase the threshold less than expected for 2024. Here’s what third-party settlement organizations and taxpayers need to know.

Changes to the Reporting Threshold

Third-party settlement organizations must report payments in a trade or business to the IRS and recipients. This is done on Form 1099-K, “Payment Card and Third-Party Network Transactions.” Examples of third-party settlement organizations include Venmo and Cash App, as well as gig economy facilitators, such as Uber, Lyft, Etsy and TaskRabbit.

The American Rescue Plan Act of 2021 lowered the minimum threshold to file Form 1099-K for a taxpayer from $20,000 of reportable payments made to the taxpayer and more than 200 transactions to $600 (the same threshold applicable to other Forms 1099) starting in 2022. In late 2022, the IRS temporarily delayed the reduced threshold for the 2022 tax year.

Following additional feedback from taxpayers, tax professionals and payment processors, it’s been delayed again for 2023, and the IRS is planning for a threshold of $5,000 for 2024. This will give taxpayers more time to prepare their systems and procedures for when the $600 1099-K threshold is scheduled to go into effect in 2025.

“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area,” said IRS Commissioner Danny Werfel.

Looking Ahead

The lower threshold for filing 1099-K forms will mean many participants in the gig economy will receive these forms for the first time. The IRS estimates that the reduced threshold, if it had gone into effect in 2023, would have resulted in the distribution of 44 million 1099-Ks sent to many taxpayers who wouldn’t expect one and might not have a tax obligation. This could have caused significant confusion among individuals and businesses.

Important: The 1099-K reporting requirements don’t apply to personal transactions, such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another person for a household bill. These payments aren’t taxable and don’t require 1099-Ks. However, the sale of goods and services, including selling used personal items — such as clothing, furniture and other household items — could generate a Form 1099-K for many people, even if the seller doesn’t have a tax liability from those sales.

Members of Congress have introduced bills to raise the threshold back to $20,000 and 200 transactions, but there’s no guarantee that they’ll pass. In addition, taxpayers should generally be reporting income from their side employment engagements, whether it’s reported to the IRS or not. For example, freelancers who make money selling products on Etsy or driving for Uber should have been paying taxes all along. However, Congress and the IRS have said this responsibility is often ignored. In some cases, taxpayers may not even be aware that income from these sources is taxable.

In the meantime, businesses should prepare in 2024 to minimize the tax consequences of the gross amount of Form 1099-K reportable payments. And taxpayers should review gig and other reportable activities to ensure payments are recorded accurately. Payments received in a trade or business should be reported in full so that workers can withhold and pay taxes accordingly. If you receive income from certain activities, you may want to increase your tax withholding or, if necessary, make estimated tax payments or larger payments to avoid penalties.

In addition, taxpayers who haven’t been reporting all their income from gig work may not have been documenting expenses that result in deductions. It’s important to start doing so now to minimize the taxable income recognized due to the gross receipts reported on Form 1099-K. The IRS is likely to take the position that all of a taxpayer’s gross receipts reported on Form 1099-K are income and won’t allow deductions unless the taxpayer substantiates them. Deductions will vary based on the nature of the taxpayer’s work.

For More Information

The expanded 1099-K reporting requirement is complex and will affect many businesses and individuals. “The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” said Commissioner Werfel. Contact your tax advisor for questions about your Form 1099-K responsibilities.

Eight strategies for boosting profits, cutting costs, and reducing risk.

Sound cash management practices are essential for any business. However, businesses in a cyclical industry have unique issues that require special diligence.

A cyclical industry—like construction, airlines, oil and gas—is sensitive to the business cycle, meaning its revenue is generally higher in periods of economic prosperity and lower in periods of economic downturn.

“Cyclical industries need to plan meticulously for downturns, ensuring they have adequate cash reserves, whereas noncyclical industries may have more consistent revenue flows,” says Jack McCullough, president of the CFO Leadership Council. “Feast or famine is a reality, more so in cyclical industries.”

Consider these eight strategies for cutting costs, saving money and reducing risk—some of which might be useful for noncyclical businesses as well.

1. Plan for the Worst

Eric Kraft, Dallas/Fort Worth commercial banking executive for First Horizon Bank, says conducting a strategic planning session at least once a year is important for all businesses and critical for a cyclical business. Companies should produce an operating plan, complete with financial projections, that considers three potential outcomes: a best-case scenario, when the economy performs well and all other factors fall into place; a worst-case scenario, when the economy falters; and a likely scenario, when things go as expected.

The cyclical companies that do the best job of planning are able to withstand difficult economic times. One best practice is to invite employees from several organizational layers to take part in the early-stage planning sessions. “Front-line employees can offer significant insight into customers’ and suppliers’ operating resilience,” Kraft says. “The companies that fail at planning don’t get the right people in the room, or they don’t allow them to freely share their thoughts.”

He recommends having a third-party consultant supervise the planning process, so the business owner is freed up to take part in the planning.

2. Cushion Yourself for Downturns

Companies in cyclical industries should have significantly greater capitalization and liquidity than companies that don’t cycle often; they should position the company during peak times to allow a cushion for downturns, according to Kraft.

“You need to be able to withstand these downturns and absorb losses for a certain period of time without materially cutting your fixed overhead,” he says. “If you find yourself in a situation where you need to cut costs, there are only so many levers you can pull, like laying off employees. We saw that in the pandemic, where restaurants closed locations and then when business returned, they weren’t able to get their employees back.”

When asked their priorities for 2024, more than half (51%) of midmarket business leaders put growth at the top in a recent WSJ Intelligence survey. Growth, like customer experience and increasing operational efficiency—ranking second and third, respectively—hinges on effective cash management.

3. Reduce Balance Sheet Leverage

Cyclical companies should generally have lower balance sheet leverage. “When they do borrow, it’s prudent to shorten the term of the debt to a period that is well less than the useful life of the underlying asset. By doing this, they will deleverage more quickly, relieving interest costs and creating the potential to refinance in a downturn,” Kraft says.

4. Factor in the Changing Interest Rates

Dana Moore, director of treasury management sales for First Horizon Bank, says companies should reevaluate the value of their cash in light of recent interest rate increases.

“Prior to the recent rate hikes, we were in an ultralow interest rate environment for over a decade. Debt was cheap and invested cash earned less than 1%. During this period, businesses lost discipline around cash management because the time-value of money was almost irrelevant. Now is the time to revisit that discipline; this higher interest rate environment creates opportunities to apply idle cash to pay down revolving credit or park in short-term investments,” she explains. “The markets right now are offering extremely favorable interest rates for liquid instruments, so companies are really missing out on an income opportunity or a savings opportunity if they are not using their cash in the most effective way.”

5. Use Lines of Credit as a Buffer

A line of credit should be used as a buffer during downturns, not as a primary source of funding, McCullough says. “It’s essential to avoid maxing it out; instead, maintain a balance to ensure availability during unexpected challenges,” he cautions. “Regularly review the terms and conditions of the credit line to ensure they remain favorable and meet the company’s needs.”

6. Consider Purchasing Cards

Moore notes that businesses may not realize the benefits of using purchasing cards, which are payable in full each month and available to commercial entities. “These cards usually have larger credit limits and are best used to pay suppliers,” she says. “The suppliers receive their money in a timely manner, while letting the company extend those payables up to an additional 45 days.”

7. Keep on Top of Cash Management

McCullough says some of the most common mistakes he sees among cyclical businesses are not diversifying revenue sources, overextending during peak times and neglecting to regularly revise and update financial forecasts.

“To avoid these mistakes, companies should maintain a conservative financial stance, regularly review their cash flow projections and aim for flexibility in both operations and financial commitments,” he says.

8. Focus on Business Efficiency

Cash management cycles have changed considerably over the past five or six years, Moore says. “When people started to work from home during the pandemic, everyone was forced to become more nimble,” she says. “Businesses moved from paper to electronic transactions to be more effective—for both receivables and payables. Traditionally, cash management has been about accelerating receivables and delaying payables to the extent possible, while having visibility into the organization’s cash flow. The next evolution is to use advancing technology to take on the more mundane accounting tasks, freeing staff to perform higher-value functions. It’s time to embrace cash management again as part of the strategic business plan.”

Brooke Chase Associates, Inc. was not involved in the creation of this content.