**NOTE: The following article is for informational purposes only and should not be taken as specific legal advice. Please consult with an attorney and tax advisor before making changes to your corporate structure.**
Managing a regulated fleet of commercial vehicles and drivers is a daunting task. Ensuring each and every driver is properly licensed and qualified, that every vehicle is properly marked with the company’s details, that the fleet holds all the necessary permits and registrations, and that all regulatory filings are kept up to date is just a fraction of what’s expected. And failing to follow through on any one of these can have dire consequences. Now multiply that burden by 2, 3, 10, 20 or however many USDOT registrations your company chooses to maintain. Things become unwieldy very quickly!
We work with two large fleets that at present maintain over 50 distinct USDOT registrations each. That’s over 100 separate MCS-150s to file every other year, IFTA/IRP accounts to manage across various jurisdictions, UCR fees to pay, CSA/SMS scores to track, and ELD accounts to juggle between them. It’s not an exaggeration to say it takes an entire team of full-time employees to simply manage these fleets’ administrative tasks.
For what benefit you might ask. Why do some motor carriers choose to establish or maintain more than one USDOT #? A few rationales reign supreme, but none—IMHO—truly justify the practice or the burdens it necessarily brings.
In my experience, fleets that maintain separate USDOT#s can be broken into two categories: (1) those that have grown over type via corporate acquisition through which they acquire other USDOT registrations; and (2) those that have deliberately established separate USDOT registrations for one reason or another—often a mistaken belief that doing so will provide some cover or continuity should one of their USDOT#s be placed out of service.
Of the hundreds of fleets I’ve personally worked with over the past decade who’ve clung to more than one USDOT registration, I can count on one hand those where the circumstances actually warranted it—typically situations where carriers have truly distinct business units or services that make sense to split out from each other (e.g., Carrier A is a general commodities hauler and related Carrier B is a specialty hauler that moves only ultra-hazardous materials). For the others, they were merely adding undue burden to their already strained compliance efforts.
Simply put, 95% of the carriers out there that maintain separate USDOT registrations would benefit significantly from consolidating those registrations into a single account. Here’s why…
1. Maintaining separate USDOT#s does NOT afford the prime benefit you’re likely after
Time and again I’ve heard fleets say they prefer to have more than one USDOT # in case things go South with one or the other. Put differently, if one fleet gets shut down or tagged with a less-than-Satisfactory safety rating, they can transition the work over to the non-affected USDOT #. Believe it or not, that was a popular strategy for decades, but it’s certainly not a viable one today.
The Federal Motor Carrier Safety Administration (FMCSA)—which is tasked with regulating over 600,000 registered motor carriers in the U.S.—became wise to this tactic more than a decade ago when it promulgated its so-called “chameleon carrier” regulations, effectively banning the practice altogether. In essence, those regulations prohibit motor carriers from setting up or using an affiliated USDOT registration for an “improper purpose,” which explicitly includes attempts to avoid a negative compliance history. See 49 CFR 386.73.
Indeed, the agency now actively investigates and prosecutes chameleon carriers. If the agency becomes aware of a carrier transitioning drivers and trucks to a related carrier to avoid the impact of an out-of-service order or other negative compliance history (e.g., Conditional safety rating), it can and will take action to prevent it. In these situations, the agency is empowered to consolidate the USDOT records of the USDOT registrations that are being used improperly. For example, if Carrier A has received an Unsatisfactory rating and resulting out-of-service order but then tries to transition drivers and trucks over to its related Carrier B, the FMCSA will consolidate Carrier A’s and B’s records such that the Unsatisfactory rating and out-of-service order applies to them both.
So, if this is your only rationale for maintaining separate USDOT#s, don’t! For the reasons we’ll address below, doing so only creates administrative inefficiencies and leads to other problems.
Some carriers proffer a slight variation of this rationale, claiming it’s better to maintain separate USDOT registrations and business entities for asset protection. While I agree that if done correctly, maintaining separate legal entities can offer some important protections to sophisticated businesses, doing so doesn’t necessarily compel having more than one USDOT #. Indeed, some of the most sophisticated carriers in the country are structured in a way that affords them the legal benefits of corporate separation without the administrative headaches of maintaining multiple USDOT registrations. Simply put, this is accomplished through intercompany agreements through which related but separate legal entities exchange regulated equipment and drivers among themselves to operate under a single USDOT registration.
So, if your point is that it’s better to have separate legal entities in the picture, I’m here to tell you that you can do so and still operate under a single USDOT #.
2. Maintaining separate USDOT#s is not your only customer-facing option
Often when companies grow through acquisitions over time, they’re hesitant to do away with the USDOT#s they’ve acquired for fear of losing the brands and customer relationships those entities have worked hard to build.
Take this example: ABC Trucking is a Texas-based carrier that hauls food products for manufacturers in and around the state. Parent Corp. purchases ABC Trucking and wishes to retain the customer relationships ABC Trucking has built. It’s concerned that consolidating ABC Trucking’s operations under Parent Corp’s existing USDOT number will upset customers who aren’t familiar with Parent Corp’s brand, so it elects to maintain ABC Trucking’s USDOT # and continue running those operations under that registration.
This is a fairly common and valid concern but it’s not one that can’t be solved with some creativity. For the reasons we’ve already discussed and those we’ll explore below, Parent Corp. has a real interest in consolidating ABC Trucking’s and its own USDOT registrations so that it only has one to manage. But it also has an interest in maintaining the ABC Trucking brand.
This can be and is accomplished a couple of different ways. First, Parent Corp. could add ABC Trucking as a d/b/a to its existing USDOT registration, allowing it to mark its trucks with either its legal name (i.e., Parent Corp.) OR its trade name (i.e., ABC Trucking) and its USDOT #. This, in effect, allows the company to maintain any ABC Trucking branding that currently exists on the acquired trucks, while swapping out the USDOT # for Parent Corp’s. Another option is for the company to leave existing ABC Trucking branding on the trucks but add the phrase “operated by Parent Corp” and Parent Corp’s USDOT # to the trucks.
Both options allow the company to retain the acquired entity’s branding on the trucks while still operating under a single USDOT #. This is often enough to appease customers who are sensitive to the branding issue while allowing the carriers the benefits of consolidated registrations. Note, both of these options could necessitate certain intercompany agreements and potential revisions/amendments to customer contracts, but these are rarely showstoppers.
3. Consolidating USDOT#s eases administrative headaches
Without a doubt, the primary reason to consolidate USDOT registrations is to ease administrative burdens. To name just a few, consolidating USDOT#s means:
Only one MCS-150 to file/update
Only one set of driver qualification files (e.g., applications, previous employer requests, etc.) to manage
Only one ELD platform to deal with
Only one drug/alcohol testing program to administer
Only one UCR filing to make and fee to pay
Only one IFTA/IRP account to manage
Only one accident register to maintain
Only one CSA/SMS account to track
Only one fleet of drivers/trucks to deal with
To be sure, consolidating USDOT registrations takes some work on the front end, but the amount of time, effort, and money saved on the back end far outweighs the initial burden for most carriers.
4. Consolidating USDOT#s can streamline IFTA, IRP, and UCR filings & fees
Fleets subject to IFTA and IRP rules stand to realize even more significant benefits from consolidating USDOT registrations. Generally speaking, IFTA and IRP rules apply to fleets that operate larger commercial vehicles (e.g., over 26,000 lbs.) across state lines. For those fleets who happen to maintain separate USDOT registration, this can also mean maintaining separate IFTA and IRP accounts, which can be a nightmare to manage. Separate accounts means separate filings for each account, different cab cards to manage, etc. By consolidating USDOT registrations, fleets can move to a single IRP and IFTA account and save on the headaches. This is true even if the fleet retains the separate legal entities in which the separate USDOT registrations had been housed, provided there are intercompany lease agreements in place.
As for UCR, some carriers stand to save thousands of dollars in UCR fleets per year by consolidating their USDOT registrations. Annual UCR fees are tiered based on fleet size and are tied to every interstate carrier’s USDOT registration. Larger fleets generally pay more in UCR fees than smaller fleets, but the tiered fees are capped at 1,000 power units.
2022 UCR Fees via plan.ucr.gov
Take, for example, a conglomeration of 6 related carriers each with their own separate USDOT registrations and each with 150 trucks. By maintaining separate USDOT#s, that fleet is paying (in 2022) $5,835 per fleet in UCR fees for a total of $35,010. If the carrier, instead, consolidated the fleets under a single USDOT # with 900 combined trucks, it would owe only $5,835—a nearly $30,000 in annual savings. Of course, this savings may not be as dramatic for fleets whose combined truck count pushes them into the highest UCR fee bracket, which results in a significantly increased premium.
5. Consolidating USDOT#s expands operational opportunities
Lastly, consolidating USDOT registrations can open up several operational possibilities, including the free flow of equipment and drivers. Units that were previously assigned to a separate USDOT # can now be moved throughout the country and service different customers once all units are moved under a single USDOT#.
How to consolidate USDOT#s
Once you appreciate the many benefits of consolidating USDOT registrations, the next question is how to do it. Again, consolidation certainly takes some planning and work on the front end, but for most carriers, it is well worth the effort.
There are some complexities and nuances to the consolidation process which fleets should explore, but in general, consolidating USDOT registrations involves the following:
Evaluating which USDOT registration will be the go-forward motor carrier. With two or more USDOT#s at their disposal, fleets will need to decide which one to proceed with. Several factors can play into this determination, including fleet size, customer relations, branding, federal/state/local permits and authorities, contracts, etc.
Ensuring the go-forward carrier has all the necessary authorities and permits. Once the carrier has decided on the go-forward USDOT #, it’s important that registration holds all the federal/state/local permits and authorities that are necessary to continue on with the combined operations. For example, let’s say Carrier A and B will be consolidated under Carrier A’s USDOT registration. Carrier A hold interstate motor carrier operating authority but no state-specific permits. Carrier B on the other hand holds interstate motor carrier operating authority as well as a state-specific alcoholic beverage transporter permit that it needed to haul commodities for a certain customer in that state. As the go-forward carrier, Carrier A’s interstate motor carrier authority would be sufficient to cover the combined interstate moves; however, it would need to either obtain its own or transfer (if allowed) Carrier B’s state alcoholic beverage transporter permit to facilitate the customer-specific moves that were previously performed by Carrier B. For this reason, it’s important carriers who are considering consolidation take stock of all existing permits and authorities and then choose their go-forward USDOT registration wisely.
Putting in place any necessary intercompany agreements. Equipment ownership and driver employment can play a big role in USDOT consolidations. For example, let’s say a carrier intends to consolidate the USDOT registrations of multiple related legal entities, but the trucks are independently owned by those entities and the drivers are independently employed by those entities. In that situation, it won’t work to simply say that going forward all those trucks and drivers will be operating under a single USDOT #. This is because the USDOT doesn’t allow more than one legal entity to operate under a single USDOT registration. That said, assuming the company wishes to retain the separate legal entities but not formally transfer equipment titles and driver employment to the go-forward motor carrier, it can accomplish the same outcome by putting in place intercompany vehicle and driver lease agreements, whereby the legal entities lease their vehicles and drivers to the go-forward carrier to operate under its USDOT registration. By virtue of those lease agreements, the go-forward carrier assumes responsibility for the safety and compliance of those trucks and drivers under its USDOT#.
Changing out vehicle decals when necessary. Subject to the branding alternatives discussed earlier, all vehicles will need to display the name and USDOT # of the go-forward motor carrier, so carriers looking to consolidate multiple USDOT registrations will need to coordinate changes to any existing decals that don’t bear the go-forward carrier’s details.
Notifying customers. It’s prudent for carriers to evaluate their existing customer contracts and relationships and develop a plan to notify customers of the fleet consolidation so as to not blindside them when the consolidation occurs. Some customer agreements, for example, may need to be amended to account for the fact that a new USDOT # will be taking over.
Deactivating old USDOT registrations. Once the consolidation is complete and operations are running smoothly under a single USDOT#, carriers will need to decide how to handle the former USDOT registrations which are no longer in use. In most cases, it makes sense to make an “out of business” filing with the USDOT to voluntarily deactivate those registrations. This does away with the need to continue filing biennial updates to those registrations. The same is likely true of other federal/state/local permits and authorities that are no longer in use.
Consolidating USDOT registrations is the right move for many fleets for a variety of reasons. If you want to explore whether it's the right option for you, or if you need help pulling the trigger, feel free to reach out. Through our related law firm, Childress Law, PLLC, we regularly counsel clients through this process.