Application compensation

| December 12, 2008

What kind of equipment are you locking into your fifth wheel? While good earnings are possible in any type of haul, certain applications defined partly by trailer average higher income than others.

Jerrillyn Cameron has driven dry vans, flatbeds and reefers. He’s hauled steel, building supplies, medical equipment and Bob Evans sausage. But when his CDL was up for renewal this spring, he decided he’d better diversify.

“I got every endorsement I could put on it,” Cameron says. “Doubles, triples, hazardous materials, tanks. If the opportunity comes up, I’m ready to go.”

Whatever their current application, owner-operators never seem to tire of hearing about other people’s and comparing the pros and cons of each, especially the pay. But given the industry’s many upswings and downturns, as well as similar ebbs and flows in the national economy, the best long-term niche in trucking may be “all of the above.”

Owner-operator income is determined by how well you manage expenses and revenue at least as much as by what application you’re in, says industry analyst Chris Brady of Commercial Motor Vehicle Consulting. “The profit margin is a function of owner-operators’ managerial skills,” Brady says. “The more efficiently owner-operators haul freight, then the larger their profit margin, and the higher their operating income will be.”

At the same time, noticeable differences exist between net incomes of different applications. The discrepancies can be due to inherent factors, such as an owner-operator having special training or owning a particular trailer. Economic developments can change demand for certain types of hauling from year to year and skew the figures, too.

Brady’s research for the 2008 Overdrive Owner-Operator Market Behavior Report shows that average owner-operator income across all applications in 2006, the most recent data year available, was 11 percent lower than 2005 (dropping from $58,152 to $51,915). But that 2006 income was still 24 percent higher than the average owner-operator income in 2000, which was only $41,845. Some common applications have seen even larger long-term increases.

Data from ATBS – the nation’s largest owner-operator financial services provider – incorporate the monthly financial reports of thousands of owner-operators while Overdrive figures are based on annual surveys. First-quarter 2008 data from ATBS show average owner-operator income across all applications at a monthly $3,986 per month – or $47,832 yearly, assuming the rate held.

The biggest reason it likely won’t hold, of course, is the galloping price of diesel. In 2006, when Overdrive data showed an 11 percent drop in owner-operator income, the national average diesel price was $2.70. For the first five months of 2008 it was $3.82.

Even owner-operators who receive full fuel surcharges from fleets, brokers or shippers – a condition far from universal – aren’t home free. Surcharges don’t cover out-of-route miles and idling, including unavoidable idling in congestion, Brady notes. Some fuel surcharges don’t cover deadhead miles, and if they do, the surcharge might be lower for those miles. One of the nation’s largest fleets pays a minimum 82-cent surcharge per loaded mile but only 57 cents per empty mile, says Gordon Klemp of the National Transportation Institute, publisher of the National Survey of Driver Wages.

“Fuel surcharges are not keeping up, for either the carrier or the owner-operator, as we keep chasing these ridiculous diesel prices,” Klemp says.

Diesel prices are increasing at such a rate that they cannot completely be offset by changes in operation such as slowing down, cutting back on idling and investing in fuel-efficient equipment – however wise those strategies are – but only by “increases in basic freight rates,” Brady says.

Industry-wide, however, driver pay increases pretty much stopped 18 months ago, Klemp says. “It’s been flat. The only thing that’s been moving is the surcharge.”

Following are brief profiles of truckers in various applications, including the segment’s average income for a single-truck owner-operator, according to Overdrive figures.

AUTO HAULING
Average income: $64,658
Income increase since 2000: 14 percent

Automotive news tells a car hauler what freight will be like in the weeks and months to come, but the reverse also is true, says Todd Burhans of Charlottesville, Va., a company driver for United Road. The news in early June that General Motors would close four pickup and SUV factories and would consider selling or closing its Hummer division didn’t surprise Burhans, who lately has been hauling only small and mid-size cars that get good fuel economy.

But whatever the size of the cars, the pay has remained steady. Paid by the stop, by the mile and by the number of cars hauled, Burhans says he hasn’t earned less than $80,000 a year in the past three years.

But car hauling isn’t for everyone, he says. You can’t expect lumpers to do your loading and unloading, for example. Tightening multiple chains on each car is physically demanding on the shoulders; you can strain your rotator cuff as easily as a catcher for the Yankees can.

Car haulers also need to be sure-footed, with a good sense of balance and little fear of heights. Climbing into cars on the upper deck and driving them off can be especially treacherous in wintertime, when all the metal surfaces are slick with ice. Burhans’ first day as a trainee car hauler was a 10-below-zero day in New England.

“The snot froze on my face,” he says. “The old-timer training me said, ‘Friend, if you can do this, you’ll be a car hauler. Now go load those cars.'”

When cars are unloaded at ports, they tend to be scattered up and down the docks like giant toys, so just finding them all and driving them to the truck can take hours. “But if the cars are all lined up and ready to go, I can get them loaded in 45 minutes,” Burhans says.

A rookie car hauler needs two years to get really good at the job, but most don’t stick around that long, Burhans says. “If you train 15 people to be car haulers, and three of them are still doing it after three months, you did well. If after a year, one of them is still doing it, you did very well.”

REFRIGERATED

Average income: $56,878
Income increase since 2000: 20 percent

Independent owner-operator Clem Swartz of McAllen, Texas, hauls produce from Mexico and South Texas to the Hunts Point Cooperative Market in the Bronx, N.Y. For the backhaul, he loads whatever he can carry in his 53-foot Utility trailer, ideally something that won’t require refrigeration so he can save the reefer fuel.

Lately Swartz’s backhaul has been imported dry goods for the African markets serving the burgeoning immigrant populations in Tennessee and Texas. He’s most impressed by the enormous yams, which put U.S. sweet potatoes to shame. “They look like an arm and a leg and a tree limb,” Swartz says.

A produce hauler since 1979, Swartz – if you’ll pardon the expression – knows the reefer business cold. He appreciates that the dead weeks between growing seasons, during which freight was once hard to come by, pretty much disappeared about eight years ago. “They’ve got that down pat now,” he says. “Around McAllen, the growing season lasts year round.”

Considering only revenue, Swartz has never been more successful. “I’ve made more money in revenue the past year than I ever have before, but the profit was almost nothing” – so small, he says, that he’s ashamed to reveal the number. The chief culprit: diesel.

“If they don’t do something about the fuel price, it’s going to ruin the country, if it hasn’t already,” Swartz says. “I guess the government is getting what it wants. If they want to slow things down, it’s working. I’ve noticed on the road there’s less and less traffic, especially at night.”

He gets 5 mpg in his 2005 Kenworth W900, on which he owes almost three years of payments.

FLATBED

Average income: $54,390
Income increase since 2000: 33 percent

Other than car hauling, flatbedding may be the application most obviously affected by recent economic news – but the news isn’t all bad. While home construction is in a prolonged slump, having dropped for 26 straight months, non-residential construction on such projects as office buildings, strip malls and especially hotels reached an all-time high in April.

The oil and natural gas industry also is booming, and one of the beneficiaries is flatbed owner-operator Kevin Estes of Pell City, Ala., who’s been trucking since 1986, when he drove a dump for his family’s sand and gravel business. After a dissatisfying year leased to a flatbed fleet – “Fuel costs were just astronomical, and I’d get in these big plants and sit all day,” he says – he contracted his services to a family friend whose construction company specializes in laying high-pressure gas pipelines. He sold his Transcraft trailer and now hauls the contractor’s equipment with his 1997 Kenworth W900.

“I’ve kind of got a best-of-both-worlds situation,” Estes says: independence and stability, too.

DUMP

Average income: $44,898
Income increase since 2000: 6 percent

Brandon Mason of Aurora, Utah, is selling two sets of Beall belly dump trailers, 1994 and 1995 models, for $90,000. This doesn’t mean Mason is dumping the dump business. Rather, he bought a lighter single trailer and now routinely pulls 80,000-pound loads, compared to his previous 129,000-pounders. Plus he traded in his 4.6-mpg tractor for a 2009 Kenworth T660 that gets 6.2 mpg.

Thanks largely to his gains in fuel economy, “I’m making more money now with one trailer than I ever was hauling two trailers,” says Mason, who estimates his 2008 income will be in the neighborhood of $3,500 a month.

Mason hauls grain, wood chips and rock around the Mountain States. If you’re considering hauling bulk, he says, 2008 probably isn’t the year to start.

“The bulk industry is pretty much flooded right now,” he says. “It’s tough to find loads. Everyone’s undercutting everyone. Unless you know someone, you’re hanging out in the wind.”

Mason built his business primarily by cold calling, selling himself and his services to one prospective customer after another – several of whom, to his great satisfaction, have become repeat customers.

“I’m on the phone constantly,” he says “but personal relationships go further than anything, in this business or in any business. If you act ignorant, you get treated ignorant.”

DRY VAN

Average income: $49,260
Income increase since 2000: 21 percent

Jerrillyn Cameron of Hays, Kan., a 34-year trucking veteran, gave up his owner-operator steel-hauling business in November 2006 to become driver-manager of JJ.

Trucking, a two-truck operation owned by Jim Hanks, also of Hays. While Cameron hauls some refrigerated foods for Bob Evans restaurants and for Reasor’s, an Oklahoma grocery chain, his chief freights are now potatoes, newspaper inserts and medical supplies.

Diverse freight insulates JJ Trucking against a lot of bad economic news, but steep diesel prices and tough competition are challenging no matter the load. “The freight rates are not what they need to be,” Cameron says. “I sometimes give up a load because I won’t do it cheap,” he says. “We’re going to be way below last year, and last year wasn’t great. We might have a break-even year.” Cameron even has told Hanks he’d be willing to take a pay cut, if that’s what it takes to turn red ink into black. Much of Cameron’s weekly route is uphill through the Front Range of Colorado, but he manages to average 6 mpg in his 2003 Peterbilt 379. (The company’s other truck, a 2005 Peterbilt 387, gets 7 mpg.) “Coming back is a breeze, if the wind’s blowing right,” he says, laughing.

Besides the Boy Scout motto (“Be prepared”), Cameron’s advice to owner-operators, whatever their application: “Drive smart, be smart, and don’t spend money if you don’t have to.”


Fair surcharge: a moving target
Leased operators often are dissatisfied with their fuel surcharges, but given the volatility and regional variance of diesel prices, calculating a fair and effective fuel surcharge “is a really hard thing to pull off,” says industry compensation analyst Gordon Klemp.

When the truck-stop conversation turns to who’s getting the best surcharge this week, an appropriate question to ask is what “this week” means.

“Some fleets change their surcharges on Mondays, some on Tuesday, some on Wednesdays,” Klemp says. “When that other operator tells you what he’s getting, it may sound like he has a good deal, but he may not have a good deal.”

“The Monday average is historic by Wednesday,” says veteran trucker Jerrillyn Cameron.

As for independents who set their own fuel surcharges, sometimes a crystal ball would help. Someone who agrees to haul a load from Texas to Maryland, agreeing to a surcharge based on Texas diesel prices, easily can find diesel 35 cents per gallon more expensive at his destination, a difference Klemp calls “brutal.”

“It’s nasty out there,” he adds.

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