Hitched to Profit

| December 11, 2008

This trailer is having its damaged wall replaced. A repair shop is a good asset to look for in a trailer dealer.

The tractor is more complex and generates more emotion, but right behind it is the equipment that contains the real source of your income: the trailer. Whether to buy a trailer and, if so, specifying the right kind are two of the most important business decisions you’ll make.

A trailer is an asset that can be key to your profitability. Independents understand that; 83 percent own at least one trailer, according to the 2004 Overdrive Owner-Operator Behavior Report. Among leased operators, two in five own a trailer.

For independents, a trailer is often a necessity. For a leased operator, it’s a much riskier investment.

“We discourage the 20,000 owner-operators we deal with from buying a trailer,” says Todd Amen of American Truck Business Services, whose clients are mostly leased. A trailer can limit productivity, Amen says.

“Large fleets run 1.3 to 2.1 trailers per tractor, on average,” Amen says. “If you lease to a fleet, you can drop and hook, and you don’t sit. In fact, many fleets won’t let you bring a trailer of your own to haul their loads.”

Owning a trailer reduces your flexibility, especially if it’s a dry van, says Chris Brady of Commercial Motor Vehicle Consulting. If you lose too many miles because you can’t keep moving, this cuts rapidly into any additional profit. On the positive side, you can depreciate the equipment on your income tax during its first years, and a well-maintained trailer adds equity to your business that can be sold at some point.

Prospective trailer owners also need to consider what type of cargo they want to haul. “Once you buy a certain type of trailer, that’s what you do,” says Mike Monroe, sales manager at Fontaine Trailers. “You can’t haul refrigerated food on a flatbed or use a reefer to haul steel. You need to ask yourself if you want to stay with what you are doing. Can you get enough loads?”

“The businessman considering buying a trailer must be certain that there are a lot of people who need his services,” says Craig Bennett Sr., vice president of sales and marketing at Utility Trailer Manufacturing. “Right now, with a driver shortage and plenty of freight, that’s not as difficult to do as it was a few years ago.”

You must also know that you can consistently pick up and unload in a reasonable length of time. This is more easily determined by an independent who has well-established relationships with several shippers.

The owner-operator investing in a trailer should also be aware that such a network can continue for years and then suddenly fall apart, meaning you “might end up having to sell a trailer in a down market,” Amen says.

However, under the right circumstances, the money is there. An owner-operator running his own trailer usually nets an additional 10 to 15 cents per mile, Monroe says. Run your operation’s numbers, and you might find, for example, that you can pay for the trailer and its maintenance with as little as 5 to 6 cents per mile. Earn more than that, and the difference could be income for you. “But only if you can keep it full can you get that payback,” Amen says. “Productivity is the major issue.”

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