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.”

As you calculate the expected life of a trailer, as well as its weight relative to its cargo capacity, its construction is an important consideration. Trailers can be steel, steel-aluminum composite or all-aluminum. Many cost-conscious truckers are wary of higher-priced all-aluminum units, but Monroe says the return on investment is better with all-aluminum.

“Some fleets will keep an all-aluminum trailer 10 to 15 years or more,” Monroe says. “Compared to steel, it lasts twice as long but costs less than twice the dollars.”

The choice between steel and aluminum also affects your return on investment because of weight. A lighter trailer allows more payload and improves fuel economy.

“Lighter is better, up to a point, but you can get too light,” says Mark Kulyk of Rogers Trailers. “If the trailer is built solely for weight reduction, you’ll be working it to maximum capacity more of the time. As you lighten the product, you spend more time fixing it.”

Many of the steel parts in a van are sheltered from the weather, so vans generally outlast flatbeds, says Chris Adkins, senior vice president of sales and marketing at Great Dane Trailers. Also, vans are not subjected to the heavy loads typical of flatbed hauling.

On the other hand, heavy hauling may offer an extremely high return on your trailer investment, Kulyk says. A small trucking company, for example, might get all the work it can handle just hauling excavators for nearby contractors.

Some owner-operators run one tractor and two trailers and have a miniature drop-and-hook operation, Monroe says. “Shippers like this type of operation because it eliminates warehousing for them. Many of them want you to leave the trailer so they can unload it when they have time and need the contents.”

The owner-operator benefits by grabbing the other trailer and going on to the next load, rather than waiting for the first trailer to get unloaded. Assuming the proper logistics – with expert scheduling and good relationships between you and the shipper – owning two trailers puts a premium on your equipment and your time.

From a safety perspective, trailer ownership has an important advantage, Monroe says: The trailer’s owner controls its brake balance. “A rig that’s properly balanced is much better than one where some axles work harder than others,” he says.

Evaluating the best time to sell an old trailer and buy a new one involves “age and the maintenance implications that go along with it,” Adkins says.

A steel trailer, for example, might need a paint job every four years, which involves sandblasting and prepping and can cost as much as $1,800. Monroe says trading a $20,000 trailer might be better than spending $1,800 on it, especially if an upgrade offers other advantages in freight, maintenance or downtime. On the other hand, a trailer that includes the latest aluminum technology, though it costs more, might last 15 years before needing corrosion-related maintenance, Monroe says.

When considering whether to trade, estimate how much the technological improvements might save you in maintenance and downtime costs. A unit with LED lighting or other improvements that will keep it out of the shop will likely make your operation more productive.

Another reason to trade is a change in what you haul or in its specifications. The most common example is a flatbed’s deck dimensions, Monroe says. You might be using a 45-foot-by-96-inch trailer where a 53-foot-by-102-inch would give you more flexibility.

“We’ve seen cases where a trucker shows up to pick up a load, and the shipper won’t load him because of the size of his trailer,” Monroe says. In some cases, that’s because the shipper has set minimum specifications for all owner-operator equipment.

Suppose you find opportunities in hauling electronics. Owning a newer trailer with air-ride suspension could be key, since this specification is often required. Or suppose you want to switch to bulk hauling, or to purchase a double-deck trailer to handle less-than-truckload shipping.

Newer equipment also generally means safer equipment, which can increase profits and decrease potential legal problems. For example, a new trailer will protect you from jackknife better than a pre-ABS trailer.

Adkins recommends keeping pace with regulatory changes. For example, many U.S. trailer manufacturers will incorporate Canada’s new rear under-ride guard standard because it’s simpler to build just one design for both countries.

One final reason to change trailers, Adkins says, is the boost to your image in the eyes of the shipper: “With a beautiful new truck and trailer, he’ll feel better about hiring you.”


WHAT TRAILERS CO$T
Bryan Crist, a salesman with Hale Trailer, Brake and Wheel of Allentown, Pa., gives these estimates for today’s trailer prices:

DRY VANS. New: $18,000 to the high $20,000 range. Used: $3,000 to $17,000.

REEFERS. New: $40,000 to $50,000. Used: $5,000 to $40,000.

FLATBEDS. New: Open-platform trailers range from $18,000 for a basic flatbed to about $50,000 for four-axle, extendable trailers with various options. Used: $3,000 to $18,000.

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