In Demand

| December 11, 2008

2005 looks like a great time to be an owner-operator. Just make sure you CAN cope with expensive fuel.

Happy New Year 2005, as a shortage of drivers and a heavy demand for freight make the mid-winter economic outlook warm and sunny for many owner-operators. “The outlook is very positive,” says analyst Chris Brady, president of Commercial Motor Vehicle Consulting. “Carriers need to expand their fleets to meet shippers’ demands, and there aren’t enough company drivers to handle all that expansion. Demand for owner-operators is strong and will remain strong in 2005.”

“The pluses outnumber the minuses,” says Todd Spencer, vice president of the Owner-Operator Independent Drivers Association, based in Grain Valley, Mo. “The downside is that we’re still looking at high fuel prices. They’ve come down a little, but we can expect spikes this winter because there’s not much inventory.”

“Given the tremendous need for drivers, 2005 could be a pretty good year for owner-operators,” says analyst Lance Ealey, a director at the Freedonia Group, a business research firm. Since the industry is unlikely to fill the driver gap anytime soon, he says, “I don’t see anything looming on the horizon that would rain on the truckers’ parade.”

For a while, anyway, owner-operators have some bargaining power with carriers, as demonstrated by the increased pay and benefits many fleets are offering. Paschall Truck Lines offers a $7,000 sign-on bonus, U.S. Xpress a $5,000 sign-on bonus. Barr-Nunn guarantees $1.04 diesel. But don’t expect windfalls anytime soon, Spencer says. “The fleet executives are serious when they toss around $70,000 salary figures, but they are also serious when they say they want some other fleets to take the plunge first.”

Still, since so many carriers are recruiting, “It is a good time to compare and see what other carriers are offering,” Brady says. But beware of grass-is-greener syndrome. However tempting the pay and benefits, make sure you understand all the fine print. “How many miles will they guarantee you?” Brady asks. “How many empty miles will you be running, and will you get paid for those?”

It’s also a good time for leased owner-operators to look into going independent, but that decision should come only after months of investigating the transition and saving money, Brady says. “You need to investigate your bottom line and build a cash reserve for emergencies.”

The chief cloud in the 2005 sky is the high price of diesel. Twenty-year company driver James Fincannon of Newton, N.C., who long-hauls furniture, says his independent owner-operator neighbors have parked their trucks. “They went from getting $1.25 a mile down to 80 cents or 90 cents per mile, and that doesn’t even pay their fuel.”

Fincannon says his employer – a retailer he declines to name – has cut pay about 30 percent. He’s considering following a number of his friends into other company driver jobs, but with diesel prices so high, he’s not tempted to buy his own truck.

Luckily, the high price of fuel is counterbalanced – so far – by high freight demand and, at well-run carriers, strong fuel surcharges. “High fuel prices aren’t crippling companies as they have in the past,” Brady says. “Carriers are able to pass along their cost to shippers, and the shippers are actually paying it.”

Still, high fuel prices increase costs for owner-operators, in some cases even those getting a fuel surcharge. A per-mile surcharge doesn’t help when you’re idling, stuck in traffic, deadheading or driving off route, Brady says. “In general, surcharges capture about 70 percent of actual fuel costs.”

Fuel prices hurt everybody, but they hurt independents worse than leased owner-operators, he says. Conscientious independents who ask for a fair fuel surcharge can expect to lose loads to those willing to roll at any price, Spencer says. “Brokers play a bigger role in the industry all the time, and they’re always adept at shopping for the cheap.” Those who price fairly and stick to their principles are still much better off in the long run, Spencer says.

The price of diesel has averaged $2 or more a gallon since September and seems due for a decline in 2005. Yet the price of petroleum products is much affected by world events. A terrorist attack in Saudi Arabia, political unrest in Venezuela, a hurricane in the Gulf of Mexico – these and countless other unpredictables helped push oil prices higher in 2004, and could again in 2005.

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