Strength in numbers

| December 12, 2008

Small fleet owner-operators have a big choice: Go independent, or lease to a larger carrier. Those who lease their trucks receive overall stability and other benefits that can mean the difference between success and failure. In return, they give up a share of the revenue and the independence of running under their own authority.

Leasing with a larger carrier eases cash flow problems and the financial burdens stemming from cargo and liability insurance and high-cost fuel. Other benefits can include discounts or other assistance with maintenance, breakdowns, tires and other parts, permits, base plates, dispatch, sales, fleet management, mileage tax, truck purchases and health insurance. The small fleet owner-operator is usually responsible for most, if not all, maintenance and employee training and testing.

“It’s pretty much a no-hassle start-up,” says Jeff Meeves, owner-operator relations manager for Werner Enterprises. “Basically, no up-front money has to be placed in bond. We pay for the base plates, permits and insurance and get them rolling. They’re getting the benefits of running their own business, but they’re getting the support of a very large corporation.”

For this, the large carrier takes about 15 percent to 25 percent of the owner-operator’s revenue. To some operators, it’s not worth it. “It’s like milking the cow and giving the cream away,” says Patrick Lucash of Lucash Trucking in Petersburg, Ohio.

There’s also the possibility of being ripped off on the revenue split by a disreputable carrier. “We’ve had carriers with two sets of books,” says Paul Taylor, attorney for Truckers Justice Center in Minneapolis.

For some small-fleet owner-operators, the worst part of leasing to a large carrier is giving up independence. This affects management matters such as hiring, uniforms and dispatching, but also critical business decisions about what hauls to accept, both currently and in the near future. Some carriers demand a non-compete agreement that prohibits the small fleet from hauling for the large carrier’s customers for a certain period, Taylor says.

“Some guys won’t go any other way than under their own authority because then they can say, ‘No,’” says Linda Schriner, who operates ODD Enterprises in Corona, Calif., with her husband, Dale Dunn. Their operation is leased to FedEx.

“It’s given me a little bit of freedom,” says three-truck fleet owner Bruce Arnold of Rincon, Ga., who has remained independent. “I do have to answer to some people, but then again, I don’t have to answer to other people.”

That independence is every owner-operator’s dream, but is the extra freedom worth the hassle?

Choosing to run under your own authority “might mean 25 percent more to the bottom line,” Taylor says, “but you’re going to have more overhead: log books, photocopiers, drug tests.”

Arnold, for example, pays $70 for each drug test. “The DOT requires a pre-employment drug screen and that you test 50 percent of your employees once a year,” he says. He pays a certified public accountant both $50 weekly and $2,800 annually to handle his payroll and taxes, but he does most of the other paperwork himself. Permits, mostly for oversized loads, cost him $46,000 last year.

“If you give your drivers 25 percent [of revenue] and then factor in all the hidden costs of staying independent, you just can’t compete with the large carriers,” Lucash says.

Some larger carriers will sweeten lease deals for small fleet owners. “We do have a program in place for fleet owners where if they have between five and 19 trucks, they get a half penny more per mile per truck, and over 20 trucks pays a penny more per truck,” Meeves says.

“Most carriers pay a sign-on bonus,” says Al Hingst, vice president of contractor programs at U.S. Xpress. “We pay a sign-on bonus per truck. If you sign on with 10 trucks, your bonus will be twice as much as for five.”

When leasing to a larger fleet, the small fleet owner remains fully responsible for his employees, including pay, benefits and paperwork.”That means payroll, workers’ compensation, medical leave, civil rights responsibilities, Social Security contributions, state withholding, unemployment insurance, family medical leave, drug tests, DOT physicals – all of it,” Taylor says.

Even though the small fleet owner assumes all those responsibilities, the larger fleet still has to approve the drivers for insurance purposes, notes Schriner. This can become a hardship during a driver shortage. “You ask the carrier to make an exception, but they can’t because of insurance regulations,” she says.

Nevertheless, the benefits that come with a large fleet’s economies of scale make sense for many small fleet owners. What follows is a closer look at some of those advantages.

CASH FLOW
Of all obstacles small fleet owners encounter, sporadic cash flow is the most constant. “If you’re on your own, you get paid in 30-, 60- and 90-day billing cycles,” says Derek Leathers, an executive vice president at Werner Enterprises. But running a trucking company costs money every day, and fully independent small fleet owners are usually caught spending their own money to run their trucks while awaiting payment from brokers and customers.

“A lot of the time I have $10,000 to $20,000 of my own money out there before I get any coming in,” Arnold says. “When I get money coming in, I can’t use it all to pay bills. I set some aside for operating money.”

Schriner recommends having $50,000 or $60,000 in the bank if you plan to operate independently. “When I was running under my own authority, there was always that question of when or whether or not I was going to get paid,” she says. “Even my best customer took 45 days to pay. I had tarps wearing out, truck repairs, driver payroll. It became too difficult because all of that was coming out of my pocket.”

The main points of ODD’s lease contract with FedEx are typical of most small fleet owner-operators and large carriers. Schriner and Dunn supply trucks and drivers, handling freight, routes, and shipping and receiving operations. FedEx supplies the materials and the trailers.

STEADY BUSINESS
Because a large carrier’s strength is in its freight base, leasing to a large carrier relieves a small fleet of the worries of finding freight.

“We have over 400 sales professionals handling the sales effort,” says Philip Thornton, a vice president for Old Dominion Freight Lines. “We handle all sales and rate negotiations.”

Schriner strongly recommends talking with other small fleet owners who lease to the company “for the real nitty-gritty” about freight and other matters. “The most common mistake any owner-operator will make is not doing the homework,” she says.

Some independents can make it work without the help of a large fleet, Taylor says. “If you can find a good, captive customer who can give you the backhaul, or who you can dedicate your operation to, then it can be good,” he says. “But if not, then you’re hauling a lot of brokered freight, and that’s a big risk.”

Arnold is one who’s found stability on his own. “I’ve hauled for my customers for 10 or 15 years,” he says. “They pay me pretty well and keep me pretty busy, but it’s not like I’d want to go out and get more trucks.”

GROUP DISCOUNTS
The discounts large carriers offer to small fleet owner-operators on everything from new trucks to insurance can be difficult to pass up. “Essentially, they’re going to get all the economies of scale,” says Meeves of Werner.

“We pass our discounts along to the owner-operator,” says Greg Plemmons, vice president of Old Dominion Global. “For example, we’re currently collecting a 13.4 percent fuel surcharge, and we’re passing 100 percent of that to the owner-operator.”

“We help them get fleet discounts, fuel discounts, maintenance and breakdown support and national account tire buying power,” says Hingst of U.S. Xpress.

Discounts available through FedEx include tires, windshields and new trucks, Schriner says.

Most large carriers, including U.S. Xpress, offer breakdown assistance. “If their drivers break down at 3 a.m., they can call us, and we’ll help them get to the nearest vendor,” Hingst says.

ODD has a special arrangement, sharing expenses for a repair shop and mechanics with two other owner-operators contracted to FedEx. “We can do any kind of mechanical repair on a truck, unless it’s still under warranty,” Schriner says, but their maintenance schedule emphasizes prevention, not repair.

Arnold does most of his maintenance himself, including engine rebuilds at 750,000 miles. Arnold also pulls transmissions and rear ends off his Peterbilt 379s and takes them to Fleet Pride, a large parts distribution chain.

HEALTH INSURANCE
The small fleet owner, like a single-truck owner-operator, cannot qualify for a large fleet’s health plan because he is not an employee. This also is true for the small fleet owner’s drivers, unless that owner is able to provide a plan.

The potential bright side is that larger carriers can better absorb the costs of a health insurance plan, and most will pass those savings on in some degree. They do that by letting the small fleet owner pay all costs to participate in the large carrier’s program.

“We help them out with group health and dental,” Leathers says. He says small fleet owners who lease with Werner “have the opportunity to participate in the programs we have for our other employees.”

MANAGEMENT ASSISTANCE
Most lease agreements will also offer at least some fleet management assistance, including dispatch.

“Normally a larger carrier will provide in-house communication and tracking so the small fleet owner can keep in touch with the trucks,” Hingst says. “We’ll hook up to his personal computer from our dispatch so he can monitor and communicate with his drivers.”

Becoming part of a large carrier’s dispatch adds flexibility for a small carrier because the more extensive freight base allows small fleet owners to better accommodate their drivers’ needs.

“The owner-operator might have one driver who likes to get home every weekend and another who likes to stay out five or six weeks,” Hingst says.

Qualcomm is also increasingly available. “This allows the small fleet owner to sleep at night knowing the trucks will be dispatched legally and safely,” Leathers says. “We know where the trucks are at all times.”

ODD’s trucks run dedicated FedEx routes. Its drivers stay out about five days and always know their routes, Schriner says.

She allows that some agreements between small fleet owners and large carriers might not work. “If you lease to a carrier and you’re not happy,” she says, “then take your toys and go someplace else.”

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