Struggling but surviving

| September 29, 2009

In an April analysis of trucking company failures, Avondale Partners predicted ramped-up consolidation for the truckload sector. “With the continued growth of the major truckload carriers and the widespread application of advanced technology,” the report says, “the barrier to entry has been raised significantly and there are now firms in a position to force consolidation.”

At the same time, as the report notes, the severity of the current business cycle has large fleets downsizing their owner-operator programs to maintain a high utilization rate for their company equipment. The practice is nothing new and, as Brady puts it, in any downturn the small-business trucker “always gets whacked” the hardest from all sides.

Nevertheless, so-called “non-asset-based carriers” that rely heavily on owner-operators continue to thrive. Dart Transit’s Steve Gundale reports its leased owner-operator numbers were up slightly at the end of the first quarter, by 28 trucks. Landstar Carrier Group President Pat O’Malley insists his company’s all-owner-operator model ensures continued success. Warnings of the owner-operator’s extinction are “headline hyperbole,” he says. “One guy making a decision about his business is fundamentally more safe and secure than a guy making a decision about the thousands of trucks he owns.”

Companies like Landstar aren’t going away, Brady says. “Their business model has proven profitable during the downturn.” The company’s number of leased operators hasn’t changed much, even in the face of declining freight.

It is true, though, that this down business cycle has reduced leased owner-operators industrywide. Among the 10 publicly traded fleets Avondale Partners examined, all but Swift Transportation and USA Truck reduced their leased fleets from 2007 to 2008 in greater percentage terms than their company fleets.

But Brady points out that some of these same carriers, such as Werner and Knight Transportation, in turn developed their brokerage and logistics wings to capture more freight without having to invest in new equipment. “When freight becomes plentiful, they will be less aggressive at expanding their fleet – so they’ll expand with [independent, non-leased] owner-operators,” Brady says. “They don’t want to have excess trucks in a downturn.”
Increasing niche specialization among owner-operators is a parallel trend that bears this notion out. Says owner-operator Brosnan, who back in 1997 bought a lowboy trailer when he sensed specialized heavy-haul opportunity: “Owner-operators do jobs and perform services that big companies can’t do.”

Today, leased to Anderson Trucking Service, Brosnan is hauling heavy in the increasingly robust wind energy sector.

In a recent speech to a conference of heavy truck dealers, Navistar Senior Vice President James Hebe noted that the inevitability of a nationwide electronic onboard recorder mandate sounded the “death knell” for owner-operators, assuming many routinely run beyond hours-of-service limits to turn a decent profit.

It’s not a new prediction, but a little math shows that most owner-operators don’t violate hours regs, says Thompson. Cheating on hours is one way to run more miles and improve profitability, assuming you’ve got the freight, the stamina to work 70-plus-hour weeks and can avoid DOT enforcers. But the average Class 8 truck utilization “is only somewhere around 2,300 miles a week,” Thompson says.

It’s theoretically possible, running long haul and pushing the limits of the hours regs, to log 3,000 or more miles a week, he adds. Yet according to the 2009 Overdrive Owner-Operator Market Behavior Report, the average owner-operator logs just under 1,800 miles a week. “EOBRs aren’t going to be that big of a deal,” says Thompson.

In a New York Times Q and A, historian Shane Hamilton, author of Trucking Country: The Road to America’s Wal-Mart Economy, discussed owner-operators’ role in the deregulatory economic landscape of the past 30 years. He repeated an old notion about owner-operators’ supposed inability to negotiate adequate fuel surcharges in the face of increasing shipper demands for low rates.

While the numbers may seem to back him up, with only 74 percent of owner-operators receiving surcharges, according to Overdrive research, that percentage is considerably higher in fuel-intensive applications. More than 80 percent of owner-operators with average lengths of haul higher than 200 miles receive fuel surcharges. Many of those in shorter haul applications, when they are not paid by the mile, are able to recoup current fuel costs through other pricing models.

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