Struggling but surviving

| September 29, 2009

Still, “2008 was very bad,” says Brady. “We got high fuel prices and at the end of the year got whacked with a decrease in freight volume. The owner-operator is no different than larger for-hire carriers, though – they’re going out of business, too.”

Equipment costs, too, are rising. Engines equipped with 2010 emissions technology are expected to add as much as $10,000 to the price of a new truck. On this count, Hebe and others have predicted a vanishing act for owner-operators, as only the most credit-worthy volume buyers will be able to afford a new Class 8.

Thompson concludes , though, that healthy owner-operators will have no problem buying used trucks. “One of the primary drivers of owner-operator success over the last number of years has been how easy it has been to get financing,” he says. That has changed, with lenders wanting higher credit scores and strong borrowing histories. But Thompson says improvement of the lease-purchase model has made it easier for would-be owner-operators looking to get into a used fleet vehicle with a good maintenance record.

“You take the used-truck salespeople out of the equation,” he says. “And with a decent contract, [the fleet is] able to watch weekly how the driver’s performing – they can try to help him more quickly” if he needs it.

“What will change for OOs is the increased emphasis on efficiency, productivity and operating costs,” says Volvo Trucks North America’s executive director for marketing, Matt Kelly. “This pressure will have evolutionary impacts on OOs. For instance, it means a virtual end to operating traditional square-hood non-aerodynamic tractors with sub-6 mpg.”
In this environment, those who are still profitable have made needed operational choices long ago, freeing up time to focus on the demanding job of acquiring freight.

Whether the argument is rising costs or something else, time will prove wrong those predicting the owner-operator’s demise, says Brady. Or as owner-operator Brosnan puts it: “We’re an integral part of this industry, and we’ll stay that way.”

Legal threat
Will a new law jeopardize leased contractor status?

Since President Barack Obama’s election, concern has increased that there will be a stronger challenge to the independent contractor classification of workers in various industries, including trucking.

“The concept of an independent contractor that we have today will change legally,” says industry consultant Lana Batts.

The fear is that a federal bill similar to one Obama cosponsored in 2007 would be made law. The bill addressed IC classification for tax purposes and would have instructed the U.S. Treasury Department to set new federal standards for classifying ICs to protect whistleblowers who challenge their IC classification. It also would have levied penalties for misclassification beyond current levels and denied companies “safe harbor” in defending their position by examples of longstanding industry practices.

Such a law could cause “every motor carrier out there to take a look at the risk” of leasing owner-operators, says Doug Grawe, Dart Transit’s in-house legal counsel. Grawe sees the 2007 bill as particularly stringent on employers who are determined by a court to have misclassified ICs. “Right now,” he says, “if I get audited on the IC issue, I could be faced with paying my back taxes and penalties and fines. In [the 2007 bill], I’d have to pay penalties and fines and my back taxes and the workers’ back taxes.”

And if the carrier’s risk is too great, two totally safe choices would exist, Grawe says: “Do we want to become a broker? Or do we want to make everyone a company driver?” The former choice means all leased owner-operators would need to run their freight on their own authority, a riskier business model.

Currently, the IRS offers a control test for determining who is an IC that is little more than a recommendation to states for tax purposes. Many in the trucking community say it would be helpful if the federal government at least adopted a clear definition applicable to both tax and labor realms to supersede the current patchwork of state definitions.

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