Climbing Out

Independents suffer the worst as economic slowdown drags owner-operator income into the pit.

Jerry Bley parked his 1971 Peterbilt 352 last summer. “I figured if I was going to go broke, I’d go to the house and go broke,” says Bley, of Hamilton, Ohio, who is 54 and divorced. “The old lady’s gone. It’s just me and my dog. I do very little for money.”

Following the fuel spike that began in 1999 and the slowdown in freight that set in the next year, many owner-operators, like Bley, quit the business. Others struggled to get by or became company drivers.

Overdrive‘s 2003 Market Behavior Report shows that 2001 was one of the worst in recent memory for owner-operator net income. Average income dropped 17 percent, from $44,800 to $37,100. In most recent years, Overdrive‘s owner-operators have reported average net incomes in the low $40,000 range. Experts estimate that once tax returns are done, they will show 2002 income fared about the same as in 2001, though prospects look slightly better for 2003.

AUTHORITY HAS ITS DOWNSIDE

Owner-operators with their own authority took the biggest hit in 2001. Many have left the ranks of independents during the slowdown. They accounted for almost half of those responding to the Overdrive survey in 2001, but only a third responding in 2002. Their average income fell 24 percent, from $45,500 in 2000 to $34,600 in 2001.

That’s no surprise, given that many publicly traded carriers showed double-digit declines in earnings, says Chris Brady of Commercial Motor Vehicle Consulting, which produced the annual report for Overdrive.

“These are small businesses, so one shipper probably makes up a large share of his freight,” Brady says. “If that one shipper has a falloff, it might cause the independent to switch to being a leased operator or to go out of business, or to just park the truck temporarily and become a company driver.”

That’s also what’s been observed by Gordon Klemp, who runs the National Transportation Institute (formerly Signpost), and who surveys large and medium-sized carriers to produce the National Survey of Driver Wages. “We’ve consistently heard there are fewer owner-operators available with their own authority,” says Klemp. When freight slows, he notes, carriers have to give more priority to their company drivers than their owner-operators.

Will Lucas of Morton, Minn., is one owner-operator who has found the economy of recent years unsuitable for running as an independent.

“I used to have my own authority, but I couldn’t make it,” he says. “Too many guys had their own authority and could haul cheaper than me.” Lucas says he’s fared better since he leased to Atlas Specialized Transport, hauling industrial equipment, three years ago.

Bill Morrison of Northport, Ala., says he’d rather not operate under his own authority because there’s “too much headache.” Besides, he’s done well as a leased operator: netting about $50,000 in recent years. He expects to earn that much again this year with his new carrier, Green Field Transport, of Fort Dodge, Iowa.

Some owner-operators, however, who have found situations where business stays steady enough, can prosper, even in down years. H&M Bay, a reefer carrier based in Federalsburg, Md., uses only owner-operators with their own authority, says Mike Ryan, chief operating officer. “We’ve grown every year we’ve been in business,” he says, and further growth is expected this year.

Very few of the 10,000 owner-operators who use American Truck Business Services have their own authority, say Jeff and Todd Amen, who run the accounting and advice service. They say they counsel single-unit owner-operators not to operate independently.

“Guys trying to scrape by on their own are the first to lose freight,” says Todd Amen. They’re also competing with fleets whose operating costs are lower due to their size. “An owner-operator driving for U.S. Xpress or Swift has 8 cents to 10 cents lower per-mile costs for fuel than someone who has his own authority and is buying for himself,” he says.

Some of those who have survived as independents have relied increasingly on load boards. Postings with Transcore’s DAT and TruckersEdge services increased 23 percent from 2001 to 2002, to 28.4 million, and the number of owner-operator customers is climbing, too, says Don Thornton, vice president for core business solutions. He says the company serves an estimated 35,000 owner-operators daily through 1,200 truck stop monitors and subscription services that use telephone, fax and the Internet.

FUEL AND INSURANCE

Independents and leased operators alike continue to be hurt by fuel prices, which spiked in early February to record highs. “Fuel’s really what’s killing owner-operators,” says Mark Depew, who’s leased to Boyd Brothers, of Clayton, Ala. He says he gets a fuel surcharge when he hauls for clients who have a surcharge agreement. “Either way, I do all right,” says Depew, whose earnings have been in the $50,000 range in recent years. He says he expects similar income this year.

Mike Shaw, after earning $35,000 a year driving for an owner-operator, decided early this year to see if he could do better as an owner-operator. Now he’s hauling mostly coils and sheets for 3i, of Eldridge, Iowa, in a 1999 International he’s buying on a lease-purchase through 3i. “It’s been up and down,” he says of trucking the last few years. “After 9-11, it really got bad.”

One impact from 9-11 was to make insurance, which had already been increasing steadily in price, even more expensive. That’s been compounded by the weak stock market.

“Insurance companies make money by investing premiums,” Brady says. “When the stock market was doing really good, they just wanted premiums to invest; they weren’t worried as much about the profitability of the coverage. When the stock market started to tank, they became much more concerned about the profitability of coverage and you started to see rates increase. We still have that scenario today.”

Carriers have more flexibility than owner-operators to raise deductibles to offset premium increases, Brady says. The owner-operator doesn’t have much depth for financial risk. “He better have the cash to cover that deductible or he’s out of business,” he says.

Given that insurance costs have remained high, as have fuel prices, 2002 owner-operator income isn’t likely to change much. Freight volume dropped throughout 2001 and more or less rose throughout 2002, ending up about where it began in 2001, so last year’s improvements might not amount to much, Brady says.

OPTIMISM FOR 2003

For this year, slightly improving freight will boost owner-operators earnings 3 percent to 5 percent over 2002, Brady forecasts. “We’re not coming out of this recession very strong. You’ve got very high fuel prices. Insurance remains a problem in 2003 because insurance companies are still increasing premiums because they’re getting lower returns on their investments. The good thing for 2003 is that the high point for fuel prices will be probably the first half of the year; whatever goes on with Iraq will be over, or nothing will occur, and that will lead to lower fuel prices.”

Those owner-operators who can stick with strong fleets – and some fleets have been showing increased freight volume in recent months – should do all right in 2003, says Todd Amen. “If fuel stays reasonable, I think owner-operators are in for, if not a banner year, a better year than the last two,” he says.

Some fleets are getting enough business that they’re offering sign-on or recruiting bonuses of $1,000 or $1,500, says Klemp. “Bonuses dropped off dramatically in the last few years, and we’re seeing them start to bounce back now,” he says.

Davis Transport in Missoula, Mont., is one such fleet, offering a $1,500 signing bonus. The motivation isn’t turnover, but growth. The carrier doesn’t even track owner-operator turnover because it’s so low, says Matt Grandy, vice president of operations. “The average length of time people have been here is well over 10 years,” he says.

Whether it’s leasing to stable fleets such as Davis or taking new risks, there are owner-operators finding ways to come out ahead, even if the midst of hard times.

Anthony Aver, 24, of Atlanta, didn’t let last year’s slow freight stop him from taking the leap into becoming an owner-operator. Aver netted $24,000 in his first six months leased to a small fleet, Vattan Transportation, of Roswell, Ga. Based on that, he expects a good 2003 as long as fuel doesn’t get too high.

“I got a good deal on a truck and a whole lot of advice from a lot of owner-operators,” he says. Aver is paying $17,000 for a 1998 Volvo VN 760. “The only way you can win is to try – if you don’t try, you’re going to be a loser.”

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