Turnaround

Owner-operator John Woodberry of Florence, S.C., says long waits at the docks are hurting his income worse this year because of the new hours-of-service rule.

Floyd Feagin gave up in October. Expensive fuel, problems with his carrier and picky inspectors finally pushed him to leave the ranks of owner-operators after earning about $25,000 in 2002 and not much more in 2003.

He came back to trucking as a company driver in January for R.E. Trucking of Jackson, Ala., but has no idea how he’ll fare financially this year.

“It’s obviously very down from what it used to be,” Feagin says. “You have to run extra hard to make what you were making three to four years ago.”

Many owner-operators, like Feagin, have struggled in recent years. Average net income fell $1,200 – from $43,000 in 2001 to $41,800 in 2002, based on surveys of Overdrive readers. It was the second annual drop, following average income of $44,800 in 2000.

At the same time, owner-operators who have survived, as well as those who have prospered during what could prove to be the last phase of the industry’s downturn, should be poised to reap the higher compensation that comes with being in high demand this year.

Owner-operators had a particularly tough year in 2002, says Chris Brady, whose Commercial Motor Vehicle Consulting firm compiles the annual Owner-Operator Market Behavior Report for Overdrive.

“Freight volumes were weak,” he says. “Fuel prices were rising. Insurance was an issue. Carriers were in the process of bringing capacity in balance with shipment volumes. Carriers were going bankrupt. There was excess capacity in relationship to freight demand. There was no need to increase owner-operator wages.”

That was also true for much of 2003. But during the second half, positive economic reports were common and by year-end, large fleets were announcing big pay raises.

Two former company drivers from Pennsylvania were optimistic enough about the industry’s prospects that they became owner-operators in recent months, leased to Schneider National.

“I’m shooting for $100,000 gross, and hoping to net $70,000 to $80,000,” says Craig Grubb, 42, who’s driving a 2004 Kenworth W900L. Dale Weitzel, 36, who’s also driving a 2004 W900L, says he’s nervous about fuel prices – he says he paid $1.97 for diesel in mid-January in New York – but not about steady freight. “With Schneider, I’m pretty confident,” he says.

Operators getting fair fuel surcharges through their carriers have less concern about diesel costs eroding their bottom lines. Mike Coil, 45, of Delphos, Ohio, who leases two trucks to Liquid Transport Corp., is happy with his surcharge, even if diesel keeps rising. “The higher it gets, the better for us. It gets it down to a buck a gallon.” Coil believes his 2003 income will be better than the prior year’s.

Rising fuel costs are a huge concern for Matt Goodwin, 30, co-owner of an expanding three-truck fleet based in Rootstown, Ohio. “Our biggest problem’s got to be fuel and tires,” he says, especially since only some of the fleet’s hauls get fuel surcharges.

Getting started during a downturn has been tough: 2002 was unprofitable after investing $75,000 into equipment; 2003 required less capital investment, so they did better. This year they’re adding another truck. “We have to – to pay the bills,” Goodwin says. He hopes to gross at least $80,000 per truck and net $24,000 or $25,000 per truck in 2004.

Mark Bayci of Caldwell, Idaho, also gets spotty results in receiving fuel charges for his trucking and brokerage operations, which includes brokering five to 10 trucks as well as driving as an owner-operator. His income fell from 2001 to 2002, and again in 2003.

“Fuel is just breaking our backs,” Bayci says. “I’d really like to see fuel prices stabilize a little bit lower.”

One fleet that does protect its owner-operators with a consistent fuel surcharge is Transport America, based in Minneapolis. “Now we’re paying 6 cents a mile fuel surcharge, but it goes up and down,” says Recruiting Director Larry Bailey. “That’s for all dispatched miles – empty or loaded.”

Midwest Coast Transport pays a surcharge based on a formula tied to the U.S. Department of Energy average diesel price, says Recruiting Director John Krolikowski. “The owner-operators aligned with us are not dependent on what the fuel surcharge is with particular customers because we pay a standard,” he says.

While high and unpredictable diesel prices have cut into owner-operator income for five years, effects from a new factor – the hours-of-service revision – are only beginning to be felt.

One plus for some owner-operators is detention pay. Many fleets are beginning to levy the fees to compensate for dock delays, which are much more costly now that they cut into on-duty time.

“We’re in the process of escalating our detention fees,” says Krolikowski. “Our full intention is to compensate owner-operators for their time.”

Transport America is also billing for detention, but like MCT, did not know in late January how well shippers would respond to the new charges.

Many truckers are having to pay much closer attention to their work cycle, making the most of every one of the 14 hours of on-duty time, which must be consecutive unless a sleeper berth exception can apply. “I’m skipping a lot of meals – eating going down the road instead of eating at truck stops,” Weitzel says.

Owner-operator John Woodberry of Florence, S.C., says his long waits at the docks are killing him under the new hours rule. Combined with fuel prices and bad freight rates, he says his income prospects look dim for 2004.

However, economists and others inside the industry and out are predicting a turnaround this year. Brady points to the second half of 2003 as the turning point for freight, culminating at year-end with significant compensation hikes by major carriers to attract owner-operators and company drivers, as well as to make up for lost productivity due to the new hours rule.

If the value of the stock in the nation’s largest owner-operator fleet, Landstar Systems, is any indication, the turnaround indeed began in 2003 and should continue through 2004. The company last month reported record fourth quarter net income of $15.1 million, as well as a record $1.6 billion in revenue for 2003. “I anticipate the revenue increase in the 2004 first quarter over the 2003 first quarter to be in the range of 6 to 10 percent and in the range of 8 to 12 percent for the 2004 full year,” says Chairman and CEO Jeff Crowe.

The National Association of Manufacturers predicts that manufacturing output will increase 6.1 percent this year, up dramatically from 2003’s 1.4 percent. The Truck Tonnage Index, compiled by the American Trucking Associations, has been climbing slightly since its drop-off in mid-2000, but surged 14.6 percent to an all-time high in December.

Brady agrees that 2004 should be a good year. “Freight’s high, so utilization of equipment should be high. Carriers are definitely strapped for capacity and looking for owner-operators to meet that. Anyone who survived the last few years should see a nice bump up in income.”

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