Fair Share

Owner-operator Carey Pritt of Mountain City, Tenn., who drives a 2004 Peterbilt 379, has worked for percent of revenue, but prefers mileage because it’s easier to keep track of.

Many truckers use the word “miles” and the word “income” as if they were the same thing, which makes owner-operator John Trapp of Waukesha, Wis., laugh. He has never been paid per mile, and he never wants to be.

“I’ve been driving for 35 years, and I’ve always run on percentage,” says Trapp, now leased to Landstar and hauling mainly trade shows. “You can make more money by running fewer miles. I love it.”

Other owner-operators aren’t convinced that getting paid as a percentage of the revenue per load is necessarily a better way.

“There are pros and cons to both mileage pay and percentage pay,” says Carey Pritt of Mountain City, Tenn., leased the past four years to Danny Herman Trucking, which pays mileage. “There’s more money in the percentage pay – for loaded miles, anyway – but it depends on the quality of freight your carrier is hauling. Drivers feel more comfortable with mileage pay.”

Forty percent of all owner-operators are paid on percentage, compared to 29 percent who are paid per mile, according to the 2004 Overdrive Owner-Operator Behavior Report. Those on percentage are happy these days because freight rates are high and getting higher. Many owner-operators remain wary of percentage pay, but some analysts think it’ll become more common as more drivers look for a way to share the wealth.

“It’ll definitely be a driver-driven change,” says economist Chris Brady of Commercial Motor Vehicle Consulting in Manhasset, N.Y. “Freight is plentiful and empty miles are relatively low, so percentage pay is more attractive. There’s more freight out there than trucks.”

Industry analyst Dave Goodson of KPMG, which compiles the North American Truckload Rate Index, favors percentage pay on principle. “It more fairly reflects the job performed,” he says. “But whether percentage pay is more lucrative than mileage pay depends on how good an owner-operator you are. The guy who really has his act together could make more money on percentage pay.”

The most common percentages paid are 67 percent to 72 percent, with an additional 10 percent to 12 percent if the owner-operator has his own trailer, says Jeff Amen, vice president of American Truck Business Services in Denver, which does the books for 20,000 owner-operators.

“We see drivers being extremely successful under either scenario, mileage or percentage,” Amen says. “These are just ways for recruiting departments to advertise. Frankly, revenue does very little to determine your profitability. It’s cost management that matters.”

Landstar, an all-owner-operator carrier based in Jacksonville, Fla., pays on percentage across the board. “This business has traditionally priced itself on mileage pay, so percentage pay is a hard sell sometimes, but it’s a smarter business decision,” says Pat O’Malley, Landstar vice president of safety. “Only in very depressed markets would per-mile be superior.”

Among leased owner-operators, 53 percent are paid on percentage, compared to only 14 percent of independents. Payment methods for independents are more varied because their applications are more varied and they solicit freight directly, Brady says.

Research shows that no single payment method dominates the independent market, though the largest segment, 28 percent, is paid by tonnage or weight – a reflection of the many independents who haul bulk commodities such as sand, gravel or coal, often locally or regionally, Brady says.

Percentage pay is more common among flatbeds, reefers and other specialized applications than among dry vans, Brady says. “If you’re operating tanks, platforms, hazmat, etc., you tend to have a relatively high number of empty miles, compared to general freight carriers,” he says. “If you pay owner-operators by the mile, you’ve increased your costs. But when you pay on a percentage, you’re paying the owner-operator only when he’s generating revenue for you.”

Quality Transportation, based in Baker, Mont., pays on percentage but reassures its drivers by guaranteeing them a minimum of 95 cents per mile loaded and 50 cents per mile deadhead, says President Mike Griffith.

High rates plus 100 percent of the fuel surcharge plus 100 percent of the stop and tarp charges mean Quality’s owner-operators “are running for a lot more per mile now than the guarantee,” Griffith says. “Paying a percentage is by far the best for the owner-operator. Our current rates are substantially higher than they were a year ago, and the owner-operators are getting their percentage of the new rates.”

The most obvious benefit of percentage pay for owner-operators is that high freight rates, like those the industry is now enjoying, get passed through.

“The current rate levels are unprecedented, and percentage pay really gives the operator an opportunity to share in everyone’s profitability,” O’Malley says. “Of course, if there are rate decreases, he participates in that, too.”

That’s what worries Doug Shepard of Hazleton, Iowa, a 30-year owner-operator now leased to CDN Logistics. “I’ve been on both sides, because I used to haul produce on percentage,” Shepard says. “With percentage, you can actually make a lot more money. The down side is that you have to eat a lot of deadhead miles. Percentage is also an up-and-down thing, because sometimes you get those good loads that pay well, and sometimes you don’t.”

Shepard has bad memories of 1995, hauling produce on percentage into Hunt’s Point in New York City. “There was a freeze in Florida and floods in California, and everybody and his brother put on reefers,” Shepard says. “I went from making $6,000 into Hunt’s Point to making $2,700 into Hunt’s Point.”

Trapp acknowledges that depending on percentage pay is “feast or famine.” But good owner-operators can ride out famines, he says, by figuring which loads are worth their while, and being patient enough to wait for them. “Ask yourself, what does it really cost to run your truck? You’ve got to push that pencil.”

Suppose rates drop across the board? “Then you sit a lot, which isn’t bad,” Trapp says. “You don’t truck that cheap stuff.”

Many owner-operators are more comfortable with mileage pay because they started out as company drivers, with mileage pay their only option, says Richard DeForest, a vice president at American Truck Business Services. “Plus, mileage is the easiest to measure, and with mileage your gross is going to be more consistent from year to year,” DeForest says.

Many drivers are wary of percentage pay simply because it’s more complicated than mileage pay. “It typically takes a more sophisticated owner-operator to be successful on a percentage pay method, because when you’re running on percentage, you have to pay close attention to changing markets and market conditions day to day,” Amen says.

Everything from the growing season in California to the start of the school year – everything, in short, that determines what’s being hauled and for how much – needs to be factored into the percentage owner-operator’s business decisions, Amen says.

“A true independent looks more toward the end result than the pay per mile,” O’Malley says. “He has a better fix on what his true costs are. He decides what his business needs are, and he makes decisions accordingly.”

Some fleets describe their pay to drivers as a percentage of a percentage, Amen says – for example, 67 percent of 98 percent. In other words, the driver gets his share after other shares are taken out, for example administrative costs and broker fees. Owner-operators sometimes bristle at that, but it’s reasonable for everyone involved in the haul, not just the driver, to get paid, Amen says.

Trapp advises owner-operators to study their percentage agreements carefully, as they should any contract. “You can get screwed on percentage,” he says. “There can be a lot of hidden charges.”

For example, Shepard asks, how is the fuel surcharge passed on – as a per-mile addition to the percentage, or as part of the percentage? Assurances that the surcharge is included in the percentage aren’t good enough, Shepard says.

Today Shepard hauls mainly hazmat on a weekly run between Chicago and Los Angeles. He gets paid for deadhead miles as well as loaded miles, plus a fuel surcharge and a bonus for the hazmat. It works out to $1.05 per mile headed west and $1 per mile headed east, Shepard says.

Pay is not the only consideration when choosing carriers or loads, Pritt says. He gets 82 cents a mile plus a surcharge, for an average of $1 a mile, to haul dry freight to and from Mexico. Danny Herman Trucking lets him do 98 percent drop and hook, much of it in the carrier’s own facilities, and gets him home often to be with his wife, Angela, and their newborn, Brandon. “I don’t want just pay,” Pritt says. “I want a home life, too.”

Today, Shepard is happy to stick with mileage pay because the industry is so unpredictable. Percentage looks too chancy “unless it’s hauling meat or produce, because people have to eat, and they’re going to eat one or the other.”

Griffith says Quality Transportation is sold on the percentage system. “I think we all come out better on percentage, the owner-operator and the company.”

After 35 years of avoiding it, would Trapp ever consider mileage pay? “If they’re giving $1.50 per mile, sure,” he says, laughing, “but don’t give me this 92-cent stuff.”

O’Malley expects percentage pay to become more common if rates stay up, making more mileage rates pale by comparison. “More people will say, ‘Hey, I’m not getting mine.'”

While a mile is still only a mile, a percentage system that reflects the most current rates could increasingly become the ticket for more owner-operators to get what they deserve.


DEADHEAD AND DISHONESTY
Many owner-operators are wary of percentage pay because they fear two things: unpaid deadhead miles and dishonest numbers. Those who love percentage pay say neither is a genuine problem.

Carriers that pay mileage, loaded and unloaded, have incentive to keep deadhead miles to a minimum because those deadhead miles cost them money, says owner-operator Carey Pritt, who’s paid by the mile. Carriers that pay according to percentage, Prit says, have no such incentive.

“They’ll be more apt to give you a load that’s 300 miles away to get that better rate because they’re not eating the cost. You are,” Pritt says.

That prospect doesn’t frighten owner-operator John Trapp, who runs on percentage. The more lucrative the load, the more deadhead miles you can absorb with no worries, Trapp says. “I’ve got it figured out to a science now. I’ll go 400 or 500 miles to get a load that I like.”

Many drivers prefer mileage pay, Pritt says, because they simply don’t trust carriers to calculate the percentage accurately. “I’ve never worked for a company on percentage that actually showed you the correct rate,” Pritt says. “Your mileage, you can pretty well keep track of yourself.”

Federal law requires that owner-operators paid on percentage be allowed to see documentation of the carrier’s pay for the load, but this isn’t required for mileage pay, says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association.

Dealing honestly with drivers is not only federal law but also good business, says Pat O’Malley, a vice president at Landstar, which pays only on percentage. Landstar has a policy of no forced dispatch. With accurate information, “The driver is going to migrate toward the higher-paying freight, and that makes the dispatchers seek the higher-paying freight, and that’s good for everybody,” O’Malley says. “Besides, all drivers need is a sniff that someone isn’t treating them fairly, and those drivers are gone, and so is that company.”

Those who think mileage pay is more trustworthy should think again, say advocates of percentage pay. “As we all know, every mileage guide is different,” says Mike Griffith, president of Quality Transportation, which pays on percentage.


NUMBERS TELL THE STORY
Which is better, mileage pay or percentage pay? As this example shows, the answer depends on routes, rates, empty miles and an owner-operator’s ability to crunch numbers. Our percentage operator congratulates himself on the high-rate run into Boston, but then he has 150 unpaid miles and a low-rate Charlotte run before he can head back to Chicago. When the round trip is done, though, the percentage operator comes out a little ahead. He’d be still better off if the mileage carrier paid less for empty miles than for loaded ones, as often happens.

Percentage rates are based on the North American Truckload Rate Index average for dry vans, which reflects what shippers are paying: Chicago-Boston, $1.65 per mile; Providence-Charlotte, $1.05; Greenville-Chicago, $1.15.

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