2005 looks like a great time to be an owner-operator. Just make sure you CAN cope with expensive fuel.
Happy New Year 2005, as a shortage of drivers and a heavy demand for freight make the mid-winter economic outlook warm and sunny for many owner-operators. “The outlook is very positive,” says analyst Chris Brady, president of Commercial Motor Vehicle Consulting. “Carriers need to expand their fleets to meet shippers’ demands, and there aren’t enough company drivers to handle all that expansion. Demand for owner-operators is strong and will remain strong in 2005.”
“The pluses outnumber the minuses,” says Todd Spencer, vice president of the Owner-Operator Independent Drivers Association, based in Grain Valley, Mo. “The downside is that we’re still looking at high fuel prices. They’ve come down a little, but we can expect spikes this winter because there’s not much inventory.”
“Given the tremendous need for drivers, 2005 could be a pretty good year for owner-operators,” says analyst Lance Ealey, a director at the Freedonia Group, a business research firm. Since the industry is unlikely to fill the driver gap anytime soon, he says, “I don’t see anything looming on the horizon that would rain on the truckers’ parade.”
For a while, anyway, owner-operators have some bargaining power with carriers, as demonstrated by the increased pay and benefits many fleets are offering. Paschall Truck Lines offers a $7,000 sign-on bonus, U.S. Xpress a $5,000 sign-on bonus. Barr-Nunn guarantees $1.04 diesel. But don’t expect windfalls anytime soon, Spencer says. “The fleet executives are serious when they toss around $70,000 salary figures, but they are also serious when they say they want some other fleets to take the plunge first.”
Still, since so many carriers are recruiting, “It is a good time to compare and see what other carriers are offering,” Brady says. But beware of grass-is-greener syndrome. However tempting the pay and benefits, make sure you understand all the fine print. “How many miles will they guarantee you?” Brady asks. “How many empty miles will you be running, and will you get paid for those?”
It’s also a good time for leased owner-operators to look into going independent, but that decision should come only after months of investigating the transition and saving money, Brady says. “You need to investigate your bottom line and build a cash reserve for emergencies.”
The chief cloud in the 2005 sky is the high price of diesel. Twenty-year company driver James Fincannon of Newton, N.C., who long-hauls furniture, says his independent owner-operator neighbors have parked their trucks. “They went from getting $1.25 a mile down to 80 cents or 90 cents per mile, and that doesn’t even pay their fuel.”
Fincannon says his employer – a retailer he declines to name – has cut pay about 30 percent. He’s considering following a number of his friends into other company driver jobs, but with diesel prices so high, he’s not tempted to buy his own truck.
Luckily, the high price of fuel is counterbalanced – so far – by high freight demand and, at well-run carriers, strong fuel surcharges. “High fuel prices aren’t crippling companies as they have in the past,” Brady says. “Carriers are able to pass along their cost to shippers, and the shippers are actually paying it.”
Still, high fuel prices increase costs for owner-operators, in some cases even those getting a fuel surcharge. A per-mile surcharge doesn’t help when you’re idling, stuck in traffic, deadheading or driving off route, Brady says. “In general, surcharges capture about 70 percent of actual fuel costs.”
Fuel prices hurt everybody, but they hurt independents worse than leased owner-operators, he says. Conscientious independents who ask for a fair fuel surcharge can expect to lose loads to those willing to roll at any price, Spencer says. “Brokers play a bigger role in the industry all the time, and they’re always adept at shopping for the cheap.” Those who price fairly and stick to their principles are still much better off in the long run, Spencer says.
The price of diesel has averaged $2 or more a gallon since September and seems due for a decline in 2005. Yet the price of petroleum products is much affected by world events. A terrorist attack in Saudi Arabia, political unrest in Venezuela, a hurricane in the Gulf of Mexico – these and countless other unpredictables helped push oil prices higher in 2004, and could again in 2005.
Ealey says drivers shouldn’t worry about the long-term availability of oil. If the price of oil reaches $50 a barrel, “a whole lot of marginally productive oil wells will open up,” he says. As the years pass, engine makers will be forced to make more fuel-efficient products, and to develop new technologies that don’t require diesel at all. “That’s already happening among lighter-duty vehicles,” Ealey says.
The price of diesel isn’t the only rising cost that affects owner-operators, Ealey says. “Prices for raw materials that industry took for granted for decades, like steel, have gone haywire.” That pushes upward the cost of trucks, tires and parts.
Even if you aren’t looking to change carriers, a good New Year’s resolution, Brady says, would be to take stock of your current lease situation. Too many owner-operators don’t even understand, for example, how much of their carrier’s fuel surcharge they’re actually getting or how much it compensates for the rise in diesel prices. “You can’t make the comparison with other carriers unless you fully understand what you’re getting now,” Brady says.
One big question for the economy’s start this year is how holiday retail sales fared. If they were strong, retailers will have to restock quickly. If the Grinch slipped coal into retailers’ stockings, and they are left with excess inventory, it will weaken the freight market into the second quarter. Even so, that should only delay the start of a good year for owner-operators and carriers, Brady says.
Keep in mind, Brady says, that during the recession, businesses held off on purchases. Now they’re relatively flush with cash and able to replace their worn-out equipment, which is why business spending is outpacing consumer spending. That’s good news for lots of owner-operators.
Even amid signs of economic activity, job growth has been relatively stagnant in recent years. This so-called “jobless recovery” is putting a lot of inexperienced drivers in truck cabs, Fincannon says. “There have been so many job losses in manufacturing, and now the benefits have run out, so people have to work, have to do something.”
Ealey believes the driver shortage won’t last forever. “These are relatively small or short-duration cycles,” he says. “Over time they will certainly flatten out.”
One development that could affect the driver pool, Spencer says, is the nation’s policy toward immigrants. President Bush has renewed his push for a “guest worker” program that would allow foreign nationals to take U.S. jobs in industries that are having trouble filling vacancies. The trucking industry certainly could fit in that category, Spencer says.
There is no shortage of willing drivers, just a shortage of fleets willing to offer fair pay and benefits, he says. If fleets get serious not only about pay but about cutting 100-hour work weeks and granting more home time, Spencer says, turnover won’t be a problem any more. “It doesn’t really matter what the job is. If you pay people enough, they’ll do it.”