Owner-operators Jim and Bonnie Kopisthke of Bailey, Colo., prefer working with a smaller carrier. “We’ve worked for big companies, and it seemed like we got taken advantage of,” Jim says.
At best, owner-operators can leave one carrier, join another and be off and running in three days with little income interruption, few extra costs and no surprises. The actual costs, including downtime, might be under $1,000.
Other owner-operators endure two or three weeks of downtime, pay excessive front-end fees and learn too late about significant ongoing costs, such as trailer rentals and insurance add-ons. Some drivers see even more lost income during months spent finding the right dispatcher and learning how to work the new carrier’s system. The total cost of changing carriers in such cases is thousands of dollars.
Keep in mind that personal living expenses have to be paid whether you’re making money or not. The same is true for fixed trucking costs, such as truck payment and insurance, which run about $100 a day. Furthermore, unless all costs, fees, revenue and work volume are accurately assessed, both short-term and long-term, a switch that looks like a winner could become a loser.
Owner-operators can control the process, minimize costs and avoid making a big mistake by observing a handful of simple rules.
AVOID FREQUENT CHANGES. Before considering a change of carriers, review your track record. Carriers try to avoid chronic job hoppers. If it’s this year’s second change, it might not be smart.
“It hurts your employment record to be changing jobs regularly,” says owner-operator Michael Webb of Anniston, Ala. “It’s better to stay with the company for at least a year.”
“The best-paying companies want the best drivers,” says Howard Abrams, owner of PBS Tax Services in Tarzana, Calif., which serves owner-operators. No matter how good a driver you are, job-hopping paints you as a malcontent who’s difficult to work with.
TRY SOLVING YOUR PROBLEM FIRST. You’re an owner-operator in a driver’s job market. Unless you’re an obvious problem, your carrier wants to keep you, so first make sure leaving is the right thing.
“Honestly, call the carrier before quitting,” says Tony Guthrie, safety director at American Transport in Pittsburgh. “Find somebody to speak with, and solve the problem. Every carrier’s goal is to reduce turnover, and communication is the best way to do that.”
If you’re leaving in anger, as is often the case, cool off first so you can present yourself professionally.
“A lot of guys call, and they’re so emotional,” says Greg Iverson, recruiting manager at Koch Trucking in Minneapolis. “Somebody made them mad.”
“The shame of it is, a lot of owner-operators and companies end up parting ways due to emotions, and everybody loses,” Guthrie says.
COUNT THE PAY. A sign-on bonus is a good start toward covering job-changing costs, but bonuses differ in more ways than just the amount.
“Some make you wait six months before they pay it, others say 90 days, and some pay it when you deliver your first load,” says owner-operator Webb.
“Some carriers make you work a year before you get it,” says Kip Hough of the Owner-Operator Independent Drivers Association’s Membership Assistance Department. “I don’t call that a sign-on bonus.”
Beyond bonuses, examine your total compensation package. Even owner-operators who work for the same company get significantly different pay.
“There was a 30-cent-per-mile difference between three owner-operators we just dealt with, all from the same company,” says former 20-year owner-operator Russell Fullingim of Truckers Financial Services, an owner-operator accounting firm in Corning, Calif.
Some carriers charge fees for everything from using their fuel card to weekly settlement sheets. Some keep half the fuel surcharge but pay empty miles, or compute mileage pay with confusing per diems. Others offer more mileage pay, then take it back through higher insurance premiums or administrative fees.
“It seems like they stay awake nights finding ways to take your money,” says owner-operator Jim Kopisthke of Bailey, Colo.
High percentage pay can be misleading, too. If a carrier hauls freight for $1.50 a mile, even 90 percent of the load won’t be enough.
COUNT THE COSTS. Another problem with quitting in anger is that you’re less likely to do the research needed to fairly compare your lease with another.
“Use due diligence,” Guthrie says. Learn about specific job-change costs, such as base plates, insurance, equipment, deadhead pay and drug-test fees. Some costs are immediate; others show up later. For example, some fuel-card and direct-deposit fees won’t show up until you’re working.
“That’s one thing you want to know,” Kopisthke says. “What are they going to charge you to work for them? A lot of them don’t tell.”
“One guy paid $491 for advances in one year, and some carriers don’t charge for that at all,” Fullingim says.
“Insurance is a big issue from carrier to carrier,” Hough says. “Some require bobtail insurance, workers’ comp, occupational accident and non-trucking liability, and workers comp is very high. Some carriers pay for the primary liability and cargo insurance; some charge it back to the driver.”
Another potential problem is escrow accounts, which can cover such items as cash advances, insurance claim deductibles or premiums, repairs, traffic citations and a maintenance fund for a lease-purchase truck.
Owner-operators often have trouble getting money out of escrow when they leave carriers, says Abrams. “Last week I took a deduction for an owner-operator who lost that money,” he says. Hough says many carriers “try to nickel and dime the fund to death so there’s nothing left to refund.”
By law, the lease must clearly define all fees and reimbursements carriers can take from owner-operator escrows. Still, it’s not uncommon for contested escrows to be thousands of dollars.
For a few hundred dollars, it might be best to simply cut the loss. But for $5,000, review the lease’s escrow section, and maybe seek expert advice.
STUDY THE LEASE. Besides escrow accounts, other expenses related to changing jobs will be defined in the lease contract, as will the obligations of both parties.
Too often owner-operators don’t read the contracts before signing them. In some cases, carriers make it difficult by withholding the contract until after orientation.
“That’s a definite red flag,” Hough says. “They’re hiding something in there, most likely.”
Sometimes a carrier will take advantage of an eager owner-operator.
“On the last day of orientation, the carrier might say, ‘We have this hot load for you, so you can make some money,'” Hough says. “They rush him out of there before he’s had time to read the contract.”
Instead, he recommends, “Get a copy of the contract, take it home and review it before you sign it. If you don’t understand the contract, get someone who does.”
GET PROFESSIONAL ADVICE. Beyond reviewing the lease, it can be worthwhile to get professional counsel on all aspects of changing carriers, especially if you need help crunching the cost and revenue numbers.
“Talk to someone who specializes in the trucking business who can walk you through this process,” Fullingim says. “You need to run this like a business, but I’d say 90 percent of the people I speak with don’t know what they’re doing.”
While an experienced owner-operator might know enough to evaluate a change independently, Abrams says, “the new person who’s just bought his first truck, or if he’s switching from company driver to a lease-purchase package – he doesn’t know what costs to expect.”
Fees for professional advice can be money well spent, considering the trouble avoided.
“The grass can seem greener on the other side of the fence, but a lot of times you get there and find the grass is dead,” Fullingim says.
TALK WITH OTHER OWNER-OPERATORS. Experts agree that a carrier’s drivers are the best references for a prospective owner-operator.
“They’ll tell you exactly how it is – the good, the bad and the ugly,” Guthrie says. And that’s unlike what certain recruiters will tell you, says three-year owner-operator Carlos Zeledon of Miami, who’s with his third carrier.
“The recruiters will tell you the company you’re working for sucks and they’re stealing your money, and if you come work for them you’ll make more,” he says. “They promise you everything.”
IMMEDIATE JOB-CHANGE COSTS
Any time you change carriers, you’ll encounter expenses that must be paid before freight is hauled. These amounts vary widely by fleet and type of haul. If you’re looking at high transition costs, make sure the additional long-term income will cover that outlay in a reasonable time.
DOWNTIME: $500 to $3,000. If you’re earning $50,000 a year and working 300 days a year, that’s $167 a day. Muliply your income by the days you’ll be down. Subtract orientation pay, if any.
INITIAL ESCROW FUNDING: $500 to $5,000. Even if you eventually get it back, it’s due before you get any income.
INSURANCE: UP TO $1,500. Some carriers charge it to the owner-operator, some don’t.
BASE PLATES: UP TO $200. Unless you bring your own, they’ll have to be purchased.
PERMIT FEES: UP TO $500. Some carriers pay them, some don’t.
DRUG TESTS: UP TO $150. Most carriers pay for these.
EQUIPMENT: UP TO $1,000. You might need to invest in equipment: tie-downs for flatbed work, chains for northern hauls or a tractor paint job.
EMPTY MILES: Unless you’re switching to a hometown carrier, multiply your cost per mile times the miles you have to deadhead to the new carrier.
IS IT WORTH 2 CENTS A MILE?
Looking strictly at revenue, a new job that offers 2 cents a mile above your current pay isn’t necessarily as good as it sounds. Assume:
- A three-week transition between carriers with no paid orientation or other compensation
- Lost revenue of $2,500 per week
- Missed variable costs (fuel, tire wear, etc.) associated with that revenue of $1,000 per week
- 130,000 miles per year with both carriers.
Variable costs saved $3,000
Revenue lost -$7,500
Lost net income -$4,500
Over the first year, you’ll gain $2,600 (130,000 miles X $.02) due to the 2-cent pay hike:
Initial net income loss -$4,500
Extra mileage pay +$2,600
NET INCOME LOSS AFTER ONE YEAR -$1,900
LEASES AND THE LAW
Whatever’s in a lease contract must agree with federal law. Not sure what the law says? Kip Hough, of the Owner-Operator Independent Drivers Association, suggests logging onto this site, and search “376.12.” “That will give you the truth in leasing regulations – what must be in a written lease,” Hough says.
Here is a sampling of items addressed in those regulations:
COMPENSATION TO BE SPECIFIED. The amount to be paid by the authorized carrier for equipment and driver’s services shall be clearly stated on the face of the lease or in an addendum attached to the lease.
ITEMS SPECIFIED IN LEASE. The lease shall clearly specify the responsibility of each party with respect to the cost of fuel, fuel taxes, empty mileage, permits of all types, tolls, ferries, detention and accessorial services, base plates and licenses, and any unused portions of such items.
CHARGE-BACK ITEMS. The lease shall clearly specify all items that may be initially paid for by the authorized carrier, but ultimately deducted from the lessor’s [owner-operator’s] compensation at time of payment or settlement, together with a recitation as to how the amount of each item is to be computed.
INSURANCE. The lease shall further specify who is responsible for providing any other insurance coverage for the operation of any leased equipment.