Rancher and owner-operator Eddie McCormick is feeling the pinch from higher feed and fuel costs.
By Max Kvidera
Steve Betts remains committed to his life as an independent driver. “I have a good customer base,” says Betts, owner-operator of S.D. Betts Truck & Cattle of Bluffton, Minn. “I’m always busy.”
Making more money and controlling your destiny are powerful incentives to strike out under your own authority, but even in the best of times, the path to driving independence is full of risks and challenges as well as rewards. Today, as fuel prices steadily increase and the economy sputters, many leased owner-operators and company drivers are hesitant to emulate Betts by going out on their own.
Business definitely has slowed, says Rick McNeil, president of Motor Carrier Consultants of Mobile, Ala., which helps truckers start their own companies and stay in compliance. MCCI usually works with seven or eight companies at a time. “When diesel prices spiked last December, I sometimes was working with only a couple of companies, or sometimes none,” McNeil says. “That’s never happened at our company before.”
Although MCCI’s business began picking up again in February, uncertainty about the national economy remains a barrier to many drivers.
“It’s not a good time to go independent right now,” says Todd Amen, CEO of ATBS in Lakewood, Colo., the nation’s largest owner-operator financial services firm. “There’s never a good time to go on your own unless you really know your business. There’s so much risk, and there’s such a support network built into working for carriers.”
In 2007, ATBS invested in Truckers Back Office, a firm designed to help independents with fuel tax reporting, billing, revenue collection and other details. “We had over 100 customers sign up in an eight-month period,” Amen says. “Unfortunately, these guys didn’t do well enough on their own to last. The business failed.”
What does it take to build a successful career as an independent driver?
COVER YOUR FUEL COSTS.
In these times, fuel is the biggest bogeyman confronting independents. To survive, they have the tough challenge of renegotiating shipper contracts to include a fair fuel surcharge or to build in rates that reflect current fuel prices.
“They won’t see the fuel surcharges the way they did when working for someone,” says Eric Cook, owner of Peak Trucking Consultants in Aurora, Colo.
No matter how much fuel costs skyrocket, many shippers are reluctant to pay more for transportation. Independent operators often face a no-win proposition of accepting a load that won’t adequately cover costs or turning it down.
“Sometimes you’re better off just sitting than taking a load that doesn’t make money,” says Michael Weiss, owner-operator of Georgia West Transportation of Douglasville, Ga.
Mike and Melody Skurdahl of SunChaser Transport of Van Buren, Ark., are fortunate they get all the fuel surcharge on their loads through Interstate Distribution. On the other hand, Lee Daugherty of Broaddus, Texas, still is charging rates based on diesel at $2.98 a gallon. “Most of us around here don’t get surcharges,” he says.
Eddie McCormick is getting squeezed both as a cattle rancher and an independent operator. Rising feed prices are making it more expensive to feed the 1,200 yearlings and 250 cattle on the 5,000-acre McCormick Farms he owns with his father near Altus, Ark. And higher fuel costs have doubled shipping expenses for ranchers such as the McCormicks to 5 cents a pound from 2 or 21/2 cents last year. “Our business hauling livestock has been cut in half,” McCormick says.
He’s hoping to negotiate a deal that would allow him to hook two of his three trucks to tankers transporting animal byproducts. Until then he’s struggling to find six to eight loads a week compared with 10 to 15 loads per week last year.
PLAN YOUR BUSINESS AND YOUR LOADS.
“For a trucker going out on his own authority, the biggest challenge I see for most of them is wearing their salesman’s hat and going out and getting freight loads,” says Cook. “It’s difficult to find the loads and then figure out how you’re going to get paid.”
“My biggest piece of advice is you have to have a shipper relationship,” Amen says. “You need at least 50 percent of your freight coming from a place you know where you have a direct relationship. You can do the backhauls with the load boards and the brokers.”
Where your loads are coming from is a vital part of an independent’s business plan, Amen says. Your plan should include why you are in business, what services you will offer, who your customers will be and where you will operate.
“Whether it’s a good economy or a bad economy, it’s a huge step for an owner-operator,” Amen says. “They need a business plan and a budget to project their cash flow.”
“Many also don’t realize how much time is involved outside of the driving,” Cook says. “They don’t realize the time needed for administrative tasks and keeping records.”
SAVE FOR START-UP COSTS.
It will cost about $760 to obtain your motor carrier authority and Unified Carrier Registration, says Carol Pense, vice president of The Permit Connection in Alma, Ark. Figure another $2,000 to set up fuel tax accounts, purchase license plates and establish your International Fuel Tax Agreement permits.
After that, she estimates about $2,000 a year to renew plates, tax accounts and IFTA. Keep in mind, though, that some states are more expensive and require more paperwork for an independent trucking company to establish itself and to stay in compliance each year.
You also will need money set aside to get started and to survive the first month or so. How much will depend on your expenses, what business you have lined up and how much you intend to rely on searching out loads.
“It’s nice to have $10,000 set aside starting out,” McNeil says. “I’ve known guys who’ve started out with a lot less. I say if you’re going to rely on brokers and the Internet to get loads, you’re going to have a problem.”
BUDGET FOR ONGOING COSTS.
“Many truckers I work with didn’t realize the costs and the administrative tasks before they started,” Cook says. “Before, the carrier may have bought your plates. Now, you may have to buy a trailer to get business. You add in the cost of the trailer, plates, insurance and fuel, and you’re talking about a fair amount of money each month.”
McNeil notes some periodic expenses you will have to address as an independent, especially if you add trucks and drivers, that leased operators needn’t worry about: drug testing, log auditing and driver qualification. You’ll also have to handle fuel taxes, which for some leased operators are paid by the carrier.
Overall bookkeeping and paperwork, which might have been handled sufficiently by an accountant familiar with trucking while you were a leased operator, might require additional help, especially if you deal with lots of shippers or add trucks.
UNDERSTAND INSURANCE REQUIREMENTS.
The most expensive insurance facing independent operators is primary liability, which can range from $5,000 to $5,800 a year, or even more if you live in Florida or the New York/New Jersey area, according to Stacy Atkinson, truck insurance producer for Flying J Insurance Services in Ogden, Utah. A leased operator will be covered by the carrier when under dispatch but will be required to spend about $460 for non-trucking liability, or bobtail coverage, when not carrying a load.
How many years you’ve been behind the wheel and your driving experience will affect your rates. Drivers younger than 30 or older than 60 will pay more.
As an independent, you’ll also have to buy cargo insurance, something leased operators typically have to worry less about because it’s paid for, or at least handled, by their carriers. What you haul will make a difference: Coverage for refrigerated loads will cost more than for dry freight, and hauling cars will be more expensive still. For $100,000 in coverage, the amount mandated by many shippers, the annual premium will be $750 to $1,000, Atkinson says. Specialty haulers may need far more coverage.
You often can save money by buying all these coverages through a single insurance carrier, Atkinson says. This also might qualify you for a combined deductible in case of an accident.
A little-known coverage is commercial general liability, which covers non-operating activities not usually involved with driving, such as accidents that occur around a loading dock. These mishaps might include damage to a customer’s facility or injury to an employee, such as when operating a forklift.
The premium ranges from $300 to $500 for $1 million in coverage, Atkinson says. It’s not required by the U.S. Department of Transportation, but some brokers may require it.
CHOOSE A BUSINESS STRUCTURE.
As with a leased operation, the simplest business structure for your company, with the least amount of paperwork, is a sole proprietorship, says Howard Abrams, president of PBS Tax & Bookkeeping Service of Tarzana, Calif. Under that form, the owner and the business are the same entity.
There is substantial liability risk in operating a sole proprietorship, but maintaining adequate insurance mitigates any major problem arising from a serious accident.
Corporations and limited liability companies (LLC) are set apart from their owners and are more complicated to operate. As the head of a corporation, you must file a separate tax return and payroll, maintain a general ledger and keep a business checking account. Check with your legal adviser or accountant to help decide the best format for your situation.
Advice From Six Independents
Mike and Melody Skurdahl: Haul carrier freight
It’s been 15 years since Mike Skurdahl and his wife, Melody, began driving as a team. For the past eight, they’ve pulled loads for Interstate Distribution based in Tacoma, Wash. In September, they obtained their own authority and launched SunChaser Transport from their Van Buren, Ark., home. The reason: more pay.
Under Interstate’s program, the Skurdahls earn $1.56 a mile as independents, compared with $1.34 a mile as leased drivers. The Skurdahls keep meticulous records (Melody studied accounting), and they estimate their cost per mile at about $1 before taxes. They drive about 275,000 miles annually in their 2004 Volvo tractor.
“We’d probably be under if we weren’t doing this,” Skurdahl says of their independent operation. “It’s so tight out there right now. We ran the numbers last year, and our CPA told us to switch over immediately.”
The Skurdahls pay for their own insurance, plates and permits and hire The Permit Connection to keep track of permits and fuel tax reporting. Mike figures those costs at about $8,500 a year. The Skurdahls are paid all fuel surcharges collected by Interstate, which vary by customer.
Mike expects the big payoff to come in 2010 when the truck will be paid off, and an extra $40,000 should drop to their bottom line.
Clyde L. Roberts: Do your research
Clyde L. Roberts has been driving as an independent the past six years, after six years as a leased owner-operator and one year as a company driver. He says he went independent for health reasons.
“My blood pressure is a whole lot better since I’ve been doing it myself as an independent,” says the owner of C.L. Roberts Trucking of Mobile, Ala. “I was aggravated knowing companies were getting good money and not paying me to stay over out on the road. I’m home every night now.”
After he went independent, he started delivering for one company directly and also found loads through brokers. “Now I’m pulling for one customer using their trailer to haul scrap metal,” Roberts says. “The money’s not the greatest, but when I factor in things like not being away from home for weeks and having to pay for additional fuel on deadheads, I’m keeping as much or more than when I was out on the road.”
He estimates he will gross less this year than the $250,000 he recorded in 2006 and 2007, clearing about $26,000 for 2008 after expenses and taxes.
His advice for drivers considering going independent is to get educated. Talk with as many independent operators as possible who will give you honest information, Roberts says.
Lee Daugherty: Find a niche
Lee Daugherty of Broaddus, Texas, has driven as an independent since he was able to afford truck insurance in 1990. “I leased out for a couple of years but couldn’t stand giving 30 percent of my money to the company,” he says. “After that I got my own insurance and made my own way.”
Daugherty hauls partially processed utility poles to a creosote plant in Lufkin, Texas, a 57-mile trip one way. He’s paid about $225, or $8 per cargo ton, for each trip, and makes two or three trips daily.
“Most of us around here don’t get a fuel surcharge,” Daugherty says. “It’s costing me $30 more a load for fuel to haul these logs. Last year, it cost me $600 a week for fuel, and now it’s costing between $900 and $1,000. Last year, I grossed $120,000, and fuel cost about $54,000 of that.”
Daugherty saves money by performing his own maintenance on his 1996 Peterbilt. His wife, Michelle, handles all the paperwork.
He says he isn’t required to have his own authority. Because his work carries a forestry designation, he’s allowed to drive with simply a U.S. DOT number within Texas, Louisiana, Mississippi and Arkansas.
Steve Betts: Vary the cargo
It’s difficult for independents to find loads, says Steve Betts, though he stays busy hauling seemingly unrelated freight: cattle, potato chips and magazine inserts.
“In the Midwest, it’s been hard to get in with solid companies,” says the owner of S.D. Betts Truck & Cattle in Bluffton, Minn. “A lot of these shippers won’t even talk to you if you’re not going through a broker. They won’t talk to you even if you have years of experience and have good relationships with your customers. If you don’t have at least 50 trucks, they won’t touch you. I just have one.”
Betts doesn’t have to deal with brokers. When he hauls cattle, he’s paid on the spot by the farmers. When he delivers inserts, he gets cash at the other end. And he’s paid regularly by the chip manufacturer, which he’s worked with for 10 years.
While Betts drives, his wife, Nora, takes care of record keeping on their home computer. She plugs data such as expenses, fuel receipts, maintenance bills and mileage into QuickBooks.
“We compute our own road tax,” says Betts, who began keeping records on paper in 1985. “It’s fairly simple because I only run in two states. The best thing to do is buy fuel in every state in which you run. That way you’re not paying the road tax separately. If a driver has software and a computer, he can keep track on the road.”
Durand Rivers: Get experience
“A person should drive for at least five years before thinking about going independent,” says Durand Rivers of Mobile, Ala. “Learn about life on the road and about your truck. You can’t just go to trucking school and get a CDL and think you’re a professional truck driver.”
Five years ago, Rivers took over the trucking business started by his father, Thomas. Durand fixed up one of his father’s idle trucks and at first accepted any haul he could find. In recent years, he and his father have kept two of their three trucks busy transporting materials for prefabricated houses.
“We can’t pass along fuel costs,” Durand says. “They give you a price to haul the load. If you can pull it for that, you take it. If you can’t, you turn it down.”
At first, Durand kept up with his own mileage and receipts. Now he turns everything over monthly to Motor Carrier Consultants in Mobile, Ala.
“Running 400 to 500 miles a day, you don’t have time for all the paperwork to stay legal,” he says.
Michael Weiss: Don’t depend on brokers
Not long after obtaining his authority in June 2007, Michael Weiss of Douglasville, Ga., almost went out of business because, he says, he relied on brokers.
“It’s almost as if they know you’re an independent, so they adjust their rates down,” says the owner-operator of Georgia West Transportation. “Big carriers have their rates to cover their costs, and the brokers know that. I know what it costs to run my truck, but the brokers didn’t want to give it to me. To run my truck 12,000 miles a month, it costs me $1.45 a mile, which includes paying me a driver salary of 32 cents a mile.”
Weiss, who is paying for his 2003 Volvo truck and 53-foot reefer, says he didn’t cover his costs on some of his loads. During one three-week period, he had no money left for himself.
After that experience, he leased onto Landstar System to get loads. Now he says he’s getting better rates. He calls Landstar brokers or searches the Landstar website for loads.
“One thing that would help the industry is if drivers became more aware of their options,” Weiss says. “We have to be more responsible for doing business for ourselves. I’m not going to say brokers are bad, but I’m not necessarily going to say they’re good, either.”
Weiss advises owner-operators considering their own authority to find a successful driver as a mentor. “Have them tell you what you need to do and what they did to survive.”