Declaration of Independence
Running under your own authority isn’t a decision to be taken lightly
When truckers get together, often the conversation turns to going independent and getting a motor carrier authority. One owner-operator with his own MC number will tell another how wonderful it is to have the authority and how much more money and freedom he will have.
George Matta, a business consultant with transportation financial services firm ATBS, calls much of the talk “hearsay” that often has important details missing. “They hear that’s what they should do to cut out the middle man” and be completely on their own, he says.
“There are two kinds of drivers — those who need to be told where to go and those who are very self-sufficient and can book their own loads two or three at a time.”
— George Matta
What Matta and others say is that running on your own isn’t for everybody. The reality of doing it differs from the relative ease of planning for it. It requires careful preparation, hard work, marketing know-how, adequate capital and trucking experience.
“There are two kinds of drivers — those who need to be told where to go and those who are very self-sufficient and can book their own loads two or three at a time,” Matta says. “The ones who’ve done their homework and driven for a carrier who requires them to book their own loads, those drivers seem to be able to ease into that better than those who go into it cold turkey.”
Kevin Rutherford says the chances of success are narrow. The Sirius XM Radio trucking show host and small fleet owner contends that for every 50 truckers he works with, only one is ready to operate under his own authority.
In your decision-making on whether to branch out on your own consider the following:
• Running your own business under your authority can open the door to more money, but it’s not guaranteed. You’ll have to work hard for it. You’ll have to build relationships with shippers and find your own loads.
• You’ll enjoy more freedom to call your own shots and work where and when you want. That flexibility can be rewarding, but you can’t take too much time off or you won’t generate the revenue you need.
• You cut out the middleman, leaving more of the revenue for yourself. Direct relationships with a shipper or receiver will pay off — if you can find them.
• Your insurance costs increase. As an owner-operator leased to a carrier you’re responsible for physical damage and bobtail insurance, while the carrier covers liability and cargo insurance. As a carrier under your own authority, you’re on the hook for all of the coverages.
• You have to find your loads. If you’re leased to a carrier, loads are usually provided for you. You can deal with brokers or turn to load boards, but that cuts into your profit.
• You’re responsible for compliance. With independence comes the responsibility of getting your own plates, arranging drug and alcohol testing and computing and paying fuel taxes.
• You must oversee your own accounts receivable. You run the risk of bad debt or slow pay.
• When you’re on your own, you usually lose carrier perks such as fuel networks and parts discounts. Unexpected maintenance costs are the No. 1 reason owner-operators go out of business, Matta says.
Are you ready?
In a 2010 webinar hosted by Overdrive magazine, Rutherford said a trucker needs to evaluate five areas in determining if he or she is ready to go independent.
Startup capital: You should have at least a $25,000 bankroll and little or no debt.
Insurance: Find out if you’re insurable. Check rates to plug into your budget.
Cash flow: A major reason businesses fail is under-capitalization and poor cash flow. Test to see whether you could do without a settlement check for 30 days.
Freight sources: Know where you’re going to get loads. Understand freight rates and lanes. Search for smaller shippers that might be overlooked by large carriers. Aim for at least 50 percent of your freight from your own shippers.
Compliance: Learn all you can about the Compliance, Safety, Accountability (CSA) requirements, drug testing programs, taxes, the International Fuel Tax Agreement rules and the International Registration Plan.
Rutherford says you should be figuring a profit and lot statement each month to know where you stand financially. Matta says creating a budget for your business and personal expenses will show you how much you’re going to have to make. Work those numbers down to the mile to see what you need to cover costs and make a profit.
“There’s no business degree in trucking,” says Rick McNeill, president of MCCI, a compliance services company that assists motor carriers and owner-operators. “The opportunity is sitting there for somebody who’s organized and knows about the industry. If you’re average, you can make a living. If you’re above average, you can make a very good living.”
After all, making more money is why you and other owner-operators talk about getting your own authority in the first place.