Partners in Business: Choosing a Carrier

Updated Nov 6, 2014
Switching carriers can be expensive, so be careful about who you decide to do business with.Switching carriers can be expensive, so be careful about who you decide to do business with.

Though demand for drivers dropped with the slowing economy from as early as 2007 through 2009, the recruiting ads and posters promising more revenue and better opportunities returned in 2010 and continue to be prevalent today. Increased revenue is easy to understand, but the cost involved to switch carriers often is overlooked. It can be thousands of dollars. And when you look at gross revenue instead of just pay per mile, revenue typically isn’t any better at a different carrier.

Choosing a carrier, nonetheless, should be approached systematically. Look at industry magazines and search the Internet for carriers that pull the kind of freight and run in the geographic area that interests you. List as many potential carriers as possible. Watch for trucks and carriers on the road that fit your criteria. Even in a specialized segment of the industry, you will be surprised how many choices you have.

Most people will try to find one name that fits all the preferred criteria. Take the opposite approach. Pick a name on the list and start looking for a reason not to choose that one. Maybe the company requires more experience than you have or requires a newer tractor. Eliminate many of the companies early in the search.

When you find a carrier you can’t eliminate for any reason, put it on your short list. When you reach five, stop and follow these steps:

* Contact the carriers directly. Request a copy of their lease agreement. Read each lease from front to back and make notes. Create three lists – things you like about the lease, things you don’t like, and things you don’t understand. If they can’t or won’t send a lease agreement, scratch them off the list.

* Call each carrier again. You need to make sure you understand everything and how cooperative and supportive the carrier is. If you can’t get straight answers about the lease now, odds are you’ll have the same obstacles if you decide to work with that carrier. In most cases, these conversations will get your list down to two or three.

* Schedule a visit to each company. If there are multiple locations, visit corporate headquarters. It might be expensive and time-consuming, but you are designing your business. It will be worth the effort and expense.

* Request a visit with someone in each department you would deal with as a leased owner-operator. Again, this could narrow your list further. If they don’t have time for you now, do you think they will have time for you after you sign the lease?

* Prior to your visit, write down questions for each department, such as dispatch, safety and compliance, operations and settlement.

These steps will prepare you well for getting the critical information you need to make a wise decision. Once you’ve done so, the business-minded approach you’ve demonstrated will help establish you as a professional who deserves respect.

QUESTIONS TO ASK OF PROSPECTIVE CARRIERS

PAY. One of the most important questions you’ll want to ask about is pay. Ask if fuel surcharges are available and if they are packaged with base pay or paid separately. Check whether the fuel surcharge is nationwide or regional and what miles-per-gallon rate the surcharge is based on – 6 mpg is common (see Chapter 9). Confirm that 100 percent of the surcharge is passed along to owner-operators.

Ask if the carrier offers layover pay, empty mile compensation and pay for loading and unloading or reimbursement for lumper charges. Do they reimburse for tolls? Do they pay your fuel taxes, or are they charged back to you? When are settlements paid?

Does the carrier impose chargebacks? Ask about paying for primary liability insurance or onboard fleet management systems such as electronic recorders or tracking systems.

Hourly pay for time spent waiting at shipper and receiver locations (detention) is increasingly important – and prevalent – as carriers switch to electronic logging systems. Does the carrier offer pay for detention? Many carriers have moved in in the direction of time-based pay systems with hourly detention-pay plans, often billed after one or two free hours, though 2013 research suggested that nearly half of the industry’s drivers get no detention pay. Independent owner-operators running under their own carrier authority bill direct shippers as much as $70-$100 hourly for excessive detention; it’s unlikely you’ll get such rates from your carrier as a leased operator.

One major carrier in the reefer segment, for instance, in 2011 transitioned to guaranteed detention pay – paid to the driver regardless of whether the carrier was collecting it from the shipper – at a rate of $20 per hour after the first two hours.

HOME TIME. In assessing routes, loads and miles, you want to factor in your preferred lifestyle. Ask if certain routes or regions are open that would accommodate your desired amount of home time. Make similar inquiries about specialized work such as heavy-haul or high-touch loads. Ask carriers about available miles and routes, and question their operators about the miles they’re getting. If the carrier is oriented to owner-operator independent contractors, you’ll more likely get consistent miles.

CULTURE. As with people, companies have personalities. Gaining a penny or two more in revenue may not be enough to offset a company atmosphere that doesn’t respect drivers. Some carriers will want to control everything you do, and others will give you plenty of rein. Some companies provide benefits to owner-operators, such as fuel networks and insurance assistance.

PHILOSOPHY. Does their way of doing business match yours? Ask whether company drivers get dispatched before owner-operators, or whether company drivers get better loads. Even owner-operators who work for the same company can get significantly different pay; the difference can be as much as 30 cents per mile. Would you be in the carrier’s top tier – or bottom tier?

Before switching carriers, ensure that you have done everything possible to manage your costs and run your business efficiently. If you haven’t done that, you won’t be any better off at a new carrier, and you’ll have the added burden of making up the costs you incurred while switching.

You usually can survive one switch in a year, though it’s difficult. Switching twice in a year could put you out of business. If you have a good relationship with your driver manager, enjoy the company’s culture and have opportunities to get the miles and pay you need, chances are you won’t be any better off anywhere else.

 

OTHER QUESTIONS

Ask recruiters and owner-operators these questions about any carrier:

• When would I get my sign-on bonus? Some carriers pay it when you deliver your first load, others after 90 days, others after six months or even a year.

• What are your strongest lanes? You need to know where the freight is and where it goes.

• Do you pay lumper fees? Some carriers provide a set amount to pay lumpers, which sometimes might not be enough. Find out what’s covered and what your obligations are in all loading and unloading situations.

• What fees must I pay? Learn about base plates, insurance, equipment, deadhead pay and drug-test fees.

• Will there be multiple-stop loads? If there are, will you be paid for each stop or a flat fee?

• Do you have dedicated runs? Companies with dedicated freight may require you to qualify for those runs based on where you live or other factors. Learn how it works.

• Do you have an owner-operator advisory board? Carriers with such boards demonstrate an interest in relations with owner-operators.

• What is your owner-operator turnover rate? Industry turnover always is high, but anything greater than 100 percent is cause for concern.

• Do you have a purchase program for tires, parts and other items? Discounts offered by fleets, such as those set up with truck stop chains, can save you money.

• What is your policy on cash advances, money services and fuel cards? You should avoid asking for advances, but it’s good to know a company’s policy, as well as arrangements regarding money services like Comchek and fuel cards.

• How do your escrow accounts work? By law, the lease clearly must define all fees and reimbursements carriers can take from owner-operator escrows. How much of that would you get back if you left, and how long would you have to wait?

• What is your policy on major breakdowns? Find out if the carrier will stand behind you in such an emergency. Ask the terms of repayment.

• What are your rider and pet policies? If you like to take along your spouse, significant other or child – and Fido, too – don’t forget this question.

 

THE COST OF CHANGING CARRIERS

If someone said it made sense to spend 4 cents a mile to get 2 cents back, you’d be rightly skeptical. But that’s similar to what happens when switching to a new carrier without considering the full cost of switching. You can’t leave one carrier and expect to be up and running at the new carrier the next day. It can take three weeks between winding things down at your old carrier and getting up to speed at the new carrier. It takes time to turn in the trailer, satellite equipment, base plate, permit book, etc. You then have to bobtail to the new carrier and attend orientation. Then you have to get all your paperwork filled out and wait to get a load. It can take longer than three weeks before a settlement check is received.

During those three weeks, you get no revenue. True, you avoid the variable costs that would have gone with earning that revenue, but it’s a net loss to you. Your fixed costs don’t stop. Your truck payment and your insurance payments still are due. And you still have your personal bills, such as mortgage or rent, groceries, car payments and utilities. The full cost could be as much as $12,000 with no revenue incoming to set against it.

This loss doesn’t include the cost of learning a new system and new routes at the new carrier, likewise building a working relationship with dispatch to prove your credibility. All of that takes additional time. And remember, what recruiters may be telling you is a best-case scenario, and it may be some time before you’ll be in that situation.

Before switching, ask yourself some hard questions. Have you done all you could at your current carrier? You’re an owner-operator in a driver’s job market. Unless you’re an obvious problem, your carrier wants to keep you. If you’re thinking of leaving in anger, as often is the case, cool off first. Could you analyze your own costs and manage your business better to succeed where you are? How will a switch affect your reputation? Carriers try to avoid chronic job hoppers. No matter how good a driver you are, job-hopping paints you as a malcontent who’s difficult to work with.

OTHER COSTS

DOWNTIME: $500 to $3,000. If you’ve been earning $50,000 a year and working 300 days a year, that’s $167 a day. Multiply your income by the days you’ll be down.

INITIAL ESCROW FUNDING: $500 to $5,000. Even if you eventually get it back, it’s often due before you get any income. Some carriers build it over time via small settlement deductions.

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.

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 tie-downs for flatbed work, chains for northern hauls, pumps and compressors for tank operations – 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.

 

KNOW THE LAW ON LEASES

Whatever’s in a lease contract must agree with federal law. Not sure what the law says? Go to www.fmcsa.dot.gov, and where it says “All Regulations,” type in 376.12. That will give you the truth-in-leasing regulations, which specify what a written lease must contain, including complete specification of compensation, responsibilities of each party for costs, chargeback items and how they are computed and more.