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Owner Operator 411

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18 February 2009

4) Operating Authority or Leasing as it Applies to the Owner Operator







2001 Kenworth T600



 


Becoming An Owner Operator

4) Operating Authority or Leasing?


See my other posts:


FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
1) Owner Operator 411 – Welcome
2) Income and Expenses
3) Financing and Credit
5) Equipment
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools

I hope you got here by reading my previous posts (numbered 1 - 10) first. If not, I advise you to go back and do so. This post won't help you if you can't get the financing for a truck. If you don't understand how you will be making money (net), then I you are not ready for this step.

If, on the other hand, you understand that you will not get rich by owning your own big rig, have checked your credit report and Fico score, cleaned up all of your debt problems, and are sure you can secure a loan, then read on!

There are two types of owner operators. The one with their own authority, and the leased owner operator. For the purposes of this post, I am assuming you will be driving your own truck. If you are planning on hiring a driver you would be an owner, not an owner operator, but most of this information would still apply.

Your own AUTHORITY: This means that you are a “trucking company”. You will probably have to buy a trailer. You will have to get your own permits, and pay your own taxes. You will have to find your own freight.

The three different types authority are: Common Carrier, Contract Carrier, and Broker Authority.

COMMON CARRIERS provide for-hire truck transportation to the general public. Common carriers must file both liability (bodily injury & physical damage) insurance and cargo insurance.
The definition of an "authorized for-hire” carrier is a person or company that provides transportation of cargo or passengers for compensation. If you are a for-hire carrier, in addition to the USDOT Number you will also need to obtain an Operating Authority (MC Number).
CONTRACT CARRIERS provide for-hire truck transportation to specific, individual shippers, based on contracts. Contract carriers must file only liability (bodily injury and physical damage) insurance.

A contract carrier cannot broker loads without first applying for and receiving a license to operate as a broker of freight.

BROKERS (brokers are not owner operators) arrange for the truck transportation of cargo belonging to others, for compensation, utilizing for-hire carriers to provide the actual truck transportation. Brokers must file either a surety bond or trust fund agreement.

If you want to get your own authority, there are lots of companies that can help you, such as (OOIDA). We are members of OOIDA and have been since just after they started, about 30 years ago. They are one of the best things I have ever spent my money on. Membership dues are only $45.00 a year, but sometimes they run a special. Includes a subscription to “Land Line” magazine.  In addition to helping you get your own authority, they offer discounts and rebates on equipment, as well as financing, they have truck, health, and life insurance, a drug and alcohol consortium, retirement plans, fuel cards, load boards, business information services, and much more!

Most owner operators are leased to a trucking company – a common carrier or a contract carrier. Actually, you are not leased, your truck is. When you lease your truck to a trucking company, they provide you with services and charge you for them (see "Income and Expenses" post).

What services they provide and how much they charge you varies from company to company, so ask a lot of questions before you lease on your truck and find out exactly what they do and what you would have to do.

Some of the common services provided:
1. they buy your license plates (and usually you have to reimburse them,
2. they pay fuel taxes,
3. they buy the permits,
4. they do all the record keeping and reporting for fuel taxes and permits, and/or
5. they provide you with a trailer (charging you rent).
 

These are all things you would have to do and pay for yourself if you had your own authority.
 

You need to check with trucking companies and see if they have enough freight and if they are leasing on more trucks. Ask other drivers of the company you think you might like to lease to if they are happy (they will probably say no), how much they gross, and how much they net (they will probably lie), and if they are planning to stay with the same company they are leased to. Why did I say they will probably tell you they are unhappy? Because truckers are notorious for complaining. They complain about the dispatchers, the loads, the dispatchers, the truck, the dispatchers, the pay, and, oh, did I mention the dispatchers? So, when they tell you how unhappy they are, ask them how long they have been with that company. If it is more than a year or two, they are probably happy. I also called them liars, but in reality, they just like to stretch the truth. Most people will tell you they are doing a lot better than they really are, but then you also get those who just like to exaggerate in the other direction. Ask to see their revenue statements. A lot of them will be glad to show you.
 

After you have asked all of your questions, DON'T sign your lease until you have read it completely and understand what it says.
You are the lessor (the party who is giving the right for the use of the equipment).  The company is the lessee (the party getting the use of the equipment).
 

The lease is a legal contract.  It spells out what what percentage or mileage rate they pay, what expenses you are responsible for, and what expenses they are responsible for.  It should tell you when you will be paid and how (percentage or mileage).  It will tell you who is responsible for fines, damages, and losses. It will tell you if you have to have an escrow account.
"Escrow fund – Money deposited by the lessor with either a third party or the lessee to guarantee performance, to repay advances, to cover repair expenses, to handle claims, to handle license and State permit costs, and for any other purposes mutually agreed upon by the lessor and lessee"
Although you can be required to carry insurance on your equipment, you can not be required to buy your insurance through the company you are leased to.  They can not require you to have work done in their shop, rent or buy equipment (covers anything from load locks to trucks) from them, or buy their fuel.  You are an independent, and as such have the right and option of obtaining your own services or equipment from where ever you want.  This does not mean that you can't use their equipment of services, it just means you can't be required to.
 

If you are being paid a percentage, you have a right to see the freight bills, showing the amount the load pays.
If you have your own authority, none of the leasing information applies to you unless 1) you lease a truck from someone else (you are the lessee) or 2) you lease your equipment to someone (you are the lessor), which you can do.

Alphabet soup definitions:

USDOT:
United States Department of Transportation
MC: Motor Carrier
FMSCA: Federal Motor Carriers Safety Administration
OOIDA: Owner Operators Independent Drivers Association
ICC: Interstate Commerce Commission. An agency which used to regulate the trucking (and railroad) industry, but is no longer in existence. It was disbanded in 1995.
IRP: International Registration Plan is a registration reciprocity agreement among jurisdictions in the United States and Canada which provides for payment of (truck) license fee on the basis of fleet miles (even if it is only one truck) operated in various jurisdictions
HUT or HVUT: Heavy (Vehicle) Use Tax - A federal tax imposed annually
CDL: Commercial Drivers License
IFTA: The International Registration Plan (IRP) is a reciprocal agreement that authorizes the proportional registration among the jurisdictions (states) of commercial motor vehicles. This means if a truck is operated in multiple jurisdictions, the owner must annually report mileage driven in each state and taxes are paid proportionately based on the mileage driven. The good news is the owner may pay those taxes in one jurisdiction—referred to as the base jurisdiction or base state. Vehicle owners are required to register under IRP, if:
    • their vehicle is over 26,000 pounds gross vehicle weight (GVW); or
    • has three or more axles, regardless of weight; or
    • is a power unit and trailer whose combined GVW is in excess of 26,000 pounds, and
    • your truck operates in at least two IRP jurisdictions
Resources:

FMSCA frequently asked questions – registration and licensing: "FMCSA"
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I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

8 comments:

K.E.N. said...

I would like to know more about fuel surcharges and how they apply to the O/O?

Road King said...

K.E.N.,

Fuel surcharges are a way for the trucking industry to recoup some of the high cost of fuel.

If you are leased to a carrier, the carrier may or may not charge the shipper a fuel surcharge.

If the carrier does charge a surcharge, there is no legal requirement for the fuel surcharges collected from a shipper to be passed on to the person who actually paid for the fuel. In other words, there is nothing that stops a carrier from charging a fuel surcharge and keeping some or all of it, even though the owner operator is the one paying for the fuel. I think this is outrageous.

If you have your own authority, you can negotiate your own fuel surcharge.

OOIDA (Owner Operator Independent Drivers Association) has a fuel surcharge calculator on their web site at http://www.ooida.com/Education%26BusinessTools/Trucking_Tools/fuelsurcharge.shtml

Thank you for reading my blog. I hope this answered your question. If not, please let me know.

K.E.N. said...

What should I expect the average price per mile to be compared to loadboard freight?

Road King said...

K.E.N.

Load board freight is usually lower than freight through a carrier that you may be leased to. A lot of brokers use load boards, but they usually have shippers and carriers they deal with daily, so they only post their "leftovers".

I never used load boards too much, but in my experience, they paid less. How about it drivers? Anyone use a load board on a regular basis? What has your experience been?

Also, read the Jan. 22, 2011 comment on the "Income and Expenses" post.

jamie said...

my husband has been an truck driver for 17 years he is now doing local trucking and making a good wage he wants to go into leasing a truck and go back out on the road. Do you have any info on this to help us with this decission he wants me to quit my job and go with my worry is right now our take home pay is 75,000 a year can we still make this kind of money on the road

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Road King said...

Jamie,

Good questions!

When you say he wants to "go into leasing a truck", do you mean lease/purchase as opposed to buying a truck? If so, I urge you to read the OOIDA blog at "Lease purchase is not the way to get into trucking".

If he is making $75,000 a year take-home, it is very doubtful if you will make that kind of money as an owner operator, especially starting out.

If you two do decide to do this, why not have your husband try it for a year before you quit your job? You say he wants you to go with him, does that mean you will be driving team? If so, do you already have your CDL? Have you ever driven? Do you like it? If you won't be driving team, have you considered how much extra it cost for you to be on the road with him (extra insurance, meals, etc.)?

Before you decide anything, please use the CPM calculator to see what you will net.

I definitely understand the lure of him wanting to go back on the road, but I really think that unless he is so unhappy staying where he is, he would be making a big mistake. If he just has to get back out there, has he considered driving long haul as a company driver? He would almost certainly do better than as an owner operator.

Keep us posted and let us know what you decide. If you do decide to take this step, we would be interested in knowing how you make out.

Whatever you do, Good Luck!

Riley's Mom said...

My whusband and I have decided to buy a truck. He has wanted to be a truck driver for a long time. He is very passionate and knowledgeable about driving, operating and the business of trucking. I'm currently not working and staying home with out baby. I'm a hospitality management graduate and have taken many classes on business and entrepreneurship. I already do our taxes and would handle the books at home. We already have a company lines up to work with. We live in CT and plan to put together $15,000 ($5,000 down for a used truck, $2,500 for registering and insuring the truck, $2,500 for fuel and two to get us through the first couple weeks and $5,000 cushion in case anything goes wrong with the truck before we make any money). Does this sound feasible? We want a truck $30,000 - $35,000. He's been a company driver for 4 years now and taking home about $36,000. We make just enough to get us by, have no savings and our credit scores are below 600 (very little credit card debt but massive student loan debts). We have registered a business name and having a huge problem with start-up capital. What would be your suggestion/advice for us? Thanks in advance for you advice.

Road King said...

Riley's Mom.

First, you said that you are currently taking home $36,000 a yer. Do you think you can do better as an OO? If you haven't already, use the Interactive CPM Calculator to figure your estimated net income.

Start-up capital is always hard. Unless you hit the lottery, or have a rich uncle, about the only way you can get it is to save. Loans are hard to obtain, especially if you don't have a very good to excellent credit rating. You will be asking to borrow money for an new - unestablished - company, and that is almost impossible to get.

Some people think they can get a small business loan. What they don't realize is that a small business is defined as something like under 500 employees and under $7 million in gross income. While a one truck owner would certainly qualify, the government pretty much laughs at us. They want to help businesses that create jobs.

You sound as though you are well on the road to a potentially successful business, but you may not see a $36,000 a year profit the first or even second year.

With the background of both you and your husband, I think you could probably make a go of it, if you can hold out until you start seeing a life-supporting profit. In regard to you doing the taxes, that will be a savings to you. Since you will be doing the bookkeeping, you could be an employee, or you could form a partnership. Whichever you do, but sure to read all of the pertinent available material regarding business taxes.

You numbers look fairly good. I would like to see you have a little more than $5,000 for a cushion. The suggested amount is 3 to 6 months of operating capital. Don't forget, if you have a breakdown and have to use that money to repair the truck, you will still have business expenses, plus personal expenses. What would you do if it cost you all of your savings for a repair, and your truck was in the shop for 2 or 3 weeks?

I think that you all could be a successful business, but not at this time. Sorry. Without any savings and "massive" student loans, I just don't think you are ready. Run the numbers anyway on the Interactive CPM Calculator and make your decision.

Good Luck! I hope this has helped you somewhat.

If possible, let us know what you decide, and if you go for it, let us know how it is working out.

Thanks for writing.

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