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:

Blogs, Forums and Other Resources  
Texting Ban  
The Way it Was - A Short History of Trucking  
Pro and Cons of Being an Owner Operator   
FAQ for the Owner Operator  
Pictures    
Anti-Idling Regulations    
Definitions and Industry Terms 
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”, technically a carrier. 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 40 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 print, digital, or both.  (If you have a CDL, you can get their magazine without being a member.)  In addition to helping you get your own authority, they offer discounts and rebates on equipment, 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) 6. they find and dispatch loads.   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 or 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"

Next post: What You Need to Know About Equipment

Be sure to subscribe to this blog to get the latest and newest information.

Definitions and Industry Terms for the Owner Operator

How to Become an Owner Operator

Industry Terms and Definitions

See my other posts:

Blogs, Forums and Other Resources
Texting Ban
The Way it Was - A Short History of Trucking
Pro and Cons of Being an Owner Operator
FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
 
1) Owner Operator 411 – Welcome
2) Income and Expenses
3) Financing and Credit
4) Operating Authority or Leasing?
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

Industry Term:

Definition of Term

Back-haul:

Converse of line-haul; movement of freight from point of destination to point of origination. Part of the overall movement of door to door service.

Bill of Lading:

Shipping documents which transfers title to the goods.

Bobtail:

A tractor without any trailer.A two axle truck with the van permanently attached to the chassis.

Bingo Stamps:

Trip permits issued by the Public Utility Commission (PUC) for each intrastate freight move.

Break Bulk Agent:

Breaks down a container into its various shipments; deconsolidator.

Arranges 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.

Cargo Handler:

Person that loads freight onto dock and into trailers; also known as swampers, lumpers, stevedores, longshoremen.

Carrier:

An ocean vessel, airfreight, or common carrier in the business of transporting goods or persons.

Cartage:

To transport goods between the freight terminal and cargo carrier.

Chargebacks:

Uncollectible account receivables that reduce the cash received from factored invoices.

Chassis:

Basically long, thin, steel frame on wheels, which attaches to truck tractors to haul containers.

Co loader:

A freight forwarder that consolidates shipments with another freight forwarder.

Common Carrier:

A for hire carrier who holds itself out to the public to engage in the transportation of freight at published rates between a group of points which they are authorized to serve.

Consignee:

The company or individual that receives the shipment of freight.

Consolidator:

Purchases container space at a volume price for resale to freight forwarders. Practice of taking several small separate shipments of freight and organizing them into one container.

Container:

A large metal box used to store freight on ocean vessels and rail cars. Once the vessel arrives in port, the container can be loaded onto either a truck chassis or a railroad car. They usually come in 20 or 40-foot lengths.

Container Freight Station (CFS):

Customs bonded warehouse.

Contract Carrier:

Firms whose transportation service is limited to individual contracts, which are tailored to the specific needs of a shipper or a group of shippers.

Custom Delivery Order:

Delivery order prepared by a customs house broker.

Customs House Broker:

A licensed agent authorized to pay customs duties and take possession of goods coming through Customs. No one may act as a Customs House Broker without a Customs House License.

Because customs duties may range up to 20 percent plus on some products, the consignees, for cash flow purposes, may elect not to clear customs at point of entry, but instead, through the services of a Customs House broker, wait until the goods are shipped inland before clearing customs and paying the duties.

Custom House brokers have to post a $500,000 bond, to insure that if the goods are damaged or stolen during transportation, the duties on the goods will still be paid to Customs.

Deadhead:

A tractor pulling an empty trailer. Driving the tractor without any freight.

Delivery Order:

A copy of the invoice containing the shipper, consignee, destination, description of goods, and weight.

Demurrage:

A fee charged by the shipping companies if the container is not returned timely.

Detention:

A fee charged by the railroad if the trailer is not returned timely.

A optional fee paid to a truck driver if he has to wait an undue amount of time to get loaded or unloaded.

Dispatcher:

The person who arranges the pickups and deliveries of freight and prepares the drivers' manifests.

Dock:

Areas used to load and unload freight in to or out of a trailer. This is the structure that a trailer backs up to. (Terminal).

Door to Door:

Pickup at the shipper's dock (door) and delivery to the consignee's dock (door) that is handled by the same company.

Door to Ramp:

Pickup at the shipper's dock (door) and delivery to the ramp of the railroad, ocean ship or airline carrier.

Drayage:

Pulling a trailer or container (cartage), the charges for transfer and cartage between stations, or to and from vessels on carts or trucks.

Exempt Carriers:

For hire carriers who engage in moving specialized commodities that are exempt from government regulation. Most notable of these exempt categories are unmanufactured agricultural commodities.

Foreman:

Oversees operations on the dock.

Free Time:

Amount of time (days) the container can be used without any charges. Varies with the type of container and mileage distances.

Free Zone:

The area within a certain radius of the port of entry or harbor where a for hire carrier is not required to be licensed by the ICC to transport freight between states.

Freight Broker:

An agent for the independent contractor that arranges jobs for independent contractors.

Freight Forwarder:

An agent who makes the arrangements for the transportation of freight from the shipper to consignee. The freight forwarder issues a through bill of lading from the origin to the destination, and takes full responsibility of the freight while it is in transit.

Glider Kit:

This is a kit to construct a tractor. It does not contain an engine or a transmission. It may be subject to Excise Tax.

Haul away:

Trailer used to move cars and trucks

House Airway Bill:

Air freight bill of lading for a single shipment of freight.

Independent Owner Operator:

An owner operator who is not leased to a carrier.

Interline (line haul):

Agreement between shipper and transportation company that specifies the modes of transportation and identifies the specific carriers to be used.

Interchange:

The transfer of equipment from one carrier to another.

Intermodal:

Term used in describing transportation of freight combining the use of railroads and trucks, usually for long distances. Competitors to intermodal transportation providers are the long haul trucking firms.

Just In Time (JIT)

Freight that is to be delivered "Just In Time" to be used without being warehoused.

Labor Leasing:

The practice of leasing employees (both drivers and office staff) instead of hiring them. The labor leasing company is responsible for paying employment taxes and filing the tax returns.

Leased Owner Operator:

An owner operator who leases their truck to a carrier.

Less Than Truck Load (LTL):

A shipment of loose freight, as opposed to a full sealed container.

Landbridge:

Porthaulers who transport freight from the harbor to the railroad.

Linehaul:

Movement of freight from the point of origination to point of destination

Longshoreman:

Ocean carrier cargo handler that loads and unloads freight at the harbor.

Lumper:

Cargo handler of fruit, vegetables, dry goods and agricultural products that is usually paid by cash.  Someone, other than an employee of the consignee or trucking company, who is paid to unload a trailer.

Manifest:

Schedule of freight pickups and deliveries.

Master Airway Bill:

Summary of the house airway bills for a single container

Onloading:

Loading freight at the shipping end, point of origination.

Offloading:

Unloading freight at the receiving end, final destination.

Over The Road:

Transportation by tractor and trailer from one area to another area.

Owner Operator:

A truck driver who owns and operates his or her own vehicle.

Piggyback:

Where the trailer is loaded onto a rail car.

Piggyback Agent:

Shipper's agent that books and schedules freight on railroad.

Porthauler:

A subhauler that picks up freight at the harbor and hauls it to the operations terminal or to the consignee.

Pre Note:

Preliminary freight invoice used to schedule freight moves and prepare the final freight bill.

Prime Carrier:

A general common carrier with operating authority with either the PUC, ICC, or both depending on the type of hauling, intrastate or interstate.

A Prime carrier must post a $15,000 subhauler (surety) bond with PUC/ICC.

Designation as a prime carrier allows the company to solicit business directly from a shipper. If the company does not have the prime carrier designation, it can only work for another prime carrier as a subhauler.

Private Carrier:

Business that is registered with the PUC to transport and deliver their own goods. Most of their operations are moves of less than 100 miles. This industry segment's average length of haul is 51 miles.

Ramp to Door:

Pick up at the railroad and delivery to the consignee's door.

Reefer:

Refrigerated trailer.

Radio Frequency Identification (RFID):

Used to locate a product or asset in transit anywhere on the globe. RFID tags can be as small as a grain of rice.

Shipper:

The individual or company sending the freight to the consignee.

Shipper's Agent:

A transportation broker that arranges movement of freight.

Spotting:

Hauling empty trailers back to the rail yard or container company.  Moving trailers around a carrier's yard, or from the yard to the dock, or from the dock to the yard.

Stevedore:

Cargo handler that loads and unloads freight from vessels at the harbor (longshoreman).

Subhauler:

An owner operator that hauls freight for a prime carrier.

Swamper:

Someone hired by the truck driver to load and unload freight during the delivery of goods (lumper).

Tariff:

The rate that the carrier charges for the hauling of freight.

These rates must be filed with either the PUC or the ICC depending on which agency is controlling.

Terminal:

Dock where freight is loaded or unloaded

Tractor:

This is the power unit that pulls the trailer.

Trailer:

The vehicle that is pulled by a tractor in hauling freight- container.

Transload:

The process of moving freight from ocean containers to domestic containers and vice versa.

Transloading:

The act of unloading freight from a container trailer and loading it into a trailer bound for the consignee.

Truck Load (TL):

A sealed trailer or container.

A load being paid as a full load, even if the trailer is not full.

Warehouse:

Where goods are stored prior to delivery or distribution.

Yardgoat or Goat:

Tractor with a short turning radius that is used to pull trailers or containers within the freight yard and not intended for highway use. A spotter truck

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