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16 • OCTOBER 2023 JOB RESOURCES<br />
THETRUCKER.COM<br />
OWNING THE WHEEL<br />
There’s a lot more to running a successful<br />
trucking business than just owning a rig<br />
CLIFF ABBO<strong>TT</strong> | SPECIAL CORRESPONDENT<br />
It’d be pretty hard to find a driver willing accept a company<br />
driving position without even asking what the pay will be.<br />
In fact, most people would say that blindly taking any job<br />
without finding out the pay scale is not a wise move.<br />
However, professional drivers who decide to buy a rig and<br />
strike out as owner-operators do this every day. In most cases,<br />
the main focus is on the truck itself — the price, financing,<br />
accessories, specifications and so on, seeking the most truck<br />
for the least investment.<br />
How they’ll make money with that truck — including a<br />
backup plan if the first attempt doesn’t work out — is barely<br />
planned (if it’s planned at all).<br />
The truth is, buying a truck means starting a business.<br />
Revenue is the lifeblood of any business, and it should be<br />
the first consideration in starting up a new one. It’s part of<br />
any business plan. To successfully estimate revenues, truck<br />
owners must have an understanding of how freight rates<br />
work.<br />
Some owners choose to lease their equipment to a carrier,<br />
running within that carrier’s system in return for a set permile<br />
rate. Doing this allows them to take advantage of the<br />
carrier’s infrastructure. The carrier finds loads, does all the<br />
billing and collecting, maintains the appropriate safety<br />
records, and handles registration and permits. In many cases,<br />
the carrier provides the trailer, too. The truck owner drives<br />
(or hires a driver) and collects the money.<br />
However, it’s important to understand that even per-mile<br />
rates are based on current freight rates.<br />
For owner-operators who are compensated a percentage<br />
of the load revenue, freight rates directly impact the owner’s<br />
income. Those who depend on the spot market using load<br />
boards, brokers or both, might see the greatest impact from<br />
changing freight rates. That’s because the spot rate is the first<br />
to be impacted by market forces.<br />
While contract rates are locked in by an agreement<br />
between a customer and carrier, spot rates represent what<br />
the market will bear. Shippers or the brokers who represent<br />
them make loads available, usually for the lowest rate they<br />
think they’ll be able to get. Truckers then either accept the<br />
loads at the posted rates or try to negotiate for better.<br />
The biggest impact on those rates is usually the number<br />
of trucks competing for the available loads. Spot rates often<br />
temporarily rise over holiday weekends, such as Memorial<br />
Day or Labor Day, because the number of available trucks<br />
goes down as their owners park them for the holiday. Fewer<br />
trucks mean more competition between shippers to book<br />
them, driving rates up.<br />
Knowing the market served and how it operates is<br />
important to successfully running a trucking business. In<br />
addition to temporary rate fluctuations caused by holidays,<br />
weather events and other occurrences, there is an overall<br />
freight cycle that generally takes several years to complete.<br />
The latest cycle, impacted by COVID-19 pandemic shutdowns<br />
and government stimulus checks, is a classic example.<br />
The year 2019 was a solid year for trucking, but when<br />
COVID hit in 2020, many manufacturers shut down.<br />
In response, some carriers slowed or stopped hiring<br />
drivers, or even laid drivers off. As the economy started<br />
reopening, retailers needed to have products restocked and<br />
manufacturers needed to rebuild parts inventories. There<br />
was a boom in freight and there weren’t enough trucks to<br />
handle it all.<br />
Rates skyrocketed.<br />
In response to rising rates, carriers bought more trucks.<br />
iStock Photo<br />
Want to own and operate your own truck? Knowing your market, lanes, seasonality and where the freight cycle is now will help you make the best decisions<br />
to make your business successful.<br />
Drivers quit company jobs to buy their own trucks, starting<br />
trucking businesses while rates were very favorable. New<br />
carrier registrations soared. The number of available trucks<br />
continued to climb — but so did inflation. Rumors of a coming<br />
recession cooled orders for more products, and the supply/<br />
demand pendulum swung the other way. Rates plummeted to<br />
their lowest level in years and have yet to recover.<br />
That’s where we are today. At some point, rates will<br />
begin rising and the cycle will start again. In the meantime,<br />
equipment costs have risen sharply, as have interest rates<br />
for those borrowing to finance equipment. Starting a new<br />
trucking business while rates are bottoming and costs are<br />
soaring isn’t a sound business strategy.<br />
Another thing that’s critical to a successful trucking<br />
business is understanding lane dynamics. Everyone wants<br />
to grab that load to Orlando with the really high rate — but<br />
freight coming out of Orlando usually doesn’t pay well. The<br />
options for an owner-operator might be to either sit for days<br />
waiting for a better rate or take a lower-paying load to get<br />
back to an area where rates are higher.<br />
Ideally, truck owners will settle on a lane that provides<br />
good rates out and back. Some load boards, such as the DAT<br />
board, allow drivers to look up average freight rates by city or<br />
area so they can plan out loads in advance. This way, they can<br />
avoid loads destined for areas where outbound rates are low,<br />
or at least make sure they earn enough on the inbound run to<br />
cover the low rate for the outbound segment.<br />
It’s also important to understand seasonality. A trucker<br />
with temperature-controlled equipment, for example, will do<br />
well to know when harvests occur in different regions of the<br />
country so loads can be accepted that position the equipment<br />
for the best rates. Flatbed truckers might study construction<br />
trends for loads of building materials and other products.<br />
Finally, knowing what rates will be profitable can’t be<br />
estimated unless the business owner knows the cost per mile<br />
of running the truck. Keeping records of all costs associated<br />
with the business, including the driver’s pay and benefits, and<br />
then dividing that by the total of miles driven provides an idea<br />
of per-mile costs. When considering rates, it’s important to<br />
factor in ALL necessary miles, including empty miles driven<br />
to get to the pickup point.<br />
A June 2023 study released by the American Trucking<br />
Research Institute (ATRI) calculated the industry average<br />
cost per mile in 2022 at $2.25. That amount may already have<br />
risen higher due to increased costs for insurance, parts and<br />
interest. Your own cost per mile may differ, depending on<br />
your route, fuel costs in your area, the cost of your equipment<br />
and other factors. However, it’s obvious that accepting a load<br />
at a rate lower than your operational cost is a recipe for<br />
failure. 8
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