A Leap of Faith
by Jim Park
Simply put, it's not as easy as it looks. Independence means just that - nobody
handing out advances, no tire or fuel accounts, no purchase-order numbers for
parts or repairs, and nobody to blame when things go wrong. On the other hand,
you don't have to share the spoils with anyone.
The Owner-Operator's Business Association of Canada (OBAC) receives a lot of
inquiries from drivers on the ins and outs of going it alone. Callers looking
for advice on how set up operating authorities, make the U.S. registration and
insurance filings, etc., even where they can find a good deal on a trailer.
"I always ask why they want to take the leap, and the response is usually
the same," says OBAC's executive director, Joanne Ritchie. "They tell
me they can't make enough working for a carrier."
We don't want to paint too grim a picture of independence, but the success rate
is nothing to brag about. Still, many owner-ops do succeed on their own.
"Going independent could be an opportunity for savvy owner-operators to
enhance their profitability, but it could spell disaster for someone who's already
struggling to make ends meet with a carrier because they don't have a good handle
on their business," explains Ritchie.
Her best advice is to first talk to others who have taken the leap, and ask
a lot of questions.
Know Your Numbers
Watching the load boards these days you'll see a lot of good-paying freight.
But it's only good-paying freight if you're in a position to grab it and if
it's going where you want to go. Merlin Jay, profiled in highwaySTAR back in
May 2004, says you have to look at the revenue on every leg of the trip, including
the deadhead miles, to determine if the work is worth pursuing.
"But even before that, you have to know your costs," he says.
From the perspective of an owner-op working with a carrier, two-dollar-a-mile
loads might look pretty enticing, but there's more on the cost side of an independent's
ledger than a lease-op's. In addition to the obvious costs, there will be insurance
- the whole shot, meaning cargo, truck, and trailer, trailer costs - both capital
costs and maintenance, legal and accounting fees, which may include filing fees
for authority, fuel tax, HVUT, etc., and the cost of contacting clients and
collecting receivables. Two bucks a mile, when you're paying the whole shot,
may still not be enough.
A 700-mile trip from Winnipeg to Des Moines, Iowa might pay $1500, but there
will be some deadhead miles to get to a $1200-load from Chicago to Brandon,
and then you have to get back home from Brandon. Would that rounder be profitable,
or would you be better off sitting in Des Moines for two days waiting on a $2500
load to Regina, where you know there's good-paying freight heading to the southeastern
Without numbers, there's no way to answer that question.
Know Your Business
Jay says you need to know what's available at the turnaround point, what the
daily and weekly freight volumes are, who is shipping (and paying the freight),
and when you're likely to see your money.
"Even five-dollar freight is no good if the broker never pays you,"
he says. "You also have to know who you're dealing with."
When you're on your own, you may have to take collection matters into your own
hands, but that usually happens after the cheque is already 60 to 90 days late.
By then, the cost of carrying the debt will have reduced the value of the money
by about half. In all likelihood, you will have made a truck and trailer payment,
paid your fuel and cell phone bills, and probably cut the insurance broker a
cheque too. That all comes off the top of revenue you haven't seen yet, and
if you're putting that debt onto a credit card or a line of credit, it's costing
you even more.
Do the math and determine what you need to make your margins, but don't stop
there. When it comes to quoting rates, there's no point in running for less
that the market value of the service.
Having determined that you need $2.50 a mile, and a customer is already paying
more than that, "Why would you work for less?" asks Trent Lalonde,
the independent profiled in the August 2004 issue of highwaySTAR.
Trent says he's seen owner-ops bidding on work that was worth twice what they
bid because they didn't know the market well enough.
"You can't just bid from A to B," he says. "Some places are harder
to load out of than others, so you can't bid just to your destination. You have
to bid high enough to cover the cost of the deadhead miles too."
Lalonde says don't be afraid to say no to a shipper if the rate doesn't work.
"They'll have to move it sooner or later, and if you're on the shortlist,
and still in the area, you might be able to name your price."
Jay tells a story of dealing with a broker he works with on a fairly regular
basis. "The guy wanted me to haul something for less than I was asking,
but he'd had no other offers either," he recalls. "I called, floated
a price, and he said no. I'd call back and go through it again, and he'd say
no. But I knew he was going to have a hard time with it because hardly anyone
wants to go to P.E.I."
The next day, the guy called and met Jay's price, but Jay told him that was
yesterday's rate. He got another $300 out of the broker, just for sticking to
Know your Options
For owner-ops thinking of making the jump from a lease-op to an independent,
there are carriers offering an arrangement that's somewhere in between. Often,
they require the owner-op to have their own CVOR or NSC number and a trailer.
The carrier will work you on a percentage of the revenue, and allow you to haul
freight that you procure yourself. So you're sort of an independent, with a
bit of protection.
Obviously the key here is to know your costs so you can determine what is a
suitable rate. As is often said in the coffee shops, 75% of nothing is still
nothing. Don't blame the 75%. Instead, don't work for less than you need. If
your costs are $2.00 a mile, don't work for 75% of two bucks.
Larry Ingham works with Landstar out of Jacksonville, Fla. through a Canadian
affiliate. He calls the Landstar deal the best of both worlds.
"I had to get used to the system, and get to know the agents or brokers
who had freight in areas I wanted to run in, but now that I do, I'm getting
what I want," he says.
Ingham tells of a week's work he did recently between St. Thomas, Ont. and Dearborn.
Mich. It was a round-trip rate, and less than 300 miles. "They were paying
$750 to the truck for a trip a day," he says. "I couldn't believe
it, but there were guys who didn't want the work because they weren't getting
Maybe those drivers weren't ready to try independence, Ingham reflects. "Revenue
is important, but it's all relative to cost. Those Dearborn loads made me money
because my costs were minimal. I was pretty well guaranteed $750 a day just
for showing up."
So if you're ready to strike out on your own, make sure you know the market
you'll be working in, and know the value of your service. Deal with people you
know - at least when starting out - to minimize the surprises, and stay on top
of your aging schedule. Not sure what that is? Maybe you're not quite ready
to put your own name on the door.
|Five Keys to Success
Relationships: establish good business
relationships with a few shippers and serve them well. Find your niche and
stay within that sphere.
Load Brokers: don't rely solely on load
brokers for your income. They're fine for the odd backhaul, but they typically
don't pay as well as dealing directly with the shipper.
Growth: avoid the temptation to add
trucks even if the work seems to be there. You're trading on your name,
so if the drivers you hire aren't as dedicated as you, business could suffer.
Cash Flow: never let your receivables
go beyond 30 days. You can't afford to carry debt. Don't do business with
poor paying clients.
Exploit Your Talents: stay within a
market you know well. Don't venture into areas you're unfamiliar with until
you've done some research. Stick with what you know.