So You Wanna be an Owner Operator?
by Jim Park
It must be something in the human spirit. Most of us want to be, in some small way anyway, the masters of our own destiny. Take a few calculated risks and profit from the venture. And let's face it, most of us are inclined to believe that there's nothing somebody else can do that we can't do better. That's human spirit.
The downside to that indomitable human spirit is, unfortunately, many of us can conceive the grandest of plans, but few can actually drive them to the logical conclusion. Our near perfect belief in what we think we can accomplish often blinds us to the difficulty of achieving the goal. Still, we try... That's human spirit.
And no more spirited bunch exists than the wannabee owner operator. There aren't many who haven't dreamt of owning their own trucks. It's a doable dream, but it's no bed of roses either. Like any small business, the craft is often the least of your worries. Bakers, truckers, cooks, you name it, they are all perfect opportunities for the entrepreneur. Most of the folks who've tried and failed will tell you it wasn't because they weren't good at their trade; it was because they just didn't have the business skills to turn their fledgling enterprise into a long-term success.
Events of the past year, particularly the skyrocketing price of diesel have had quite an impact on the owner operator, and the entire situation has focused our attention on the absolute necessity of minimizing cost when running a small business. This is particularly true when a limited potential exists to increase revenue. Unfortunately, it isn't as simple as asking the carrier for more money. While that would certainly help, it just isn't a practical solution.
The Forest and the Trees
Another way of looking at the issue, according to Ken Richardson, a logger in Matheson, Ont. "is it's not what you make, it's what you keep." Richardson knows only too well that expenses can easily exceed accounts received if he doesn't keep a close eye on his operation. "I'm in trouble if I'm earning $70 per hour, but my costs are $71 per hour," he says. "And the problem isn't always something I can control." Richardson's first hurdle was to learn about the logging business. His second was to become a businessman. It's one thing to be a good truck driver, it's quite another to become a successful entrepreneur. Once he had mastered the trade, he had to learn how to make his business profitable.
For Richardson, working in the bush presents a particular set of challenges, as does the waiting time at the mill to unload. It's all calculated by the hour as far as costs go, but the revenue is paid in dollars per ton of wood hauled into the mill. On a particular job, Richardson says he's paid seven dollars for every ton of wood he hauls into the mill. With a payload of roughly 40 tons, he's earning $280 per load. He has had to develop a costing model to determine how much revenue the truck needs to support itself, and to make him a wage for his day's work. And since working in the bush isn't an environment that lends itself easily to costing on a per mile basis, the next best yardstick is an hourly scale. But the mills don't pay by the hour; so he's worked out a formula to merge the two into a workable model whereby he can measure the success of his operation.
By this example alone, it's easy to see that there's more to owning a truck than just keeping it between the white lines. We'll look more deeply into Richardson's business plan in part two of the story, by the way, but first let's have a look at some of the primary considerations.
The Best Teacher
Experience, by far is the best teacher in any situation. Driving trucks or owning one, you'll fare much better if you go into the business with your eyes wide open. My personal recommendation is not to even consider buying a truck of your own until you have at least two years of experience under your belt. It'll take you at least that long to decide if you enjoy trucking enough to sink a ton of money into a business, a business that you won't be able to walk away from for the term of the financing contract -about three to five years.
It's always best to make your mistakes when somebody else is picking up the tab. Don't get me wrong, I'm not endorsing a career of destruction and recklessness, but in the early years, you're going to screw up a time or two and those mistakes can be costly. With margins as tight as they are today, there's not much room for even a minor mistake. That's why I suggest waiting at least two years before taking the plunge.
Others, like James Robinson Sr., a broker with Highland Transport, waited nearly 20 years before buying his first truck. "There wasn't much I didn't know about trucking when I decided to become an owner operator," he said. "But I sure had to rearrange my priorities when I bought the truck." Robinson is a sensible guy, and he got into the business at a time when it was a little easier to make money with a truck, but he says he was still a bit surprised at how much he didn't know about running a business --at first. That's another great thing about the human spirit -a thirst for knowledge that can only be quenched by applying a theory to a personal application.
One of the problems with learning the other side of the owner operator game -the business side-is that there's no school, except the school of hard knocks, to teach us the rules of the game. And once you get into the game, you'll find that getting answers to your questions is equally difficult. There just isn't any Owner Operator-101 course to be found.
So what's so difficult? Lots of others do it. You run the miles, you take the cheque to the bank, you make the payment and you go out again next month and do it all over again, right? Wrong.
Tools of the Trade
Obviously, if you're going to be an owner operator, you're going to need a truck. But which one? I'm repeatedly asked by relatively new drivers which truck is the best. "Kenworth, Freightliner or perhaps a Volvo? Well the answer here is that no truck is really any better than the other in the long run. There are numerous differences between the makes and models, but there are more similarities in the important stuff, which appears to bring the buying decision down to what kind of cab you want to sit in. That's after you decide what you're going to be doing with the truck, and after you decide which power and drivetrain is best suited for your application, and after you decide how much truck you can afford to buy.
"A lot of owner operators make the mistake of buying the truck they want, then having to find a job that'll support it," says Herbie Walker. Walker is an independent who has owned two trucks in the past 30 years. As astounding as that seems, he's doing very well for himself after he pays for the upkeep of the equipment. "It may seem more costly to operate like this than with a brand new truck," he says. "But at the end of the month, I'm always money ahead of a guy who is making payments."
Although Walker may be a large exception to the rule of running a small trucking business, any successful plan will include an operating plan. The operating plan is all about getting into the business, and more importantly, staying there. And any plan has to be built around realistic operating costs and reasonable revenue projections. So if you're new to the business, how will you be able to realistically forecast the numbers you'll need for your plan? Chances are you can't. And that's why there's a tragically high failure rate of small trucking business. If you don't believe me, just ask your bank manager.
The bank managers, who are used to watching people with some business experience or formal education grovel at their feet, aren't likely to open up their purses to an ill-founded and poorly planned business venture. Yes, it's true --As a prospective owner operator, you're not the bank's favorite customer. That means you'll have to do much better than the rest of the crowd in persuading the lending institution of your good intentions.
Dollars and Sense
We'll cover all the elements of becoming an Owner-Op over the course of this series, but let's first take a close look at the potential revenue from running a class 8 truck in an over the road application.
How much might you reasonably expect to earn with a truck?
As an owner operator with a tractor leased, or hired on, to a larger carrier, the prevailing rates are hovering around one dollar per mile. You'll see rates fluctuate across the different regions of the country with rates in southern Ontario now approaching $1.10 in some cases, to rates in eastern and western Canada dipping to as low as $0.90 per mile.
How many miles can I plan to run every month?
In these days of seemingly endless demand for trucking services, it's far too easy to base your projections on a best-possible-outcome scenario -and this is a mistake that's made entirely too often. I'm not on some kind of holier-than-thou soap box here, but you've got to be realistic about your earning potential. A 3000-mile week is possible and a 4000-mile week is doable, but the latter is illegal and the former is dependant on a week in which very little goes wrong. A more realistic projection is 2500 miles, yielding 10,000 miles per month.
It's a relatively common error to build budget projections a little too optimistically. So scale down the expected output, and the excess will seem like a bonus. Also, you must be prepared for seasonal slowdowns, vacation time, (you are allowed to take a holiday) long weekends and good old time off. In other words, if you build your estimates using a "best possible" scenario, any shortfall will hit much harder because you were budgeting for more.
Examine the monthly and annual projections.
By running 10,000 miles per month for 12 months, you'll accumulate 120,000 miles. But if you plan a two-week vacation, or the shipping seasons slows down a little during the summer, or after Christmas, which it usually does, you'll come a little short. It's best if you budget for a 110,000 mile year. That builds in a little extra margin. So looking at your estimates from an earnings perspective, at $0.90 per mile on a 110,000 mile year, you can plan to earn $99,000 for a reasonable year's work. At $1.10, you'll see $121,000 cross your threshold for the year. That may sound like a ton of dough, but wait until we examine how the expenses add up.
Next month, the highwaySTAR.com feature story will examine the cost of running a truck. Costs are rising at an alarming rate, and the rates paid to Owner-Ops really aren't keeping pace, but if you know your costs, you can still earn a dollar or two for your trouble.
Later in the series we'll look at how to buy the first truck, while planning for the third; how to manage the income tax hit you'll take in the fourth year; and how to forecast your maintenance and repair budget. It's not too terribly complicated, but the worst part is not knowing how to plan or what to plan for. Stay tuned and we'll change all that.
Part 2 Of This Story