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So You Wanna be an Owner Operator?, Pt.III

by Jim Park

Part 2 Of This Story

Say it ain't so, Joe. Disputes arising from different interpretations of the owner-operator/carrier agreement are far too common. That suggests that there may be a great deal of misunderstanding regarding the terms of the agreement, or, there may be violations of those terms by either party, which occasionally turn into real disputes. When that happens, the owner-operator is often left in the difficult position of having to resort to legal action to sort out the mess.

Lawyers cost money -a lot of money- and carriers are in a better position to pay the high-priced legal help than is the single owner-op. That's why it's so terribly important to understand the terms of the agreement BEFORE a dispute arises.

Specific terms of the contract may not always be spelled out, or if they are, they may be left in the vaguest of terms. It's in your best interest to clarify the details before you sign on with the carrier. As for clauses dealing with insurance, for example, the definition of the coverage involved should be spelled out clearly and in terms that you understand. The language of the insurance industry, as you know is one understood only by Philadelphia lawyers. But since you're the one on the hook for the payout, you'd better know what you're going to be obliged to cough up in case of an accident.

Here are a few points to consider when checking out the fine print on your next contract.

The Basics: Rates and Mileage

These two are probably the source of the most confusion and misunderstanding of all contract items. The carrier's base rate of pay may be advertised as $1.10 per mile, but that may include a 2¢ productivity bonus, a 2¢ safety bonus and a 6¢ deduction for insurance. If this was the case, the actual mileage rate would be $1.00 per mile, assuming that you hadn't yet earned the bonuses.

During the interview -up front and before you sign anything- you really need to ask the carrier what the base mileage rate is, including all deductions. Take away the potential bonuses, the deductions for workers compensation, holdbacks and insurance and even the administration fees. It's always a good idea to ask to see another owner-op's statement to verify the carrier's claim. You really don't need to know whose statement you're looking at, so make it clear to the carrier that protecting that other guy's privacy isn't an issue. You can tear the top off of the statement or cover it over, but you must be firm in demanding to see a couple of actual statements.

At this point, don't even look at the gross earnings: all you want to know is what the mileage rate is and how all the deductions and bonuses appear on the statement. The statement should verify what the owner-op was paid and what his deductions were. The deductions may be shown as an amount deducted from the gross earnings for the pay period, or as deductions from individual trips. Either way, the numbers will be obvious. A little math on your part will reveal what the owner-op's net mileage rate is.

Net, by the way, refers to the amount left over after all the deductions and bonuses have been factored in. The gross amount refers to the figure before all the deductions have been extracted.

Here's an example:

Mileage for a two-week pay period: 6024
Earnings for the pay period: (6024 miles X $1.10 per mile) $6626.40 (gross)

Deductions:
Insurance: (6% of $6626.40) $397.58, which works out to 6.6¢ per mile.
Plates & Permits: (3¢ x 6024 miles) 180.72
Workers Comp and Administration: $200 (divide 6024 miles into $200 for the cost per mile, which works out to .0332 per mile, or 3.3¢ per mile.

The gross mileage rate is $1.10 per mile, while the net rate is only 97.1¢ per mile (deduct 6.6¢ per mile for insurance, 3¢ for plates and permits and 3.3¢ for Worker's Comp and administration.

This is only an example: actual figures will vary from carrier to carrier. This exercise is also particularly useful when comparing one carrier to another.

The next major bone of contention is mileage. According to my Rand McNally atlas, it's 826 miles from Calgary to Winnipeg. Now, if you happen to be loading on the east side of Winnipeg and delivering on the west side of Calgary, that posted mileage could be off by as much as 50 miles. If your trip involves three or four legs with deliveries in major cities, the paid miles and the driven miles could easily vary by 100 miles or more.

Most carriers today are using some sort of mileage and routing software to determine distance. They bill by that distance and they pay by that distance as well so the posted mileage in a given software program is just a yardstick. There's often a difference between the 'shortest distance' and the 'practical truck mileage', so it pays to be aware of what software program the carrier is using and how they pay their owner-ops. Again, do some homework and ask to see some statements.

Compare some of your past trips to what the carrier is presently paying its owner-ops. If you typically run Winnipeg to Calgary in 847 miles and the carrier pays 826, then you know they're in the ballpark. If they're only paying 800, there might be a problem, or their routing might go from the west side of Winnipeg to the east side of Calgary. Asking first avoids nasty disputes later!

Layovers, Waiting Time and Deadheads

Non-productive time is always a contentious issue for both carriers and owner operators. Carriers don't like paying their contractors for non-billable time, and the owner-ops don't like working for nothing. Time on the job should be compensated time, but if the carrier won't pay for 'official' downtime, it's best that you understand that ahead of time.

A study conducted for the Truckload Carriers Association estimated that dry van drivers spend up to 30 hours a week waiting around loading docks. Those numbers probably don't include the number of hours spent awaiting a dispatch, so it's conceivable that the amount of unproductive time in a week could easily exceed 40 or 50 hours.

The agreement should specify what constitutes paid time and what doesn't. Some carriers offer a flat fee of $25 for loading or unloading. Others will offer to pay for any time in excess of two hours at a dock, while other agreements make no commitment at all. Demurrage or monies paid for the detention of equipment is always a contentious issue. It's best to clarify all these details in advance of signing the agreement. If you don't agree with the policies, it's best not to sign on. Signing the agreement indicates your acceptance of the terms and conditions, so be careful.

Layovers and other time spent awaiting further orders is often at the carrier's request, but chances are, that time won't be considered as billable time, and therefore not paid time for you. Now you have a dispute in the making. If you're forced to sit over a weekend to accommodate a dispatch, should the time be paid? It's best, again, to make that decision up-front before you sign on. It's unrealistic to expect a carrier to assure you that there won't be any layovers, but it's not unrealistic for you to ask that the carrier spell out the layover policy in advance. It's also not unrealistic to remind your dispatcher from time to time, exactly what you were told during the interview --just in case they've forgotten.

Paid layovers are rare in owner-op circles. Few carriers offer layover pay, but it doesn't hurt to discuss the matter in advance. In fact, few owner-ops even try to add an amendment of their own to the standard agreement. Let's face it: the market for good owner operators is rather tight these days. You might be pleasantly surprised how far a little negotiation can get you.

Deadhead or empty miles isn't as contentious an issue as layovers, but too many empty miles can rip a large hole into your operating budget if the spread between the loaded and empty rate is anymore than a dime a mile. If a spread exists, you can verify the extent of the historical empty mile percentage by examining another owner-op's statement. There will be two mileage rates posted on the statement --one for loaded and one for empty. Simply compare the two and see if the number of empty miles is tolerable. Remember that it doesn't cost you any less to run your truck empty than it does loaded. Repositioning at the carrier's convenience should carry a small price tag, just to prevent dispatch from running you all over the map.

70% of What?

Not that long ago, almost all owner-ops were paid a percentage of the revenue of the loads they carried. Mostly, it worked. The load paid $1000, the contractor -the guy who did the work- got a percentage of the revenue for the work he did, while the guy who set up the load kept a portion of the proceeds. But as time went on, the rates dropped and the brokers got a little greedy. No matter how you cut it, 70% of nothing is still nothing.

Working on percentage removes many of the typical owner-op/carrier disputes such as short miles or too many empty miles, but it adds a layer of complexity and mistrust that doesn't exist in a piecework scheme like mileage pay.

If a load pays the carrier $2000 for a 1000 mile trip, he's earning two bucks a mile. If you're paid a dollar per mile, you're working for 50% of the gross. But, if you're paid 70% of the gross, you're now earning $1.40 per mile. That may sound good on paper, but first you need to know exactly how much the carrier is getting in the first place. A reputable carrier will tell the truth, and you can usually take that to the bank, but how do you know if the carrier is being up front with you? That's where the trust thing comes in.

There are stories-a-plenty circulating around the truckstops about three-dollar per mile freight being brokered out at ninety cents a mile to an unsuspecting owner-op. And how's he to know? Here's where the past owner-op statements come in handy. Just compare the rates and check out the revenue. If it's to your satisfaction and the deadhead miles are minimal, then maybe you're onto a good thing. But there are a few things you'll need to compare to get an accurate picture of the percentage game:

  • Total mileage for the trip, from the point where the last load ended to where the new load is delivered. Empty miles at zero cents per mile have to be considered in the final mileage rate.
  • Duration of the trip. Even a trip that pays three bucks per mile won't do you any good if you have to sit for two days before you deliver it. And a 150 mile trip at $3.00 might not be as financially satisfying as a 600 mile trip at $1.50 per mile.
  • Where does the trip take you? Often, high revenue loads take you into places that are traditionally difficult to get out of. A smart salesman will rate a load into an exotic destination at a higher price to cover the deadhead miles back to civilization. Don't get caught on that one.
  • What's the mileage rate? Check the mileage from the point of dispatch to the pick-up point and make note of the empty miles. Then, chart the loaded miles to the destination. Do the math and determine the per-mile rate over the duration of the trip. It should be equal to or better than the prevailing mileage rate. But avoid looking at a single trip. Rates change like the weather, so while one particular trip may be terrible, the next load may be terrific. Sometimes that terrible load is a positioning move to get you to the better load. While examining the statements, look at the entire month and check out the gross earnings compared to the mileage turned. That'll give you a more accurate picture of the earning potential.
  • Beware of the forced dispatch program when working on a percentage. The carrier will still earn his percentage of a lousy load, just for picking up the phone. The load might cost you big time. We've heard stories of owner-ops earning less than 40¢ a mile on some back hauls. That hurts.

Of course, even percentage contracts need to be studied to see who pays for what, and to determine what your cost per mile will be. If you're paying the whole shot in keeping the truck licensed and insured, your costs could easily exceed a buck a mile, so watch the fine print.

Insurance

There's an entire story in this heading, but here are a few points to watch out for. Quebec is the only jurisdiction in Canada that forces carriers to disclose the details of its insurance policy to the owner-op. Don't be surprised when a carrier says no to sneaking a peak at the insurance policy that you'll wind up paying for in some way or another.

If a carrier is paying the whole shot for the insurance, you've nothing to worry about except to assure yourself that all the minimums are in place and that the deductible is reasonable. In today's market, carriers are opting for higher and higher deductibles in order to lower their premiums -and who usually pays for the deductible? You got it.

Can you afford a $5000 deductible? How about a $10,000 deductible, or maybe $15,000? The fine print can easily turn a $5000 deductible into $15,000 if the tractor, the trailer and the load are all lost in a single occurrence.

The advent of deductible buydown insurance has allowed the carriers to pass on the higher deductibles to its owner-op fleet at a 'reasonable' cost: but there's a catch here, and you had better understand the contract before you sign. There are two similar but confusing terms applied to deductible liabilities: per event and per occurrence.

In the per event model, the stated deductible applies to each 'event' involved in the incident. That is, the $5000 deductible applies to the tractor, the trailer and the load, so a total write off will cost you $15,000 not $5000 as you might have assumed. If the deductible is determined on a 'per occurrence' basis, then the $5000 deductible applies to the entire unit, or any part of it. Of course, if you plan on buying buy down insurance, you'll need to know how much to buy. In this case what you don't know might not only hurt you: it could kill you. Make sure you understand exactly what you're signing into when the discussion rolls around to insurance. It's a minefield.

The absolute worst time to get into a dispute with a carrier over an element of the contract is after you've signed on. From that point, the contract has the power of law on its side. If you plan to sue a carrier over a contract dispute, it may take years to settle and chances are, the money you're fighting over will be held in escrow until the case is settled.

That might not sound fair, but it's contract law. Remember that owner-ops are not covered by labor law or employment standards. It's all about an agreement between two parties who have co-signed a contract. Check things out in advance, and NEVER sign anything you're not absolutely sure you understand, or you're not absolutely comfortable with.

Next month: Shopping the Market. We'll offer up a way of comparing apples to apples and oranges to oranges. Carrier offerings can get a little confusing, and often there's more on the table than you realize. We'll help you sort the wheat from the chaff, and land yourself a better paying job.

Part 4 Of This Story

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