So You Wanna be an Owner Operator?, Pt.IV
by Jim Park
Part 3 Of This Story
A buck a mile is a buck a mile, right? Nope, not always. It can get pretty darned confusing trying to sort out which carrier offers the best package. They advertise a buck a mile, let's say, but when you total up all the deductions and chargebacks, you may be left with only 90¢. On the other hand, if you take a close look at everything the carrier has on the table, you may actually come out closer to $1.10.
For the record, we're using a figure of a dollar per mile as the base rate of pay just for clarity. A dollar a mile is barely enough to get by on these days, so don't think highwaySTAR is advocating that particular rate. We think it should be higher --considerably higher.
Last month we looked at some of the elements of the owner operator agreement that itemize all the costs the owner-op is responsible for, including insurance, fuel taxes, plates and permits, etc. It was pretty clear that the owner-op winds up paying his own way with a lot of carriers. Some carriers on the other hand have some pretty creative ways of putting money back into to your pocket. You just have to know what to look for.
If a carrier is offering a dollar a mile, but then charging you a nickle a mile for insurance, two cents a mile for plates and two cents a mile for administration fees, then your net rate works out to only 91¢ per mile after costs. If another carrier offers a dollar a mile with no deductions, then your base rate is really a dollar a mile. Which carrier is offering the better deal? That's pretty simple.
You'll find that the base mileage rates in similar sectors of the industry aren't vastly different. The differences usually lie in the fine print. Generally speaking, some sectors pay better than others, but you might have to work for the extra dough. Paid tarping for example can add to the bottom line, as will paid picks and drops.
If you operate a specific piece of equipment, such a s a wet line or liquid products pump, you may incur charge for the purchase and installation of the machine, but you may earn more every time you use it.
Choosing, for example, to haul a flatdeck will often pay better than pin to pin dry van work. There is extra work involved, like tarping and strapping, and there's a higher level of skill involved as well. The same may apply to tank work, but the decision of which type of trucking you want to get into is sometimes more of a lifestyle choice rather than a pure dollars-and cents call.
Let's look at a few of the obvious offerings first: stuff you'll find in almost any recruiting ad.
* Paid baseplate, US Heavy Vehicle Use tax and U.S. Customs decals: The actual figures vary considerably across the country, but this bundle could easily cost you $5000. That works out to a nickle a mile on a 100,000-mile year.
* Mileage Calculations: The issue of hub miles versus charted miles versus practical miles is always a contentions one. Few companies pay off the hub, and most use some sort of routing and mileage software. The question is, which do they use and how comfortable are you with the accuracy of the software. If the software is off by as little as three percent, that's three cents per mile on 100,000 miles, or $3000. Here is where it pays to ask to see another owner-op's statements to verify the mileage paid on a variety of typical trips.
* Paid Picks and Drops: Many carriers offer paid P & D, while some stipulate that the fees kick in only after the first drop. If most trips offer more than one pick and drop, you can make a little extra here, but bear in mind that too much time spent waiting can really cut into the miles.
* Fixed Fuel Prices: Some carriers offer a fixed fuel price, or a discounted rate that's pegged to the carrier's discount with the fuel supplier. Often, there's an upcharge applied to the owner-op price, or a surcharge. Watch the difference, because the service charges may negate the discount completely.
* Paid Tolls and Bridge Crossings: Depending on the geographical orientation of the carrier's traffic lanes, the paid tolls may be a non-starter. If you only cross one bridge a week, then that's not much of a bonus. On the other hand, if you cross a bridge several times a day paid bridge crossings are a real advantage.
* Fuel Surcharges: This is a big concern these days, and a source of tremendous confusion as well as a great deal of ill-feeling. You'll have to ask if the surcharge the carrier's offering is mileage-based or a percentage of the revenue. If it's mileage based: does it apply to all miles, dispatched miles or only the miles run for certain shippers? If it's percentage based: is it a percentage of the rate paid to the carrier or to the truck?
Above and Beyond
Some of our more progressive carriers are beginning to offer some rather creative incentive programs, such as safety bonuses, profit sharing, reduced shop rates or even low-interest loans for equipment financing. Depending on your needs, these incentives can add up pretty quickly, and make a big difference at the end of the year.
Let's look at a profit-sharing plan that's tied to safety performance. If a carrier offers a four-percent bonus/profit sharing plan, that could mean up to four percent of your gross earnings, or about $4000 on a 100,000 mile year. Look at it another way, and it becomes an extra four cents per mile. A reduction on the interest rate on equipment financing of only two percent could mean an additional 2.5 cents per mile in your pocket rather than the bank's over a five-year financing term. That's $2500 a year.
If a carrier has it's own maintenance shop and offers you a reduced shop rate, there's money in that deal as well. If your truck is a little older, requiring more than its share of TLC, and they want to charge you $50 per hour instead of the standard outside rate of somewhere around $75 per hour, this could be a substantial advantage.
Maybe the carrier is willing to throw in free use of the Qualcomm for personal e-mail, or perhaps they supply a company long-distance phone card. That's all money in your pocket as well, provided you can take advantage of the offer. Even the free use of a power wash for the tractor can help. At roughly $40 per wash on the street, you can now easily afford to keep the truck clean, and the DoT off of your case.
As you can see by examining the chart below, the advertised rate doesn't necessarily mean all that much. When you calculate all the possible revenue sources and deductions, the per-mile rate can change pretty quickly. You really have to look beyond the large print to see all that the carrier might be offering. Try creating a similar chart for yourself before calling the carrier. Plug in all information you can get from the carrier, then make the comparison.
You'll need to use an average expected annual mileage to level the playing field, say 110,000, and try to get the carrier to give you averages based on the performance of their current group of owner-operators. Add up all the annual costs, and subtract them from all the realistically possible annual earnings. Your final gross figure can then be translated into a revenue per mile figure for a final comparison. Remember, keep it realistic and don't be fooled by pie-in-the-sky bonuses that are almost unachievable. Bottom line: Do your homework!
Hypothetical Carrier Comparison Chart
Part 5 Of This Story