So, you’re ready to buy a truck and strike out on your own. No more company dispatchers or corporate red tape! You’ll book your own loads and set your own schedule. It’s a dream come true!
Not so fast. Starting a career as an owner-operator or an independent contractor is a big decision, and you’ve got to have a solid business plan if you want a shot at success.
Timing is everything.
Whenever you choose to start up a new business, it will need to withstand the ups and downs that will occur. The trucking industry, like any, is susceptible to economic fluctuations, but other factors impact business as well.
- The capacity cycle — how many trucks are available to haul freight — has a huge influence on freight rates and business success.
- Regulation, both of trucking and of areas that impact trucking, such as trade, the environment, infrastructure, and labor, has an impact.
- The seasons and weather impact trucking.
And the list goes on.
The biggest constant in the trucking industry is that it’ll change tomorrow.
Still, it could be beneficial to start a new business during times of economic upswing, providing time to retire or reduce startup debt and build cash reserves before the next rough patch hits. For entrepreneurs of small trucking businesses, whose trucking revenues are often synonymous with personal pay, getting off to a good start can be especially important.
The trucking industry is currently poised for an upswing.
- Capacity is shrinking, increasing competition for available trucks and putting pressure on shippers to increase rates.
- Slow truck sales, both new and used, have resulted in large inventories of trucks for sale and declining prices.
- The economy is growing, with manufacturing due for an upcycle.
- Housing starts are currently slow, but building season is just a month or two away.
- Interest rates are lower than a year ago and may decline farther this year.
There are no guarantees, of course, but signs are pointing to better days ahead for trucking — a welcome sight after a long downturn.
Some might even say the time to invest in equipment and start up a new trucking business is the best it has been in a while.
If you’re thinking about getting your own truck and either signing on as an independent contractor or obtaining your own authority and kicking off your own fledgling freight empire, you could do worse than making your move now.
Follow the truck-freight cycle.
Ken Vieth, president and senior analyst at ACT Research, often says: “When truckers are making money, they buy trucks.” That’s not just an obvious conclusion that making money begets spending it; it’s actually a vital part of the truck-freight cycle that Vieth often speaks of.
When freight rates are high, carriers buy more trucks so they can maximize profits. Drivers buy trucks, too, starting their own businesses while earning high revenues is easy. Like sharks circling a school of fish, everyone feeds … at least until the fish are gone.
It’s important, however, to recognize that the trucking business is cyclical. There’s an old saying, “A rising tide lifts all boats.” That rising tide of ready cash lifts trucking businesses, but some are boosted higher than others. Trucks sell like hotcakes, until there are too many of them for the available freight.
With so many trucks available to carry freight, competition for haulage dwindles. Truckers are often forced to accept lower rates, as well as loads they may have considered undesirable when rates were high. Those “undesirable” loads might include short hauls, loads with large amounts of deadhead or to destinations that are difficult to load from or other inefficiencies. Carriers work harder to make less money.
That’s when the next part of the cycle begins.
Businesses that don’t operate efficiently are the first to suffer when the revenue tide subsides. In the ocean world, when a school of fish is consumed, the sharks simply swim elsewhere to hunt and survive. Unfortunately, there may not be an “elsewhere” for a trucker. Businesses close, or they get bought up by others. Trucks are sold — so many of them that there’s a glut on the market.
Carriers that are able to tighten their belts and hang on for the next part of the cycle survive. Those that continue operating as if cash was flowing in often don’t.
Never forget that you’re running a business.
Starting a trucking business when revenues are on the rise makes sense. Operating it as if revenues were falling even when they aren’t makes more sense. That’s an attitude that begins with running your business as just that — a business.
Driver pay
Every business must track expenses, but a major difference between larger carriers and one-truck entrepreneurs is driver pay.
At a large carrier, it’s a constant. Driver pay may fluctuate with miles driven, load revenues and other factors, but carriers can plan for the expense as a part of their business budget.
Too often, however, owner operators only consider the bills due at the moment, treating anything left over as “pay.” Here’s the problem with that strategy: One large bill such as a major repair, a freight claim or a tax liability, can be large enough to overcome any cash reserves.
The adage, “When you fail to plan, you plan to fail” comes true once again. Pay yourself a reasonable salary, no more. You can always give yourself a bonus at year-end — IF there’s enough profit.
Business plan
Before even starting, however, every business needs a business plan. Too often, drivers spend five times as much time deciding which truck to buy than they do planning the business the truck will be used for.
This is a mistake. A good accountant with trucking industry experience can help you create a sound business plan.
Watch what successful companies are doing.
Publicly held corporations, including the largest carriers, are required to file quarterly financial reports so investors can see how the businesses are being operated. Most of them post these reports on their websites, often under an “investor” section, after each quarter and at the end of the year.
These reports can be a treasure-trove of information for small trucking businesses. They often include numbers of trucks as well as expenses for fuel, maintenance and other costs. It’s not difficult to determine, for example, how much a carrier spent on maintenance for each of its trucks, on average. You can then compare that amount to your own costs — or use that figure to help estimate future costs.
The timing might just be right to buy that truck and get started … but then again, maybe it isn’t. Even if this is not the right time, it’s never too early to put together a sound business plan. Like a good trip plan, your chances of reaching your destination safely and profitably will be increased.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.
