If you’re thinking of buying a truck of your own, you’ve got some important decisions to make. One of the most important of those decisions is how you’ll use your truck to provide income. Many truck owners choose to lease their truck to a carrier.
Leasing solves a lot of issues, but there are some things to look for before signing a lease agreement. Being an independent contractor means the carrier will perform many of the tasks you would need to do yourself as a trucking business owner. In exchange, the carrier will keep a portion of the income generated by your truck.
The carrier takes care of finding and selling services to new customers, finding loads, issuing and collecting invoices, obtaining tags and permits, and more. Many also take care of safety requirements like drug and alcohol testing and record keeping, as well as maintaining driver qualification files. If you decide to hire a driver for your truck, the carrier may take care of all testing and background checks.
Carriers that are large enough to pull down volume discounts for fuel, tires and maintenance services often share them with contractors who lease on.
Most issues that develop between carrier and contractor can be avoided at the beginning of the relationship, before the lease agreement is signed. It’s a good idea to ask for a copy of the agreement before attending orientation with a new carrier. It takes time to read through the text and to make a list of questions to ask later. It could help to have an attorney review the agreement as well.
Unfortunately, many lease agreements start with the contract being presented near the end of orientation, when time is limited and the owner is anxious to get to work.
Lease agreements are often standard industry forms, with addendums included for various purposes. Compensation is often addressed in an addendum. Other addendums might address the use of communications equipment such as Omnitracs units, escrow accounts or other subjects. Read all the addendums carefully.
Compensation is usually a huge motivator when signing on, but don’t be swayed by what seems to be a high rate per mile or percentage of revenue. It may look good at first, but policies and addendums can quickly tarnish the deal. For example, does the compensation amount include empty miles? Does the rate change with the dispatched miles? What miles are unpaid, and what miles are paid at a reduced rate?
Accessorial charges should be clearly explained, with both the amounts paid for detention or layover events and the timetable for payment spelled out.
Many carriers charge various fees for the services provided. If the carrier is providing the trailer, is there a rental fee? How are breakdowns or flat tires on the carrier’s trailer handled? Are there any “admin” fees added into the agreement? Know exactly what you’ll be paying for and the amounts you’ll pay.
Carrier fuel cards can be a wonderful convenience and result in considerable savings, but they often come with fees and charges for each transaction. Some carriers charge for every use of the card, while others charge only for cash advances. Also, many carriers use networks of fuel suppliers; the card may not work, or there may be additional charges, if you fuel at a location outside of the network.
Escrow accounts are often a point of conflict, especially when leaving a carrier. Many carriers require a security escrow account that is used for repayment of advances or payment of any cargo claims, collision deductibles or other costs. Cargo claims can be a particular problem if the carrier doesn’t even contest the claim, knowing it will be paid using money deducted from the driver’s escrow account. Make sure you understand how much of your money will be placed in escrow and the conditions under which the carrier can withdraw money from your account.
If the carrier deducts escrow contributions from your settlement, you should know what the maximum amount per settlement will be and when deductions will stop. Some carriers demand $1,000 in escrow, while some demand much more.
Another important item to consider is when you can expect to get your escrow money after leaving the carrier. The agreement should specify the requirements you must meet to get your money, such as turning in all bills of lading, receipts and other paperwork. According to the FMCSA, your escrow money must be returned within 45 days of your last day with the carrier. The law also requires you be paid interest on the money in your escrow account.
Some carriers require a second escrow account to be used in the event repairs are needed or for preventive maintenance. Although it can be a burden to make contributions to the account from each settlement, it can pay off when a major repair is needed. At many carriers you’ll qualify for any discounts the carrier receives, and the money will be there when you need it. As with any escrow account, however, be sure you understand the conditions for withdrawal of funds.
Some carriers, for example, will allow use of escrow funds for oil changes and other preventive maintenance, while others will release funds only for major repairs. Also, some carriers may only allow use of funds at approved facilities or for approved products. If you purchase and install a part yourself, will you be reimbursed from the fund? This is a question to ask before they have your money.
One tenet of being an independent contractor is that you have the right to refuse loads. Some carriers, however, will try to dispatch your truck like a company-owned vehicle and will expect you to accept loads anywhere in their system. If you refuse a dispatch, they can’t legally cancel the lease agreement — but they can refuse to offer another load or offer only undesirable loads as “punishment” for your refusal.
Talk to other contractors in the carrier system before leasing on. If refusing loads is a problem, it’s the wrong carrier for you. There’s a lot more to consider than compensation when choosing a carrier to lease to.
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.