Consider carefully before signing a contract

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signing contract
The term “lease” can seem confusing, but it really isn’t. Under a lease, you allow a carrier the use of your equipment, just as if they were renting the truck from you.

Owning your own truck can be a rewarding experience, but it can also be an exercise in frustration. Like any business, there are tasks involved outside of the main focus of trucking. Managing a business includes finding and serving customers, billing and debt collection, taxes, maintenance, compliance, accounting, record-keeping and more.

Some drivers are excellent businesspeople and are able to handle all of these tasks themselves. Some have a friend or family member that handles the business side, allowing them to concentrate on the job of moving freight. Others are willing to pay professional services to handle the business details.

Another option chosen by many truck owners, is to lease their equipment to an existing carrier. Most carriers have staff that handles the business details. When you lease on, the carrier’s staff works for you, too.

The term “lease” can seem confusing, but it really isn’t. Under a lease, you allow a carrier the use of your equipment, just as if they were renting the truck from you. The carrier uses your equipment and, in return, you get a portion of the money they make with it. The difference usually is that you are required to provide a driver for the truck, even if it’s yourself.

While leasing your equipment to a carrier can reduce your workload, it also reduces the compensation you’ll receive. After all, adding your truck to their fleet helps the carrier increase revenue. It’s important to fully understand how you’ll be compensated as well as your obligations under the lease contract you’ll be signing.

Compensation

Some carriers pay a flat percentage of the load revenue, while others pay a set per-mile rate. A set rate per mile means your compensation won’t be affected by current freight rates paid to the carrier. Percentage compensation means the rate you receive will fluctuate with freight rates paid to the carrier. If you’re compensated by percentage, it’s important to understand the complete picture. Will you receive a percentage of the total revenue, or the revenue that’s left after the carrier makes various deductions? Will the carrier show you the amount received from the shipper?

Assessorial pay should be clearly spelled out, too. How much will you be paid when you and your truck are held up at a shipper or receiver? How much time must you contribute before the rate kicks in? What about layovers? What other activities will you be compensated for?

Chargebacks

When your equipment is leased, it is usually (but not always) covered under the carrier’s liability insurance policy. Some carriers charge you for liability, cargo and other insurance coverage. Some charge a rental fee for pulling their trailers, or other fees for administrative tasks and so forth. Those charges should be clearly spelled out in the lease agreement, either in the body of the text or by an addendum to the contract.

Escrow Accounts

Nearly every carrier will require you to keep money in at least one escrow account. An escrow account is a special savings account that carriers can access to pay insurance deductibles, freight claims or other expenses determined to be your responsibility. Some require an escrow deposit to begin the lease, but most will allow you to build the escrow through settlement deductions over a period of time. It’s important for you to know how much the carrier will hold, what it will be used for, and when and how you will have access to your money.

Another type of escrow is sometimes kept for maintenance purposes. The carrier will keep a percentage of each settlement amount until a predetermined threshold is reached, out of which it will pay for repairs and maintenance to your truck. This arrangement can allow the carrier to pay for discounted maintenance services through its network, saving you from having to come up with cash when you break down. Like any escrow, however, you should know the limitations including how to access your money.

Maintenance and tire discounts

Some carriers will allow you to participate in networks from which it receives discounted pricing for parts and labor. Some will even perform repair and maintenance functions in their own shops for a discounted fee. It’s important to understand what services are available and what they cost.

Independence

As an independent contractor, you have the right to decide when to work and which loads to accept — and you can take loads for other carriers, too. Many carriers, however, will dispatch your truck just like its own and claim exclusive use of your equipment. You should understand how you’ll be dispatched and the carrier’s exclusivity rules before you sign a lease agreement.

Leasing your truck to a carrier can be a successful strategy for a profitable business, but it’s important to fully understand the terms and conditions of the lease agreement before signing. Do your research, and choose wisely.

For over 30 years, the objective of The Trucker editorial team has been to produce content focused on truck drivers that is relevant, objective and engaging. After reading this article, feel free to leave a comment about this article or the topics covered in this article for the author or the other readers to enjoy. Let them know what you think! We always enjoy hearing from our readers.

1 COMMENT

  1. As a new CDL school graduate this article has some valuable information I will consider now and in the future! Thanks for the heads up!!

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