And there are some pretty good reasons out there for doing so.
Foe example, a study conducted earlier this year found that owner-operators by and large still make more money than company drivers.
And with the continuing driver shortage only expected to worsen in the years ahead – and with that shortage helping trigger major truck capacity constraints in the U.S. as well – the time might indeed be ripe for more trucking startup ventures; if they do their homework, that is.
“The trucking industry is one of the biggest and most lucrative businesses in the U.S.,” noted Mike Thrasher, chief sales & marketing officer with Apex Capital; an industry that generated total revenues of $700.4 billion in 2014, according to American Trucking Associations (ATA) data.
Indeed, trucks carry nearly 70% of all freight tonnage moved in the U.S. – which totaled 9.96 billion tons in 2014 – and it takes three million heavy-duty class 8 trucks and over three million truck drivers to move all of it, he emphasized. “Without trucking companies and drivers, the economy would come to a standstill,” Thrasher pointed out.
Yet to ensure a new trucking venture turns a profit, new business owners must know what it costs to run it, he stressed.
“Your business will have two types of costs; fixed and variable,” Thrasher added. “A fixed cost stays the same each month, and a variable cost changes. So you should develop a solid understanding of what your costs are and what you need to charge per driven mile in order to make a profit.”
That “profit number,” Thrasher emphasized, is what you then use in negotiations with customers and in making decisions on whether to take a load or not.
Knowing your costs is but one of five key things those starting up their own trucking business need to know, he added:
- Know Your Operating Costs: Find a system to manage the financial aspect of your business. And then track all of your expenses including; insurance, maintenance, repairs, truck and trailer payments, fuel, office expenses, salaries, and other incidentals, so you know how much it costs you to run. With this knowledge, you can set a minimum amount you must make per mile to be profitable, so you never under charge or come up short on a load.
- Save on Your Biggest Expense – Fuel: Thrasher stressed fuel can account for up to 40% of a small trucking company’s business expenses. A great way to save money and keep your business running successfully is enter a fuel card program, since they can help you get deep discounts off fuel purchases at the truck stops you visit most, along with access other special deals and incentives. For example, Thrasher said small carriers using the Apex Fuel Card can save an average of 15 to 20 cents per gallon.
- Manage Your Cash Flow: As a start-up business, you may be unable to obtain a bank line of credit to help you manage cash flow. Many times you will need to wait 30 or more days to get paid on invoices that you submit to your customers. Thus freight factoring is a great option for cash flow management, as a factoring company will purchase your accounts receivable to allow you to get paid much faster so you can manage your cash flow more effectively.
- Follow New Entrant Guidelines: Once you have applied for and received your motor carrier authority, the next step for your trucking company is to get permanent operating authority. Your company will get permanent authority after being observed for 18 months during your company’s new entrant period. During this time, you’ll need to demonstrate that your company is operating safely, staying compliant with various safety rules, inspecting and properly maintaining your trucks, and has completed a new entrant safety audit. If you skip any of these, your DOT number could get revoked.
- Finding Loads: It’s important to haul for quality brokers and shippers to ensure that you get paid a fair rate. One way to begin looking for customers is to use a load board (with Thrasher of course noting that Apex offers one called NextLOAD.com). A good load board allows you to search for loads based on your criteria and gives you some sort of credit information on the broker or shipper that posted the load. Using a load board is a good way to get your first loads booked so you can begin to establish relationships with brokers and shippers that you want to haul for.
One final note: pay close attention to your Compliance, Safety, Accountability (CSA) scores, warned Thrasher.
“Do all you can to avoid poor CSA scores,” he stressed. “The CSA program assigns safety scores to motor carriers in seven areas, each of which is known as a ‘behavior analysis and safety improvement category’ or BASIC. Five of those scores are made available to the public [and] poor CSA scores can prevent you from receiving a load from a shipper or broker.”
He added that carriers can lose insurance coverage or be forced to pay higher insurance premiums because of poor CSA scores.
That factoid shouldn’t surprise anyone who’s been in trucking even for a short while. But it’s good to be reminded of the key fundamentals so you safely stay on the profitability glide path.
