Owner-Operators: In the Driver’s Seat

Sept. 22, 2004
Benefiting from record freight volume this year, owner-operators must still deal with a variety of challenges — especially high fuel costs and more expensive equipment. The American Trucking Associations’ (ATA) monthly Truck Tonnage Index surged 11.1% in June -- the second largest year-over-year increase in a year and a half, with the largest being the 13% jump in March this year. “June’s data shows

Benefiting from record freight volume this year, owner-operators must still deal with a variety of challenges — especially high fuel costs and more expensive equipment.

The American Trucking Associations’ (ATA) monthly Truck Tonnage Index surged 11.1% in June -- the second largest year-over-year increase in a year and a half, with the largest being the 13% jump in March this year.

“June’s data shows the trucking industry continues to deliver a robustly growing economy,” says Bob Costello, ATA’s chief economist. “Even more impressive than the month-to-month increase is the strength from May 2003. And year-to-date, for the first half of 2004, compared to the same six-month period in 2003, truck tonnage grew an impressive 7.2%, after increasing just 3% for all of 2003.”

But other experts caution obstacles remain that owner-operators – and the trucking industry at large – must overcome if they are to make long term gains from robust freight demand.

“Despite high freight volumes we’ve experienced so far this year, the historical challenges [of trucking] remain with us,” says Chris Burruss, executive director of the Truckload Carriers Association (TCA).

“It’s still a highly competitive industry, despite tight capacity, so there is pressure on rates,” he notes. “We’re still dealing with low profit margins, volatile fuel prices, and the cost of insurance is still high. Though rates are higher, equipment costs have gone up. Not only were the low-emission engine products introduced in 2002 more expensive, they also suffered a dip in fuel economy. That’s extra expensive for operators right now as diesel fuel prices are at record highs.”

Tough running conditions are indicated by the drop-off in the number of owner-operators in business. Of the 3.9 million registered holders of Commercial Drivers Licenses (CDLs) in the U.S. today, TCA estimates the number of owner-operators has fallen to around 200,000 compared to between 300,000 and 400,000 just four years ago.

But Chris Brady, president of Commercial Motor Vehicle Consulting, expects the ranks of owner-operators to grow by 3% year-over-year (2004 vs. 2003) and to continue growing as freight demand surges. However, he notes that the dropout rate for owner-operators hovers between 5% and 10%, so any gains could be offset by business failures among independent truckers.

He also states that 70% of all owner-operators started out as company truck drivers, with just 20% to 25% of independents entering the business as pure rookies.

Pay rising

Rapidly increasing driver pay – especially for the owner-operator segment – should continue to increase the numbers of independents seeking to make a go of it, at least in the near term.

Due to hours-of-service reform and the tight supply of drivers, truck driver pay has risen 8% to 10% on average for the truckload sector – which is where most owner-operators ply their trade.

For example, truckload carrier Schneider National boosted driver pay across the board in late 2003 – but with a particular focus on the owner-operator segment. Solo company drivers on average got an annual pay increase between $1,500 to $2,500 in 2004, with team company drivers getting $3,500 to $4,500 more per year per driver. However, for solo owner-operators contracted to Schneider, the yearly increase totaled $2,500 to $3,500, with team owner-operators getting $3,500 to $4,500 more per driver per year.

Still, pay remains a major concern – the average truck driver’s gross paycheck totals only $45,000 a year and owner-operators can make less than that if they can’t manage their the cost of operations, such as truck maintenance, fuel, etc.

“Many owner operators are having trouble, largely because they lack business skills,” says Dale Lawless, president of Arkansas-based consulting firm LPS Inc., which helps carriers locate and hire qualified drivers and owner-operators.

“Honestly, in today’s market where insurance rates are very high and fuel prices are out of sight, at 82 or 83 cents a mile, the only thing independents will pay for is their truck if they don’t manage their funds carefully,” he says. “Carriers in particular haven’t put anything together to teach someone to be a businessman. Some [independents] are good on the business side and some aren’t.”

Helping owner-operators better manage their finances is critical, says Lawless, as many carriers are hoping to rely on independents to increase their capacity. “The freight is there now and fleets are looking at ways to bring their fleet up to capacity to match it,” he explains. “To do that, they have to help owner-operators be smarter about freight and their business.”

Tough breed

“The owner-operator is a tough breed to find now – the last three years have been rough on them,” says Jack Sypolt, recruiting manager for truckload carrier Gordon Trucking Inc. “But we’re looking for them because not just anyone can go out and buy a truck in this industry and make a living at it – there’s a lot of professionalism and experience among independents. That’s why we’re recruiting them.”

Sypolt says the incentives Gordon Trucking offers qualified independents includes paying them for fuel as well as for their licenses, permits, and insurance. “Fuel [prices] right now are killing a lot of people,” he says. “So our offer to pay for their fuel is winning a lot of interest in us from independents.”

LTL operator Saia Motor Freight, however, is sticking to what it believes is the most “tried and true” method for recruiting truck drivers, especially independents: home time.

“It’s hard to find qualified drivers now, because the demand for them is so large,” says Thad Puccini, regional sales manager for Saia. “But the single most competitive advantage we have is that we can offer our city drivers a job that has them home every night, with our linehaul drivers spending a maximum of just one night out on the road shuttling freight between our terminals.”

Being home as much as possible, Puccini believes, is one of the biggest advantages Saia has in recruiting. “This [LTL] situation offers them a good quality life with their family,” he noted.

Yet truckload carrier Central Refrigerated Service is following a totally different avenue to recruit drivers: leasing them premium trucks at low payments with all the “bells and whistles.”

“We find that most owner-operators want quality equipment – that’s first and foremost with them,” says Cody Isaacson, Central’s manager of owner-operator programs. “But it’s hard for them to get the premium equipment they want. Realistically, they need to put $10,000 to $15,000 down just to buy the truck they want and most can’t do that.”

So Central’s recruiting plan has centered on leasing high-end Kenworth W900s to its owner-operator corps. Isaacson said that program has netted the company 7,500 new drivers in just the last three months alone.

“We try to make the payments as low as possible to help these guys make money while operating the kind of equipment they would want to buy,” he says. “Now, this takes a lot of money on our end to do it, but we believe if we put the driver in a position where they are happy and can make money, the company makes money as well. It’s always hard and never easy but it’s what you have to do to stay competitive in this market for drivers.”

Ages & Wages

One issue that concerns trucking executives going forward is the “graying” of the driver workforce – as the average age of truck drivers creeps over 50, fewer younger workers are moving in to replace them. That worries a lot of fleets.

“I don’t think the owner market is increasing -- not at the moment,” says Murray Mullen, chairman and co-CEO of Mullen Transport, a Canadian truckload carrier. “Demand has remained strong on the trucking side, yet supply is somewhat constrained and I think that’s probably primarily related to the fact that we just cannot get new drivers into this business.

“We’ve got a supply constraint out there right now. In fact I would argue that the age of our owner-operators is actually higher than it is of our company drivers,” Mullen says.

“I don’t see any quick fixes, and I think people should be cautioned here. It’s clear that the trend is that the age of our work force is getting to kind of a tipping point where we will have more people leaving the industry over the next five years,” says Mullen. “We’re going to have to look at new creative ways to bring new people into the business. I haven’t seen anything new and creative yet, and clearly rates have to go up to attract the next incremental person into the driver’s seat.”

Mullen believes those fleets that give wage increases are probably going to be the ones that attract drivers. “So, it’s just me against my peers,” he remarks. “I am articulating that to our customer base and saying, ‘look we can get you service but you’re going to have to pay more because we’re going to have to pay more.’”

About the Author

Sean Kilcarr | Editor in Chief

Sean reports and comments on trends affecting the many different strata of the trucking industry -- light and medium duty fleets up through over-the-road truckload, less-than-truckload, and private fleet operations Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

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