Rebirth of the Owner-Operator

Aug. 1, 2004
The owner-operator is the quintessential American trucker. No wonder owner-operators and company drivers alike relish the Hollywood image of independent truckers as kings of the road, knights in shining tractors, fully in charge of their own destiny. Of course, independents never had it as good as the carefree gear-jammers depicted on the silver screen. Funny thing is, today's owner-operator is about

The owner-operator is the quintessential American trucker. No wonder owner-operators and company drivers alike relish the Hollywood image of independent truckers as kings of the road, knights in shining tractors, fully in charge of their own destiny.

Of course, independents never had it as good as the carefree gear-jammers depicted on the silver screen. Funny thing is, today's owner-operator is about as far removed from the Smokey-and-the-Bandit stereotype as imaginable. Yet this may be the best year ever for doing business as an owner-operator. At least for those still in business.


Rough times in the freight market have weeded out owner-operators who may have had the driving chops but not the business skills to be successful in their own right or to allay concerns of fleet owners cautious about expanding their operations with substandard contractors.

Now, to hear fleet owners and industry analysts, you can't go wrong hiring an owner-operator. If you can find one.

The key issue for truckload (TL) carriers is figuring out how to get — if not actually help create — more of the type of owner-operator with whom they would prefer to be fiscally linked. Indeed, the truly coveted owner-operators are those who are just as safe driving their own businesses as they are their trucks.

With tough times in trucking over, at least for the next few years, many fleet owners are demonstrating a sea change in their attitude toward independents. Historically there were company fleets and there were owner-operator fleets and seldom did the twain meet. Now all-independent fleets are more common as are fleets running with a mix of the two driver types.

By lowering entry barriers, federal deregulation enacted in 1980 expanded the players in over-the-road trucking. The boom times that arrived about 10 years later sharply drove up demand for long-haul drivers — as well as the turnover rate as these essential workers realized their market value.

The solution for many fleets was to embrace the owner-operator as a means to expand their fleets quickly and with little outlay of capital.

The downside was many of these independent operators should not have been in business in the first place.

But instead of souring fleets on independents, a lesson was learned in the downturn. It goes like this: use independent contractors where they fit, but be sure they have the business abilities it takes to be truly independent — not a financial accident waiting to happen.

That's why truckload fleet owners are now more involved than ever in getting to know their owner-operators' needs as business partners and, most importantly, working to provide appropriate resources and assistance to keep them in the game, hopefully for good.

And it's a good game to be in these days. According to Bear Stearns transportation analyst Edward M. Wolfe, “the economy is humming and demand for trucking goods remains exceptional.”


However, Wolfe says “the biggest fundamental issue working against the TL group during 2004 remains driver shortages, which are leading to an estimated 8% to 10% increase in total driver pay while at the same time capping revenue growth potential for the larger carriers.”

The good news, according to Wolfe, is “clear evidence that smaller trucking fleets and owner-operators are re-entering the TL sector in record numbers since about May 2003.”

Analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC) says the “population of independents has declined in the past few years due to the weak freight environment — those who were not financially solid exited the industry.”

Brady pegs the dropout rate between 5% and 10%. He says that means the competition for owner-operators is now fierce, not so much because there are fewer of them but because more fleets want more of them.

Simpy put, he says “carriers want them to expand their capacity” as freight volume rises.

“This year over last year,” Brady advises, “I expect the ranks of owner-operators to grow by about 3%. Long-term trending suggests the number of owner-operators is going up overall,” he continues. “That may not solve the recruitment problem for many carriers. Since many owner-operators are drawn from the ranks of company drivers, the arrival of more independents does not amount to a one-for-one increase in the number of driving positions filled.”


Brady says only 20% to 25% of new owner-operators are entirely new to driving a truck. He notes that about 70% of owner-operators start out as company drivers and that, on average, they drive as employees for seven years before taking on independent status.

Making that leap is about more than gaining the sense of freedom that being one's own boss delivers. That heady entitlement is of course tempered by business risks. So savvy carriers seeking to get and keep solid independents are working at how to lessen that burden.

According to Lance Craig, chairman of the Truckload Carriers Assn. (TCA) and president of Perrysburg, OH-based Craig Transportation, his firm has primarily used owner-operators since its founding back in 1962.

“If you look back to the ‘70s and ‘80s, larger truckload fleets mainly used company drivers,” says Craig. “It was in the ‘90s when growth accelerated and the driver shortage emerged that we saw the large guys start to add owner-operators too. Since then we have had to compete more for independent contractors.

“And at the same time owner-operators became more popular, we had to become more particular about which ones we brought on,” he continues. “That meant learning more about what they expected from us and how they run their own operations. Our approach has been to migrate toward the more sophisticated owner-operator-the person who is in touch with cost per mile, etc.”

Craig says it has been tough the last several years finding the good ones for the regional TL carrier, which currently fields 100 trucks primarily running between the Midwest and East Coast.


“Some estimate there were 300,000 to 400,000 owner-operators out there and that group has fallen to around 200,000,” he observes. “We think most of those who left were not taking advantage of things like fleet buying discounts and other programs to help them succeed in business.”

He contends some fleets have still not “bought into” independents as a driving force but says Craig is committed to using them “pretty much exclusively — and we know what we are looking for” from them.

Craig figures turnover among owner-operators “comes down to their expectations; how grounded are they in the reality of trucking as a business.”

He says he's had success “hand-picking” some of the fleet's small corps of company drivers to move over to the independent side but points out he “would not push” that approach. “We are conservative about converting drivers, figuring that less than 5% of company drivers would be successful at that.”

Yet Craig is realistic about the recruitment picture. “The aging pool of drivers is disturbing,” he admits. “The average age of a truckload driver now approaches 50. On the other hand, he says turnover for Craig's independents this year is running at a very respectable 36% and estimates that may end up at 50-55% for the year.

“We knew the number of drivers of all types was shrinking in recent years, and now we in the truckload sector are in the midst of dealing with the issue,” says Craig.

As to what can be done to stem the tide, Craig says several initiatives hold promise. “It's important to try to get those who left the industry in the last few years to come back in. That can be done if we can bring their earnings up. That is what's needed to attract outside workers.

“Long term, efforts to invest in helping minorities to see trucking as a viable career alternative, such as TCA's programs aimed at Latinos, can make a difference.”

Something Craig says his fleet is doing to make itself more appealing right now is focusing on building a better freight system. “We want to make it more predictable-that is, to be able to present owner-operators with predictable schedules and revenue levels. Today's independent truckers do not want to live with the ups and downs.”

Clifton Parker, president of Gaston, SC-based G & P Trucking and TCA past chair, says the fleet, which runs 70% TL and 30% intermodal freight all over the South as well as coast to coast, has seen the number of both its company and independent drivers drop recently.


“Last year, we ran 590 trucks, including 246 owner-operators; as of this June, we had 508 and 209,” Parker explains. “We've reduced both fleets due to qualified drivers of any kind-being very hard to find.

“A combination of factors drove out those independents who were not skilled in business, drivers who were lured in by truckstop talk but really didn't know the risks,” he continues.

“Those who survived are the better businesspersons,” Parker remarks. “Of course, we don't have as many of those owner-operators as we'd like. But we have learned to become more proactive. We now conduct a ‘Business 101’ seminar especially for those entering the field via our tractor lease/purchase program.” He notes that of the fleet's 209 indies, 78 came in via the lease/purchase option.

As for how he approaches lease/purchase — which can still be a dicey proposition for a new operator — Parker says “we've learned that it can be hard for a guy to start out with a brand-new truck with high payments. They can get disgruntled pretty quickly. What we do is take one of our trucks after it's been in service for year and make it available for lease/purchase. It's nearly new and we can vouch for it.”

Other items Parker feels help owner-operators include writing a fuel-surcharge provision into their contracts; allowing them to fill up for less at the fleets' five bulk fueling terminals; letting them pay back for tires purchased through the fleet over several months; and making a healthcare plan at a group rate available to them.

While Parker says turnover among owner-operators is half that of company drivers, he does not try to steer anyone into independence. “We try to treat people as they would like to be,” he remarks. “We recruit, ask questions and listen. And then try to direct them to the right program, as an O/O or company driver.”


Parker says he has not yet seen the owner-operator coming back. “For that to really happen, trucking has to provide a job that is attractive enough to get people out of what they're doing and into a truck.” And like Craig, he is concerned about the graying of this driver force. “What's scary is the really good owner-operators are aging out, just reaching the time when you hang up the driving gloves.”

“The largest truckload carrier,” Schneider National spokesperson Mike Norder says flat out, “is coveting owner-operators and is looking to grow our owner-operator fleet in '04.”

The big orange fleet is putting its money where its mouth is. “Schneider is offering a $5,000 sign-on bonus to both experienced company drivers and owner-operators,” Norder reports.

“There's a double-edged sword in place right now,” he continues. “Thanks to freight demand, the market is ripe for owner-operators to enter or reenter the market. But the cost for them to do business is very very high.”

Norder says Schneider figures the way for both parties to avoid getting sliced and diced is for “owner-operators and fleets to not only focus on the revenue side of the business but also the cost side.

“We feel we have great success by offering owner-operators cost savings via purchasing programs” that let them tap into Schneider's considerable buying power.

“No one buys more than we do,” Norder says. “And we pass our cost savings on to our owner-operators, whether they are buying fuel, maintenance, parts, tires or tractors.”


He says an owner-operator can save over $10,00 per year through Schneider's program vs. securing and operating a truck elsewhere.

“We feel that addressing the cost side of the owner-operator's business is helping us attract and retain independents,” says Norder.

“Of course,” he continues, “incoming revenue is also crucial to owner-operators The fleet must be able to deliver the weekly miles it takes for them to make their payments and post a profit. In our case, we can offer miles to infinity — it really comes down to how much home time they want.”

When signing on a prospective independent, according to Norder, Schneider looks for safe driving and financial stability.

Once onboard with Schneider, owner-operators receive advice and direction on a daily basis form the fleet's independent carrier advisors (ICAs).

“Our ICAs have the business and financial acumen to help ensure our independents succeed,” explains Norder. “We also bring outside professionals into our facilities to provide direction to independents on business topics such as taxes.”

Norder notes that one-third of Schneider's miles are now driven by owner-operators. “We want to grow that further,” he states, “if we can get safe professional owner-operators to join us.”

Big or small, join the club. But don't take a number. If you want owner-operators you have two choices: Go out and find them or make them yourself.

Time is money

“Truckers,” says Todd Spencer, executive vp of the Owner Operator Independent Driver Assn., the nation's largest truck driver trade group, “are in a service business and the rates [they are paid] should reflect that service.”

Plain and simple, he says fleets should pay owner-operators and company drivers for the job they do. Then everyone would be happy, or at least happier.

To better connect with drivers of all stripes, according to Spencer, “fleets should understand the most important customer they have is the person driving that truck, who must be able to make a living.

“And their time has a value [attached to it],” he continues. “Fleets should aggressively deal with loading and unloading issues [that delay drivers]. Those who let driver spend 40 hours a week at docks will always be looking at finding drivers and owner-operators.”

So it may be nice to see those “detention” fines increasingly being levied on shippers with sluggish docks coming in. But that cash won't make up for experienced truckers heading out the door because they waited too long too many times.

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