Relatively unchecked inflation has Federal Reserve Chairman Jerome Powell poised to implement another aggressive interest rate increase that makes becoming an owner-operator more expensive.
Truckers enter a freight hauling industry filled with good-paying jobs and entrepreneurial opportunities. Fleet drivers are averaging more than $70,000 annually as demand for experienced professionals hinges on an 80,000 trucker shortage. Those salaries allow truck drivers to save enough money to purchase their own rigs and increase their annual incomes. Owner-operators are averaging approximately $144,000, and that figure continues to grow.
But the actions taken by the Fed to slow inflation are putting something of a hitch in entrepreneurs’ giddy-up. After a recent inflation report indicated the consumer price index only ticked down from 8.5 percent in July to 8.3 percent in August, another round of 0.75 percent interest rate hikes is on the table. The Fed is poised to make its third consecutive uptick by the end of September.
“It is very much our view, and my view, that we need to act now forthrightly, strongly, as we have been doing, and we need to keep at it until the job is done,” Powell reportedly said. “The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.”
In terms of purchasing a new or pre-owned Class 8 commercial motor vehicle, would-be owner-operators can expect unfriendly loan payments. Interest rates for tractors are running between 5.99 APR and 35.36 APR, depending on the FICO score and financial portfolio. Those numbers are likely to rise as the Fed pushes rates higher.
Financing a $150,000 truck loan over five years results in a monthly payment in the ballpark of $2,899, excluding fees and taxes, among others. The truck loan’s interest would involve just under $24,000, all told. At 35.36 percent APR, the same monthly note surges to $5,358, with the total cost of that rig hitting $321,480.
The Fed’s reasoning stems from the notion of combating inflation, which many see as driven by unusually high diesel costs. Although diesel has retreated from all-time averages above $5 per gallon, little has been done to increase the country’s oil production to pre-pandemic levels. In a move that seems counterproductive, the Department of the Interior reportedly plans to freeze oil drilling leases, again.
Inflation and parts shortages have bogged down Class 8 orders and driven up costs. The average price of a tractor was just over $117,000 four years ago. Industry insiders point out that costs rose by as much as 30 percent during the first half of 2022. Every dollar an owner-operator pays for a rig is exacerbated by onerous interest rate policies.
Sources: wsj.com, durabakcompany.com, truckstop.com, ttnews.com
Leave a Comment