Caution Prospective Independent O/O! My Embarrassment.

Discussion in 'Ask An Owner Operator' started by TallJoe, Oct 20, 2017.

  1. Ruthless

    Ruthless Road Train Member

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    As a response to a couple comments made months ago, regarding private fleet costs:
    Private fleets are trucking their own product outbound- which means they can make or lose money on the "trucking" to their customer depending on how it suits them. They are selling the goods they are trucking, so generally they are either making money on both sides, or making enough on the product to ship it at a minimum recorded charge (Think of all those places that tell you "free delivery" on appliances or mattresses or whatever item- it ain't "free" just because the line item isn't on the invoice).

    However: private fleets make their money on selling their own goods, and as was apparently overlooked in previous comments, it costs them more to take cheap freight because while the rate may cover some of the costs involved with the actual variable truck costs; they are losing money by not having that asset available to move their own product if the (brokered/backhaul/whatever other freight) doesn't pay well and go quickly and smoothly.
    ~Cost of lost revenue (albeit from a. Different stream, utilizing an asset for a tertiary form of business does have additional costs because of the primary business not being serviced).
     
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  3. boredsocial

    boredsocial Road Train Member

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    It's also very important to make sure you keep your costs as low as possible with any new business venture. The reality is that the revenue environment in trucking is incredibly unstable. What this means is that what you bring in is going to change a lot from month to month or year to year.

    So what does that mean? First of all grade yourself on a curve. In this environment it's definitely possible to average 3 bucks a mile on 2,000 miles a week as a solo. Not only is it possible but it's actually sort of easy if you know your way around the markets. Right now this is a solid B dispatch grade. Not an A... those guys are making more money than I care to speculate on. This also means that if you were averaging 1.80 a mile in January 2016 you were the god of dispatch or not running very many miles. You want to adjust how you're doing to the market conditions. You have to be willing to work a LOT harder when rates are great because you need to make as much money as you can and get a cushion for when rates will be downright ####ty.

    This is a HIGHLY cyclical business. Right now we are in an up cycle that will go on for an undetermined amount of time. What we can be sure of is that with prices at these levels there is a LOT of reason for trucking companies to add capacity and for people to start new trucking companies. You're already starting to see this in driver pay which was up a lot in 2017 as companies squabbled over (very profitable) drivers.

    The rush to add capacity in the last paragraph will inevitably push supply over demand again and rates will collapse. At this moment we'll discover who the competent operators are. What will follow will be a brutal period where rates are actually below the cost of ownership. Used truck prices will fall rapidly from their current highs (driven up by people trying to get into the trucking business and add supply!) Operators whose overall cost of doing business is too high will be forced out of business as their burn rates will eat through any savings very quickly. They (of course) have less savings typically than the low cost operators because their margins in the good times were worse because of their higher costs.

    This is a good time to be adding trucks. Even with the insane cost of equipment, drivers, etc the rates are more than justifying it. At the same time it's probably a really good idea to expand with an eye to how easily you could downsize and how much that would cost. You want to be able to reduce your exposure when the rates go back down... Which honestly isn't looking likely for 2018. I've been hearing things about things like renting/leasing Ryder trucks at pretty reasonable rates. It's important to remember that this is the trucking business not the truck owning business. In fact I'd probably measure any used truck purchase against a Ryder truck and make sure the Ryder trucks numbers aren't better. I'd say that's pretty much the max cost you can tolerate without the kind of premium freight that established trucking companies live off of.
     
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  4. TallJoe

    TallJoe Road Train Member

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    Despite the gloomy, yet genuine title of the thread and initial posts, I have a little encouragement for newcomers, that things might turn around in favor. It only proves that a prospective independent owner operator should be prepared for such an eventuality as a low business cycle (low rates in simple words) as I experienced in 2017, amplified by the inexperience in load-board freight market bidding and the very lack of knowledge of what lanes should pay what. After going through and surviving the initial "lack of experience" phase, things get better.

    I would have sunk in 2017, had I not had over 20K saved up initially, after setting myself up with authority ($900), insurance and a new trailer down payment (6.5 K). The difference is staggering. In the last three months I already cleared more than half of my net earnings in the entire year of 2017. I mean by net earnings, all the business profit before income taxes and paying myself. I don’t apportion the maintenance fund either, which is also, as “paying yourself”, discretionary.
    I wish I could say that I got better in knowing rates and lanes, but to be 100% honest, I attribute the 1st quarter numbers to better rates freight market, as many claim, exceeds the year of 2014 hands down.
    It is Dry Van load board freight.
    YTD Revenue $59,254.09 YTD Profit $34,602.90
    YTD Mileage 26,139 Dead Head miles 5,347 (22%)
    Rate per loaded mile 2.91 Rate per mile 2.27 (all miles)
    Total Cost per mile 0.94 Profit Per mile 1.32​

    Fuel $12,640.48
    Maintenance $1,190.96
    Office $563.62
    Trailer Payments $1,746.87
    Parking $884.00
    Insurance $2,165.00
    Licensing & Taxes $2,821.76
    Fees & Interests $146.27
    Tollways $2,373.75
    Scales $77.00 S​
    Showers & Misc. $41.48
    All Costs $24,651.19

    Nights spent in the truck: 54

    If I could extrapolate the trend over the next 3 quarters, at the same work rate, I’d be more than happy.​
     
    Last edited: Mar 31, 2018
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  5. Scooter Jones

    Scooter Jones Road Train Member

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    Good for you!

    My philosophy is to operate in the good times like they're the bad times. If you can survive in those lean times, you stand a chance to gain ground. Especially if you stay disciplined when there are upticks by paying forward, getting maintenance items done, putting money into a retirement account, etc.

    Because inevitably, what goes up, comes down.
     
  6. TallJoe

    TallJoe Road Train Member

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    I agree 100%. It is very debilitating and demoralizing to run the same lanes for so much less in the lean times, though. But still a man have to go out there and work and take what they offer....more or less.
     
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  7. Scooter Jones

    Scooter Jones Road Train Member

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    It appears that your line item shown as "profit" includes your wages?

    To each their own, however, a more accurate gauge would be to include your wages, additional payroll related taxes & benefits as a line item cost. The bottom line after that is your "profit".
     
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  8. Scooter Jones

    Scooter Jones Road Train Member

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    I agree that the increase in rates (especially around the holidays) was nice. I stocked up some nice coin and it allowed me to take extended time off this winter. I've had like 7 weeks off this year ;-)
     
  9. TallJoe

    TallJoe Road Train Member

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    I just show the whole baked pie before slicing. I always struggle with "paying myself" concept. It is discretionary, how much I pay myself. Sometimes, I don't draw funds at all....except obligatory payroll amount of $2400 per month to satisfy S-corp payroll facade. I let the money sit the at the business account and accumulate...maybe reefer soon. But logically, it could be figured out easily, If there was a driver hired, hypothetically.
     
  10. spyder7723

    spyder7723 Road Train Member

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    Yup real cheap freight down here. My last load out paid 3.13 a mile on just undet 2k miles. And thats after my carrier took 25% of the linehaul. However that does include 500 in tarp pay, but not the 500 in detent pay.
     
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  11. stayinback

    stayinback Road Train Member

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    TallJoe- Sometimes(At least more often than not) a Single 1 tryuck operation is better to File as a Singl member LLC or Sole proprietor.

    Why?

    The money Sitting Idle after your Payroll (s and c corp) Will eventually Get Taxed Upon, Keep that in Mind- no Im not a CPA- But Learned a lot.

    So Many guys go S or C corp- Then Fall Victim to Hundreds and Thousands of Dollars in taxable income- Sure you can put it in an IRA or CD- But,You'll get it taxed later on.

    Single member LLC- Simple way for a 1 truck show- You'll Pay 100% on all Profit Right Now- And Never have to worry later-

    So,Just an example- If You Net $80k per year after expenses, You'll be paying Approx $30k in all taxes (Give or take your personal exemptions)

    So,your quarteriles you send out are around $7500.....State and Fed/Fica, Medicare
     
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