Leasing at Prime

Keep in mind that when I jumped in 2010, we were getting something over 36-cpm to run solo reefer on the company side, plus the variable fuel bonus. At the time, yeah it was "good money," but not great. You've had the benefit of two across the board 1-cpm raises, and the 5-cpm bonus for running in a lightweight added on top. Definitely start on the company side, learn your trade, and then decide whether you want to add running a trucking business to that portfolio.

I've mentioned many times in this thread and elsewhere that leasing a truck means you're running a trucking business. You can pretend that lease-operator settlement check is a "paycheck" - but it isn't. A company guy can take his money, blow it on whatever he likes, and within reason expect to have more money next week. Practically speaking, in a good economy that is the case. One always has to put something away for a week that you have limited miles (it happens,) and it's nice to have money in the bank for the next time you take some days off whether that happens to be at the home 20 or not.

A lease operator is responsible for his expenses, and one of those expenses is the salary you pay yourself. On a new truck lease, many of your costs are covered by the engine and truck manufacturers warranty, but the fact is that you have to treat your settlement check as cashflow into a business. If you don't you are playing roulette with your financial life. This also means you need a reason to be doing the lease thing... one doesn't start a successful business without a vision and the reasons for having that vision, and "more home time" isn't one of them.

So why in the world would you want to be stuck with a lease payment tied around your neck? It's playing Russian Roulette, right?

- More control over what you do.
- The satisfaction of running a profitable business.
- Getting the 250 pound dispatcher monkey off of your back.
- Calling your own shots within the structure that is offered by running under Prime's authority.
- Depending on how you run your business, making more money than you would as a company driver.

Those are a few of the reasons one could put out there. If you're going to jump in the deep end and run with your big boy boots on, you need to come up with your own list of why you'd want to be involved in this insanity.

You're not going to "clear" that sort of money running a Prime lease truck as a solo operator. In fact your trainer isn't "clearing" that kind of money either.

That's a fair statement, but remember, that isn't his paycheck. Anyone with a lease truck who either believes that, or passes the bottom line number off as his "paycheck" is a fool if he believes that, and is certainly not telling you the truth if he is telling you that.

He may have $2000 per week while you're on his truck as what is deposited in an account, but there are a lot of other things to consider. Maintenance is the big one. What if he looses a turbo? Most of that cost including a tow (hopefully) will be covered by warranty, but there is also the cost of living expenses while he's off of the truck- and that includes covering his trainee. A good part of that $2000 had best be put away as a hedge against unforeseen expenses. If not, he's going in the hole against future revenue, and Rob Low will only let you play with his money so far before he pulls the plug.

Over the course of a 3-year lease, I averaged about $1200 per week net before taxes running 100% solo. I have no desire to train, or share my space with another driver. Given what folks make on the company side in the last couple of years, I probably only cleared around 10 to 20% more on the average than a company driver would have.

On the other hand, I also stashed away $14,000 in cash, plus another $9,000 in escrow that was returned to me at the end of my lease. I ran 410,000 miles on a truck that I put $7,000 down as a down payment, and have the knowledge that I didn't sink my money into a total money pit because of the problems that many post-emissions trucks have with the new engines. Currently, I am very close to having the title to my truck in my name, and am moving towards filing for my own operating authority. A trailer is probably in my future as well. If I'd stayed as a company driver for Prime, I could very well be in the same position (sans a post '03 truck,) and if I chose to pursue the same path, I'd probably be looking at buying a pre-emissions truck that was at a minimum 12 years old with a million miles on it.

If all you want is a paycheck... don't even think about leasing a truck.

If you want something more, it's a pathway to that future. It's also not the only way to getting there.

If you can make a reasonable living as a Prime lease operator, you're running a tight enough ship to do that anywhere. If you can't manage to make it work, then you also know something else- that you're not cut out to be an owner-operator, plus you can walk away from that lease without damaging your credit.

 

I got real used to being my own boss/calling my own shots while I was engineering. It's hard to go back to being an employee.

As a self-employed independent contractor (aka a lease operator) you have all the options afforded you under the ACA... you buy your own.

Liability, bobtail and cargo insurance are part of the truck payment. There are also plates/permits/federal highway tax (taken out as a weekly expense across the entire year,) fees for trip scanning, QUALCOMM rental, fuel card charge, tolls, and occupational accident insurance.

The majority of maintenance is covered by the powertrain and engine manufacturer's warranty... Freightliner and Detroit do a great job of standing behind their equipment. Not so much with Kenworth/Peterbilt, Paccar and Cummins. You are responsible for all repairs involving abuse of the equipment, consumable items (tires, wiper blades, light bulbs, etc) PMs (oil changes,) truck washes, alignments. Tire expenses are charged to your tire escrow account which is reconciled to your settlement at the end of the lease. Don't forget, you are also responsible for paying taxes quarterly.

Normally you charge maintenance expenses back to the company, and they appear on your next settlement - you don't have to shell out cash for things unless you desire to. Large expenses are carried by Prime for lease operators, and you make $100 weekly payments for each of them.

I think you're putting the cart before the horse here. Expenses come out of your gross revenue before you ever see one penny. In fact if you run up a big enough bill, your net can be negative... no money to you, and you owe interest on your negative balance. That negative balance is paid off out of your next positive settlement.

Leasing is not employment. You are considered an independent contractor by the IRS, and that means you are on your own. You are running a business, the settlement check is cash flow into the business, and one of your expenses is the salary of your employee (you.) How much are you paid? How much do you want to pay yourself, and how much can you afford? This isn't like being employed where you can go blow whatever come in. There has to be enough set aside to make your business viable. The monster you feed (aka your truck) comes first. Get cheap with your maintenance and upkeep, and I guarantee you that it will turn around and bite you when you least expect it and can't afford it.

I always paid expenses out of current revenue as best I could, and put away $100 per week in my emergency account. Fuel is the big expense, and anything you can do to cut your fuel burn is money in the bank. Example... don't cheap-out on tires. Get the best low rolling resistance tires you can, even if they are much more expensive than cheap Chinese crap tires. You'll make money at the fuel pump in the long run. That being said, I managed to average about $1200 net before taxes weekly over a 3-year lease, solo, reefer division - that's cash flow into the business, not a paycheck. Your mileage may vary.

 

Freight, the freight-cycle, and where we're at today in the winter of '14/'15.

The freight-cycle...

Freight is cyclical in nature... each segment of the industry is a little different. Since I'm a reefer guy, most of the following will pertain to that.

The holiday season is a good place to start. Thanksgiving/Christmas/New Years is done and past. The great give-a-thon is over, and retailers have all of their left-overs to deal with. January and February don't see a lot of orders going out unless the backroom got cleaned out over the holidays. It hits van freight harder, but it hits reefers hard too. The last couple of years ('12/'13 and '13/'14) had unusually strong post-holiday months, things have been booming. I think a lot of that had to do with retailers being conservative on their pre-holiday orders, and then selling out. This year is more back to normal. Folks got into the usual go-for-broke mode, and had quite a bit left over after the holidays. Plus, while I haven't seen any numbers from say OOIDA yet to confirm this, I believe there has been an increase of trucks competing for freight since the downturn. '09/'10 saw a deep decrease in the number of available trucks as folks went out of business during the recession: I'll bet that trend has reversed, especially over the last year.

So January and February in a normal year have lower freight volume meaning there's less freight to go around. Rates drop during these months. The truck to load ratio tightens up with the beginning of spring produce, and rates will rise dramatically most years starting in March, and running through Memorial Day. June is usually pretty strong as well with the end of the 2nd quarter coming up. The end of the month and quarter are usually a good time to be out because shippers will try to get their back orders out to clear their books off at that time. The spring is the high-tide for freight, so IMO you should be out and running hard during this period. Putting away your large settlements during this time of year in savings is a good plan... there will be slack times to come most years, and having that cash cushion is always important to keep your business viable.

The Fourth of July is usually pretty week, and presage the slowing freight volume over the summer months. Yep, it gets downright ugly over the Fourth, and although Prime will urge you to stay out, I usually find it's not that good a holiday to be trucking. July and August will be so-so, and sometime late in the third quarter freight will start surging again. It's usually not as good as the spring, but you're going to see some great loads. Van freight will rise because of orders for the holiday season, and this will again cause the truck-to-load ratio to swing in our favor. Also, all of the fall produce is coming in so get busy. Most years freight will continue strong into the fourth quarter, but it starts getting iffy... especially over the big holidays. Again, Prime will want to have you running... there's freight to be delivered, but it's not some kind of freightorama bonanza. Plan on taking some time off... what you can afford. It's a good time to be home with the family. If you have cash in the bank to help cover your expenses (remember those big settlements from the spring??) it's easier to take that time off. Cash in the bank helps cover those slack settlements that come with not running.

This year...

So where's the freight??? I hear a lot of biotching on trucking Facebook groups, and that's what I hear from a lot of the lease guys as well. We're getting a double-whammy this year: decreased freight volume, and lowering fuel costs. Low fuel costs might seem to be a blessing, but for outfits like Prime who pay fuel surcharge on all miles, that means that fuel surcharge is down... right now its around 30-cpm below what we were receiving last summer. It's not Prime being cheap, but the fact that the fuel-surcharge formula is based on the average cost per gallon for the fleet from the previous week. That means that on a 1000-mile run, we're getting $300 less in gross revenue just from the lower fuel surcharge.

The last two years as I've mentioned seemed to have very strong post-holiday freight. We've gotten used to that, so what's going on this year? It's been hit-or miss. There's a lot of not much more than break-even freight out there, but good runs still exist. What's going on? This is a year that seems to me to be more like normal. Freight is kinda soft, but no one is getting fat off of it. One of my training friends was biotching about having another load that was just about break-even after having one of those to start the week. He rejected it, but got a repower that's better, but not a lot better. Most years a lot of the team freight dries up about now, and the team guys have to exist on what's known as "solo freight." Shorter runs that are not necessarily bad rate-wise, but it's not the level of revenue the team guys are used to.

Holding costs down...

We all have bills to pay, so sitting the truck stop and playing supertrucker (I won't let anything touch my trailer that isn't over $2-per-mile) isn't going to pay the bills. This is where running efficiently comes in to play. When revenue is down, we have to play the game of tightening our belts. The lower your costs are, the more of what revenue there is will be available to get across your bottom line. When freight is soft, keeping the fuel bill under control really becomes important. Yep, fuel price is down, but that alone doesn't mean it's time to pour on the speed 'n show 'em. Just the opposite, since your revenue is down, you need to not only take advantage of the lower fuel costs (I've seen $1.60 or $1.70 per gallon base price fuel over the last weeks,) but also to get miserly with how much you burn. Remember, base price fuel is the pump price minus corporate discounts minus state IFTA fuel tax. You're going to pay what you pay for tax, and if you put too much in the kitty at the pump, you get a refund. So base price is what you're paying for the fuel, and many times the truck stop chains will adjust their prices to remain competitive with stops just across a state line. That means, a state with higher fuel tax will likely have lower base price fuel. Illinois for example has a $0.435 per gallon fuel tax, while Indiana is $0.160 per gallon. That means that fuel stops in Effingham and Peru/La Salle often have much lower base price fuel than the Gary/Lake Station area. You can improve your fuel cost per mile greatly just by paying attention to where you buy your fuel at. Lower pump prices in Indiana do not necessarily mean you're getting a better deal, what you have to look at is the base price (for ICs at Prime) to determine where the cheap fuel is at.

We get lower fuel prices, so if you're doing well on efficiency that's not a bad thing. If you get great fuel mileage, it's harder to make some positive ground in your bottom line against the fuel surcharge payments. Just the same, when freight is soft, it's time to work on your efficiency... using less fuel is the other end of fuel cost reduction. Time to double down on progressive shifting, keeping the turbo boost down on grades and downshifting more, and keeping the speed down when you can. Prime pushes keeping the RPM down... on the idea that if the engine is turning less, the injectors are pumping less fuel. Yep that's important, but I've found that keeping the turbo boost pressure low is even more important. If you have a turbo boost gage on your truck, try keeping the pressure at a constant level when you're climbing a grade, and don't worry so much about RPM. It will decline as the engine demands more torque to keep the load moving up that hill until you reach an equilibrium point by downshifting. Using around 10 psi as a minimum is about the best you can achieve. When you're cruising on level ground, every 1 mph slower you go will improve your fuel economy by about 0.1 miles per gallon.

Don't forget to get anal about your tire pressure! Underinflated tires burn a lot of fuel!!!

Any discretionary spending you might be contemplating should probably be put off as well. Remember, spring produce is around the corner... that's a good time to do some things to the truck you might be thinking of. If you get a good settlement right now, it's wiser to hang onto that cash just in case. Keep in mind April 15th is coming up... the double hit of your tax bill from last year and the first quarterly payment for this year.

Cash reserves...

Keeping cash in reserve is also important, because Murphy likes to strike when things are tight. Last December I had the throw-money-at-the-truck lights come on... ENGINE MALFUNCTION and CHECK ENGINE. The information pages were pointing at an EGR problem. I think to myself, "Self, lets get some more cash, do this load to SLC, and bounce back to SPRIMO for repairs." But Murphy had other ideas, and got my yearly parked regen to throw some fuel on the ol' fix-it fire. Yep, it wanted it's parked regen after coming up Parley's. So I go to my 90 (its a drop,) and think that I'll get that done there and head back to SPRIMO. No-go!!! Those other problems caused the regen to abort, so it's over to the Freightliner shop in SLC. That means a hotel bill, restaurant bills, etc., as well. If you have cash in the bank, that means you can afford to have a little fun. Camping out in the drivers lounge of a 24-hour repair facility ain't no fun, and if you're taking advances to cover the bills... Robert will only let you play with so much of his money.

There's a negative-balance report that your FM gets to review every week. If you're on it, he gets to explain to the powers-what-be why they should continue to finance your business. Get in the hole too deep, with a poor track record of earnings, and they'll pull the plug on your contract before you do get in too deep. This is another good reason to build a good relationship with your FM... he's the guy defending you when it comes to bad stuff... explaining tickets, accidents and being in the hole- to management.

How it ties together...

Remember, this is the time of year that freight is soft. So if Murphy strikes your truck... you won't be earning. In fact your cash reserves are what's keeping you afloat. If you don't have the money to keep going, you're headed for the hole. Not all is lost though... guys on 3-year leases do have "Dealer Down-time Pay" coming after the first full 24-hour period. It's not going to replace your lost revenue, but it will pay the fixed expenses to keep you whole. If you're going in the hole while freight is soft, there isn't going to be tons of revenue coming in to dig you out of the hole. Your FM will probably help you with the best load on the board to flush some money into your settlement, but if the freights not there- you're in trouble.

In my case, I had plenty in the bank, so I spent an enjoyable week in SLC, and the Freightliner guys did a great job at actually troubleshooting the problem... not just throwing parts at the truck. So far, my troubles haven't returned. Just the same, its time for me to start working on building the reserves again against the worst happening, taxes are coming up, etc. So far my January hasn't been that bad at all. The first week sucked for fuel costs (cold weather, storms,) but the rest of the month hasn't been all that bad. Being careful where I bought fuel at has sure helped the bottom line. I've had some more maintenance costs (tire time among other things,) but so far I'm keeping it paid off against current revenue.

Your numbers...

I've harped a lot about "knowing your numbers." Well, it's important. Keeping track of how your business is doing financially is incredibly powerful. It let's you know what it costs to run your truck down the road, and whether the next load is a winner or loser. How do you know whether that load is really any good or not? By the numbers!!!

If you have an accounting system (not a CPA!) that you keep up to date, you can generate some statistical information that allows you to know your costs. Putting information into your system weekly allows you to generate monthly and quarterly averages. Why's that important? Your day-to-day and week-to-week numbers jump around bunches. Remember I said I had a bad fuel week at the beginning of January? I also have had 3 great weeks following that with moderate temperatures, so my fuel burn rate was down. While that first week sucked, knowing that it was just a transient thing is power. When you average what your revenue and costs are over time to generate monthly and quarterly averages, you have informational power. I know how much revenue I must score per day to pay the bills and be profitable enough to pay myself. I also have the numbers for fixed costs per day and variable costs per mile handy... averaged over long enough periods to know what I have to put in the books every week to be profitable. And I have the data to know how that changes seasonly over the year.

Net revenue (estimate) = Gross revenue for a load - (fixed costs per day * number of days on the load) - (variable costs per mile * number of miles on the load)

I can also use my operational ratio (OR = (fixed + variable costs) / gross revenue) to estimate my net revenue quickly. Knowing what your net revenue per day is to get a handle on where you're going to be money-wise at the end of the week. You can also generate a minimum required gross revenue per-day number from your statistics to evaluate the health of a load.

The last time I was up in the northeast, I got a series of loads running from Massachusetts to Chicago, all paying about $1,000 to $1,400 sent to me. I rejected all of them because the gross revenue per day was in the $300 to $400 per-day range. I know I need something north of $400 per day to pay the bills and make a profit. So talking to my FM, I got him to agree to keep me in the northeast (Gag! Gasp! You want WHAT???!!!!) because we can find day-loads with pretty good gross revenue per day figures, and since they're short runs- low fuel costs. It turns out that a run down to Jersey was all I needed... the next day there was a pretty good load headed south that looked much better. The point is, by knowing my numbers I was able to find something that got me the revenue I needed to remain profitable.

The bottom line...

Knowledge is power, and financial knowledge of how your operation is doing is the power you need to survive the times that are rough. Knowing your numbers allows you to evaluate loads as they happen to help determine if they are going to benefit your business, and not just accept the tired ol' pitches that dispatch sells them with. Understanding that freight is normally soft this time of year is a guide to dealing with it, and helps you to make decisions about your spending. Lower revenue from freight this time of year means we need to be dealing with the efficiency of our operation, and doubling down on the things that reduce our costs- and makes us more profitable in times like this. Keeping track of your weekly revenue position helps you to lower your stress quotient... and keeps you from bouncing off the walls of your truck. Remember, they're giving you the best load they have at the time your truck hits the top of the queue... and everyone is getting hit with this. I've seen a bunch of loads sent to me that have been already rejected by another truck... that means that things aren't getting any better sitting there. Keeping track of your daily revenue position allows you to see where this load will put you down the road in a few days, and decide how that will fit in with where you will be at the end of the week. After you do this for awhile, you can tell by your total revenue for the week to date where your settlement will be at the end of the week: skinny or fat.

Good luck gals and fellas!