Net-Leasing

Thanks. I am not sure what I did, but I appreciate it.

 

Just when I thought I had seen the worst of what the trucking industry has become, I find there is something worse.

Bret, please do yourself a favor and forget a net-lease. Don't stop there, do yourself a second favor and forget a mileage lease. Find yourself a percentage lease and make yourself some money.

For the sake of anyone that reads this let's do some role-playing. Let’s put ourselves in the role of the company we are looking at leasing to. Now how would we structure a lease if we were those companies? The same way any smart businessperson would, to make us the most profit. This thought alone should be very informative.

Now there are far less percentage leases out there which should tell you right away they are probably more desirable. The fact that, if you do some research, you will find that percentage leases pay about 1.50 – 1.80 CPM should make anyone seek them out. This is especially true when you find that mileage leases are paying 1.25 – 1.40 CPM. I admit I have no knowledge of net leases, however I am willing to wager a hefty sum (I am not a gambler) that they pay less than a mileage lease. If you are willing to go all in and get your authority and a trailer you can 1.60 – 2.30 CPM.

As owner operators we have to change our mentality or we will never realize the dreams that drive us. Making a choice to be an owner operator is risky. Since it is inherently risky why not go all in and reap the rewards that drew you to this idea in the first place? If you can’t afford a trailer and authority or aren’t ready for the administrative work related to being a carrier, start with a percentage lease. Bank the extra money and gain knowledge to go the independent route. Then purchase a trailer and get your authority. Most will never make enough from a mileage lease to purchase a trailer and move on to get their authority. These mileage leases are designed to allow you to survive while making the company money.

Now back to the role-playing. We are the company and we have freight that pays from 1.10 – 2.30 per mile including the FSC. So we will pay our lease operators 1.32 CPM (0.97 + FSC). We will limit our really cheap freight and make big bucks on the higher paying freight. By doing this we can pay loaded and empty miles both. We probably average about 1.80 CPM loaded and even with 10% deadhead we still average about 1.64 CPM loaded and empty. Now our trucks have a cost of operation of 1.50 CPM so we make 0.14 CPM on our trucks and 0.32 CPM on lease trucks. It’s obvious to me that the lease operators are robbing Peter to pay Paul!

Not let’s suppose we have a net lease. We won’t take any 90’s model extended hoods because their fuel mileage is horrible and we are paying fuel. Still we will have trucks that get 6 to 8 MPG. If you look at some of the fuel mileage threads on the TTR Forum you will find that the average is around 6.5 – 6.6 MPG for today’s owner operators. Now with the national average fuel cost at 3.75 per gallon, a truck getting 6 MPG costs 0.625 CPM to operate and at 8 MPG it costs 0.469 CPM to operate. At 6.5 MPG it is 0.577 CPM for fuel and we will figure it at 0.65 for the sake of our company. Now we will pay our net-lease operators 0.62 CPM to make sure we don’t lose money on fuel costs. This means the company is taking about 0.70 CPM for fuel and if your truck gets 6.8 MPG you are losing 0.15 CPM on this arrangement. If you are getting 6 MPG you are still losing 0.075 CPM and if you are getting less they terminate you for fuel theft.

Now let’s take a quick look at the percentage lease from a company perspective. I have seen leases that take from 9 – 28%. Let’s say we get 80% of the gross and 100% of the FSC. Let’s say the load is paying 2.05 CPM of which 0.40 CPM is FSC. So we get 80% of 1.65 CPM or 1.32 + 0.40 FSC for a total of 1.72 CPM loaded. If we deadhead 10% or 60 miles for a 600 mile load we still get 1.56 CPM for loaded and empty miles which is 0.24 CPM more than the mileage lease would pay. Another thing to consider is that since the company with the percentage lease makes more when you make more, they are less likely to haul cheap freight. With this arraignment they have a vested interest in your success.

It is time that new owner operators stop taking the risk of truck loans and business operation while trying to limit risk with mileage leases and other company gimmicks. Please think about this. If they are offering you a sure thing, how sure do you think there side of the agreement is? If anyone is going out of business, it will be the owner operator not the company. Step up to the plate, take the risk for the fuel, take the risk for the deadhead, screw your head on strait and make some money. If the company is assuming risk for you, they have insured they will be completely covered and make a profit for it. If you were the company, wouldn’t you do the same? The profit potential is directly proportionate to the risk factor. If you aren’t willing to assume the risks, you will make more money driving for a good company!

 

G-man...BigBadBill. Looking for a GOOD drvr? If so,how can I reach you,or apply to your outfit?

 

That was without doubt the most informative comment (article?) I've ever read concerning the subject. Thanks for sharing.

 

very good read big john

 

Big john 54-
It doesn't get much clearer than that! Very well written.