Why you can not compete with big carriers

Look at it this way - every auto insurer offers a plan that you download an app or get a dongle that plugs into the car that tracks your driving and changes your rate based on your habits. Same basic idea with the big carriers - they look at total miles driven and the driving profile of those trucks not the number of trucks. Minor claims get dealt with by the carrier and don't involve the insurance at all. This week I was in the dock when the gentleman two docks over pulled out and blew his drive line, which sent a part flying into one of my marker lights. That claim will never see our insurance (most likely). We can go after the culprit in house for less than it would cost us to involve our insurance. Until the dollar amounts have two commas in them we can cover it in house, after that insurance gets involved.

For some reason that I don't understand, people believe that business scales linearly. The costs of running a one truck operation and a two truck operation do scale linearly. The costs of a one truck and a 10 truck operation do not. Some costs like fuel will scale linearly. Others, like staffing, will increase exponentially. Insurance costs will likely drop on a per truck basis, as will most permits. For you to add a second truck you'd double your insurance costs. For us to go from 10,000 to 10,001 won't change a thing.

 

You are right I have no idea what you’re talking about not saying you’re wrong.Help me here, you pay your insurance premium for me every 6 months or a year .how do you determine how much a truck will sit?

 

Each month the total mile of all the trucks are paid. If a truck doesn't move, it has no miles. Insurance is paid per mile, not per truck. Not that hard to understand.

 

So you think they pay less than half the spot rate, before tax, for diesel? LOL

 

Of course this was several years ago and before the crazy prices of things, but I knew of a mega that was buy trucks directly from the factory, running them for 2 years and selling them for what they paid for them.

Also, if things get bad enough (and we may be heading there), megas will run for the cost of fuel or less just to keep cash flow going. They will burn though reserves or whatever to try to just keep the stockholders happy and try to hold on until better times.

 

If "Very little equipment is bought on finance" then why would "most of the debt be secured by real estate." I thought they don't finance much equipment? There's either financing or cash. You seem to think there's some third option where you are given equipment "without financing" just by putting up collateral? No, there isnt. The minute you state "collateral" that means a loan. Period.
And why would they need to collateralize the equipment with real estate?
Using real estate as collateral for equipment purchases (financing) has nothing to do with the interest rate you pay, but is proof that the company doesn't have the credit rating to buy equipment using their own credit score but is forced by the lender to put up real estate as collateral. Companies that have good credit don't put up anything as collateral for equipment purchases. The only time you put up collateral to buy (FINANCE) equipment is when the bank demands it because they refuse to give you the loan without it. And it sure the heck has nothing to with getting a lower interest rate. In fact it implies the interest rate is sky-high because the company can't buy equipment without putting up real estate as collateral. Putting up real estate as collateral is an extreme financing option only for the most distressed borrowers. And if a large trucking company were such a poor credit risk, they would put up receivables as collateral long before real estate. Its called factoring.

 

Schneider Finance is the leasing company that is depreciating their asset, the trucking company is leasing the equipment from the finance company and can write off the payment. It’s no different than of you or I leased a truck from Schneider Finance.

 

First look up off book accounting and synthetic accounting.

The equipment is "owned" by Mega Finance, which is its own company. Mega Finance leases the equipment to Mega Trucking. Both companies are owned by the same family.

Secondly, using company owned real estate for company financing is much more enticing for the bank than using equipment. If you were a banker would you rather have a 100,000 square foot building as collateral or 1,000 trucks spread across the country? We're not talking about using your own house to buy 1 truck, we're talking about financing a billion dollar company.