Create a Simple Business Model – Part 1

Preferred Lane

Decide what you want to do. There are several factors into choosing what industry you want to support and what equipment you wish to use or will be required to have. Before choosing the industry you wish to support you first have to ask several questions.

1. Do I have any physical limitations (bad back, afraid of heights, limited mobility, etc.)?

2. What industries do I want to work with and are they located where I live? If not, do I live in their shipping lanes?

3. Am I willing to be OTR, regional or local?

These are only 3. There are many more depending on your particular situation. These questions will require some modifications and additions for every individual wanting to operate their own trucking business.

When it comes to selecting the equipment for the industry you choose it comes down to nothing but good old common sense. Simply put, if you wish to haul cattle it wouldn’t be wise to put a load of cattle on a flatbed. You will also need to check with your customers or potential customers prior to purchasing your equipment. In some cases customers are known to have minimum requirements for their carrier’s equipment such as weight, age, mileage, annual DOT inspection from their preferred provider, etc.

Always do market (customer) research. Your research can be the difference between a solid business relationship with your customers and an absolute disaster. One of the first things you will want to determine is how long has this potential customer been in business? New businesses frequently rely on loans, investor capitol or personal money to operate. Thus their financial stability could come into question if they have any difficulties with their cash flow from slow or no payment from their customers. I always urge caution when working with a new business.

Next you will want to know if they have lost all their direct carriers and have begun to rely on brokers. This is a clear warning sign. Either the business needs to cut costs and believes using a broker can help do that or the business has not been able to pay its carriers or possibly both. Either way it could be a business you would be better off to steer clear of.

Once you have decided to do business with a customer you will want to determine the consistency of customer’s shipments. This will give you an advance notice of the amount of work you can expect from your new customer and if you will need to continue looking for additional customers to fill in any gaps between their shipments.

The lanes of your new customers shipments are important to know as early as possible. You can then determine the rate you will need to haul the loads for as well as begin the search for a new customer at the loads destination.

Finally, rates. Most all potential customers will ask you about your rates before the conversation is allowed to go beyond the standard meet and greet introductions. So be prepared with your rates for all lanes prior to meeting any potential customer. Be flexible as they will almost undoubtedly respond with a counter offer. Above all during this negotiation remember you are attempting to enter into a business agreement that will make the potential customer save more and/or make more money while being profitable yourself. If you are not able to come to terms it’s not because the customer is unwilling. It’s because they are being financially responsible. Remember to be professional, respectful and kind. They may call you back in a couple of months!

Financing Your Truck

2007 Peterbilt & Reefer Trailer

Financing your truck is not as hard as you think. The hard part is getting an interest rate you are comfortable with. Most used truck dealerships have financing companies that are easy to work with and will get you into a truck. However if it’s easy there will be a price to pay for a long time to come. Their price you’ll pay is some of the highest interest rates lenders will offer. That translates into thousands of dollars more you’ll spend for your truck. There are other options and a way to leverage used truck dealerships to your advantage.

The best solution to financing your truck is to use a bank you have been doing business with for many years. Preferably a small home town bank where you have done business with before and know your loan officer by name. Instead of simply looking at your loan application and saying “yes” or “no,” that loan officer will more often than not take the time to speak with you, review your business plan and listen to your vision. This is important because they are already giving you the benefit of the doubt that you know what you are doing and you know how to succeed. What they want to see and hear from you is the knowledge of the industry, your business plan and most important the ability to repay the loan even during adversity. If you are able to show them a solid business plan and that you are prepared even when times are tough you are all but certain to be awarded the funding you need. A deposit is always a good thing to have but it isn’t always a requirement. Deposits will not only lower the amount you are borrowing and your payments, it can also lower your interest rate. Additionally it shows the lender you are willing to put “skin in the game.” That speaks loudly to the loan officer as it demonstrates you are willing to not only risk the banks money but your own hard earned money as well. In other words the loan officer knows you will dig in your heals to not loose your investment and thus you’ll be fighting to not loose the banks investment either.

If your personal financial situation won’t allow you to use a home town or local bank then the lenders offered by dealerships can offer a respectable alternative to start your trucking business. There are several keys in doing this the correct way. First plan to buy a short term lower up front cost truck. Shopping for a truck with all the chrome, lights, gadgets and niceties will only drive up the price and your payments. Shop for a truck that you believe has a good 12 to 24 months to operate. After which you can go back to your local home town bank and put not only your business plan in front of him to talk about but now you can show him your income, expenses and profit reports. Nothing speaks louder to a loan officer than a solid financial track record (and most important) provable success! So using a finance company from a used truck dealership may not be your end game, but it can be a way to get off the ground with a truck and begin a successful truck owning career.

If you want to learn more about a business plan watch for my upcoming posts in the Business of Trucking category.

Choosing the Right Truck

1999 International 9900i

Great! You’re are ready to shop for your first truck. Securing financing is easier than you think and you can learn more in my post “Financing Your Truck.” If you have saved the money to purchase a truck, should you use that money to buy your truck? Recently a reader shared their intent to use their savings so I will discuss that in further detail shortly. When shopping for your truck, the most important thing to know is you should focus your efforts on choosing the right truck and not any “Rooster Cruiser,” “Chicken Truck” or “Large Car” that catches your eye. Your first responsibility with owning a truck is to be successful. Choosing the right truck the first time will help you do just that.

There is an old saying in business, “use someone else’s money.” There are times to use someone else’s money and there are times to use your own money. Make no mistake, I believe in being debt free. However, to become debt free you should always exercise wise financial planning. When it comes to choosing the right truck and buying that truck, more often than not you should finance that truck. Here is why. If you buy your truck with your savings, frequently you will not enough remaining in savings for a back up plan when a disaster strikes. After 33 years in the business I have seen more than my share of disasters and set backs. So don’t think for a second that they won’t happen to you. Without doubt they will. If you have used your savings to buy your truck and need to borrow money later for repairs, the lender is less likely to lend money when your business is struggling. Additionally if you do not have good credit or established credit, the lender is more reluctant to approve a loan when you have not yet demonstrated your can successfully operate your business. In other words, obtaining financing for the truck when everything looks good on paper to a lender is better than trying to get financing when times are tough for you financially.

In my first week of owning my first truck I suffered a major set back. My truck blew out the front rear end. To make matters worse, the mechanic discovered that the previous owner had custom machined gears made and put them in both rear ends. So I had to replace 2 rear ends, no core refund since the gears were custom made and 2 weeks lost work. I was an additional $30,000.00 (+ or -) in the hole and I was only in my first week of business. Thankfully, when I financed my truck I had establish a back up plan with my bank. Because my lender and I made and agreed to the plan, he was thankful I had planned ahead and gladly implemented our back up plan. After 6 months I was back on track. I had successfully overcome a major break down, established excellent business relationships and had gotten ahead of paying off my debt.

Choosing the right truck has many considerations you must first evaluate. Most of which you will already have an answer for, some you think you have an answer for and others you didn’t realize needed consideration. Personal taste and needs are the majority of your considerations when choosing the right truck. I’ll cover the ones that are more focused on succeeding with owning a truck as well as some industry considerations.

The drive line (engine, transmission and rear ends) are mostly personal choice. However there are considerations to be made. The most important is the engine. Since the EPA has begun tightening the emission standards for truck engines, the life span of truck engines has been reduced dramatically. There are countless reports of engines failing and requiring to be rebuilt with 300,000 miles. Truck engines manufactured before 2003 would often last in excess of 1,000,000 miles before needing to be rebuilt. For that reason I always shop for a truck manufactured before 2003. If you are considering choosing the right truck from 2002, be sure to check the model year date of the truck and the engines manufactured and model year date. It is possible that a truck built in 2002 has model year 2003 engine even though the truck was built in 2002.

Next is the transmission and rear ends. While I am not a gear expert, this is what I know from my own experience with my trucks. If you have gears that are lower for pulling hills better, you do not enjoy the best fuel mileage on the relatively flat roads. For that reason I look for a general purpose gear ratio. I will not purchase automatic transmissions. They need repairs more often and are more expensive to fix.

Industry considerations are a must. For example if you are going to pull dry van freight, you will not want a heavy truck or a truck with a front axle differential. But if you are going to haul logs out of the mountains a heavy duty frame and a front differential are probably required. The list is long for all the different industry considerations. If you have a specific industry you’d like my opinion on please leave a comment. I’ll be happy to answer.

What region you plan to operate in should also be considered. While it may not impact your decision when choosing the right truck, it will allow you to shop more wisely. For example if you are only planning to operate from Phoenix, AZ to Los Angeles, CA you will want a truck with the most fuel efficient all position tires instead of the general purpose lug tires. If you are planning to operate in the north, having a good fuel system to prevent fuel gelling or freezing is a must.

If you are looking for that show truck or “Large Car” with all the extra chrome, filters and lights, you’ll find it. But normally it isn’t the best truck to guarantee or maximize your financial success. The more that hangs on the outside of the truck or is not aerodynamically designed the lower your fuel mileage. Read my post “How Does IFTA Work” to learn more details to save money when it comes to fuel and IFTA. Additionally the fancier the truck the higher your insurance rate will be.

Lastly, don’t be afraid to buy something that doesn’t look like much at the time. When I bought the truck I own and drive now, very few others saw what I did. What they saw was that the body was junk, windows leaked, tires were all bad, the hood was falling off, the 5th wheel needed replaced and the seats needed replaced. What I saw was a 1999 International 9900i Eagle truck that just had the engine rebuilt less than 10,000 miles earlier, an engine warranty with unlimited mileage for 2 ½ more years, a newly replaced front differential, no outside filters or extra chrome, reasonably aerodynamic and endless potential if I was willing to put work into it. I spent less on the truck than the rebuild cost of 1999 9900ithe engine. Then I paid to have the body, hood and window leaks repaired and did the remaining work on my own. I found a truck that was 90% what I was looking for. It has been the most reliable and financially rewarding truck I have ever owned. If you’d like to learn more about how I improved and modified my truck read my posts “Junk Yard truck Parts” and “After Market Truck Parts.”

Buying vs Leasing

A reader recently wrote to me…

“We need to acquire 3 trucks and trailers, we are looking at used and need to know if it would be better to buy or lease. Thanks for you help.”

There are pros and cons to each. Buying vs Leasing has been debated for as long as I can remember. There are many factors when deciding between buying vs leasing including taxes, maintenance, length the equipment is expected to be in the fleet, leasing companies driver requirements and many more. The fast answer is buying used equipment is best. In the long run it gives you more profitability and versatility. In the short term you may (but not always) have a greater out of pocket expense. However, many companies choose leasing over buying to operate new equipment for a lower cost.

Pros when considering Buying vs Leasing:

Buying Used Leasing
1999 and older exempt from ELD mandate New (or newer) equipment
Ability to modify truck to improve profitability Maintenance support from leasing company
When paid for, no more payments Lease payments tax deductible
Lower insurance costs Loaner equipment during major repairs
Ability to resale when replacing equipment

Cons when considering Buying vs Leasing:

Buying Used Leasing
Tax deduction for only 3 years Higher long term cost
No warranty or maintenance support Leasing company may require to approve drivers
Hard to locate the equipment to meet your needs Will be required to meet ELD mandate

No recovery of investment (resale or trade in)

At the end of the day, the question of Buying vs Leasing has always been an easy decision for me. I choose to buy. Being in trucking for the long run means planning long term. The best way to be profitable in trucking is to plan to succeed. That includes everything from making your truck as profitable as possible with modifications or after market truck parts, taxes, fuel and so much more.

All Oil By-pass Filters are Not Equal

FS2500

As I frequently do, I have learned another lesson the hard way. All oil By-Pass filters are NOT equal. About 8 years ago I purchased the FS2500 oil By-Pass filter from Filtration Solutions. It did and excellent job! All my oil contaminates remained consistently low. On a couple of occasions certain contaminants began to climb. Both times my oil analysis company identified the failing parts correctly and I made the repairs for minimal cost, on my terms and in my shop. The combination of the FS2500 and oil sampling saved me thousands of dollars in repairs and maintenance on 1 truck.

I parked my truck for 1 year while I was deployed to the middle east with the Indiana Army National Guard. When I returned I prepared to put my truck back on the road. I was introduced to the AmsOil BMK30. I was enticed by the spin on filter and the 20,000 miles between filter changes. Believing the AmsOil BMK30 was the way to go, I elected to replace the Filtration Solutions FS2500 with the AmsOil BMK30. It didn’t take long for me to discover I had made a terrible mistake. With the AmsOil BMK30 all my metal contaminants began to increase. While using the AmsOil BMK30 the metal contaminants in my engine the far exceeded any level of contaminants I had experienced with the Filtration Solutions FS2500. I removed the AmsOil BMK30 and put the Filtration Solutions FS2500 back on my truck. The results were immediate. My contaminant levels dropped and returned to the same low levels I had enjoyed from the first time I installed the Filtration Solutions FS2500.

While using the AmsOil BMK30 I discovered significant differences between the filters I had not considered before making the change.

  1. The FS2500 with a drain valve is easier to drain.
  2. Changing the Oil By-Pass filter using the FS2500 is a far cleaner than any spin on filter… especially while on the road.
  3. When sampling your oil every 10,000 miles instead of every 20,000 miles you are far more likely to identify engine issues and repair them before they become an expensive repair or even unaffordable break down on the road.
  4. The FS2500 doesn’t cost a single penny more and provides the very best protection for any diesel engine.

The FS2500 filter element holds a nominal 1 quart. The AmsOil EABP120-EA replacement filter holds an unnecessary and expensive 1 gallon of oil.

      FS2500                            AmsOil
Filter Element: $32.95            EABP120-EA: $45.80
Shell Rotella T6: $5.50 (1 qt)    Shell Rotella T6: $21.99 (1 gal)
Total Cost: $38.45 or 004cpm    Total Cost: $67.79 or 004cpm

I will never make the mistake again of trying a different oil By-Pass filter. I am a Filtration Solutions customer for life. I would encourage all truck owners to give very serious consideration to purchasing the Filtration Solutions FS2500. For maximum results and profitability always perform regular oil testing to reduce repairs and maintenance costs while extending the life of your equipment.

Carrier Rate Agreement or Carrier Contract

Carrier Rate Agreement

Use honest and ethical practices when you write a carrier rate agreement or carrier contract and it will result in more long term satisfied customers. This carrier rate agreement or carrier contract will be be your template for creating a formal proposal for every customer you negotiate your services with. Many times the customer will provide you with a counter proposal and you will need to make adjustments. This is to be expected as their number one concern is to be competitive in the market and to be profitable. A good way to view the negotiating process is that it is a desire by you and the customer to enter into a long term business relationship that provides dependable residual income both of you are able to profit from. While solid, consistent, reasonable, profits may be hard to accept they are far better than a few high paying loads that only come once in a while. Successful trucking is all about consistency.

  1. Base rate in most cases will not be the same from one customer to another. Therefor we will leave this blank for your contract template. Once you begin a formal proposal you will then establish and enter your base rate.
  2. Detention pay is always a delicate topic to discuss with any potential customer. It requires the utmost in tact while at the same time being a little cunning. Before you talk to any customer about detention pay you need to predetermine an expected rate of pay. Then use the following formula….
       gross rate (miles x base rate) = G       miles = M
       national average of fuel = A             hours = H
       cost = C                                 fuel = F
       mpg = P                                  detention = D

       M ÷ 60 = H
       M ÷ P = F
       F x A = C
       (G ÷ H) – C = D

In most cases the customer will undoubtedly begin pointing out how “it’s not costing you anything to sit there.” We both know that’s not true and if the customer is completely honest they know it’s not true either. To negotiate with your customer you must be prepared to answer with accurate facts and figures. Using the formula above be prepared to negotiate with the following figures…

  1. Rate per hour this load will generate while in transit.
  2. Rate per hour less fuel cost.

Now it gets a bit more complicated and the real negotiations begin. The reality is the truck must generate revenue for you to pay the bills and to be profitable. On top of the customers desire to minimize their total transportation cost we have the DOT and FMCSA restricting our hours of service. The customer will not like hearing it but according to the FMCSA the truck is on the clock while waiting to load or unload, while loading or unloading and while in transit (14 hour rule). Therefor the longer it takes to load or unload reduces our overall billable rate if we have not agreed to detention pay. Familiarize yourself with the following facts and be prepared to discuss them honestly and tactfully while remembering the first rule of trucking. “Getting your customers product to market so they can succeed and in turn make you successful.”

  1. Limited number of hours in a day you are allowed from the time you begin “On duty not driving” or “On duty driving.”
  2. More time than scheduled on any one load reduces your overall revenue.
  3. No matter if moving or sitting you must still cover your operating costs such as insurance, IRP, highway use tax, facility expenses, etc.

3. Labor (unloading, tarp, etc.) is generally far easier to negotiate with a customer than detention pay. For example in the perishable foods business most customers wish to keep unloading costs below a set amount per case or weight (most commonly referred to as “hundred weight”). Customers know and accept that there are charges for labor no matter if it as a grocery warehouse or protecting their product with the tarping they have required.

4. Fuel surcharge tables have become second nature for both carriers and their customers. Customers realize that they will not get their product to market with a reliable carrier if they fail to provide a fair rate that includes a fuel surcharge.

Find Customers That Need Trucks

Loading Groceries

Your ability to find customers that need trucks will put you on the right path to success. Establishing your own direct customers is the best way to guarantee a dependable cash flow. When you provide a direct customer with dedicated reliable trucking services they will be more apt to pay you on time and keep you loaded with their product. Both of which help make an excellent business relationship for years to come.

The most effective way I found my customers is by keeping my eyes and ears open when making pickups and deliveries. Look at the product on the docks or at the locations and gather all the information you can. Look for company names and address on boxes, product or anywhere else. Ask questions of the shipper or receiver like…

  1. Do you get that product every week?
  2. Does the same truck bring it or pick it up each week?
  3. Could you use a reliable dedicated truck?
  4. Who can I talk to?

Ask the drivers making pickups and deliveries questions to like…

  1. Do you haul this load every week?
  2. Did you get it from a broker?
  3. Do they have other loads every week?

You will be surprised at how much information you can gain just by politely talking to people at the shippers and receivers. It is important to point out to be respectful, polite and above all cautious. If they don’t want to discuss it with you thank them for their time and if you think an apology is in order to keep the peace then by all means apologize! Don’t be offended if a shipper or receiver doesn’t want to discuss their product shipments because they are most likely an employee that is not responsible for locating trucks. That is why you politely ask “who can I talk to?” If a driver doesn’t want to discuss his load it’s most likely because he owns his truck, he’s feeling threatened and wants to protect his relationship with his customer. Very understandable of a fellow truck owner. A sincere apology, congratulating them for acquiring such a valued customer and asking them for advice from their success would be the best response. They still may not talk to you but you have taken the high road and defused the situation.

Potential customers that need trucks are located everywhere. I have been known to stop as soon as I notice a business with trucks that are pulling the same trailer that I am pulling or that I am considering pulling (dry van, refer, step deck, dry bulk, etc.). There is nothing wrong with stopping, introducing yourself and meeting a potential new customer face to face. Business parks and business districts are a treasure-trove of potential new customers. Search them out and introduce yourself to as many businesses who will allow you the opportunity. In fact I have enjoyed more successful negotiations when I meet the customer in person even when walking in unannounced. They are able to read my body language, look into my eyes and see my confidence and commitment to their success. That is more valuable than anything you could put in a written contract or express over the phone. If at all possible meet with your potential and existing customers as often as possible. The rewards of a successful business relationship are increased immeasurably!