There has never been a better time to own a truck and operate your own authority! Most truck owners would strongly disagree with me. Most all of my detractors would cite the high cost of fuel, the ever increasing maintenance costs and most of all the ELD mandate.
Lets
start with the biggest obstacle to profitability. The ELD mandate.
To be clear, I do NOT support the ELD mandate. However, if you are
using an ELD there are a few nominal positives that have came with
the FMCSA forced ELD mandate. Since the April 1st date of
full enforcement the truck availability has dramatically decreased
creating a vacuum of trucks and an increased volume in available
freight. This has led to 2 very positive circumstances for truck
owners. Rates are significantly increasing and load availability is
excellent. So higher margins per mile and less down time between
loads.
If high fuel costs are cutting into your profits then I strongly recommend you read my posts “How Does IFTA Work,” “Fuel Surcharge” and “Carrier Rate Agreement or Carrier Contract.” You should never loose profits due to the fluctuation of fuel prices. Likewise and equally important, neither should your customers. If you demonstrate fairness to your customers in your “Carrier Rate Agreement” and utilize a “Fuel Surcharge,” you will earn their respect and enjoy a long term business relationship together.
There is no doubt maintenance costs are on the rise for everyone. You can and should use all available resources to minimize your maintenance costs. Such as installing a quality “Oil By-Pass Filter” on your truck, locate “Junk Yard Truck Parts” and utilize “After Market Truck Parts.” All 3 of these will decrease your maintenance costs and down time while simultaneously increasing your profitability.
Without any doubt at all, the best way to fully maximize the current opportunities in the trucking industry is to own a 1990’s model year truck or older. In doing so your operating costs will be less (lower or no truck payment, lower insurance rates and no DPF or DEF down time / repairs / costs) and you will not be hamstrung with the ELD mandate. You will enjoy operating a higher quality of service and reliability for your customers and they will appreciate you for it. Anyone with a 1990’s or older model year truck will always be more profitable than a model year truck requiring an ELD.
Always make a business plan and write the plan yourself, from the
first word to the last.
In the early 2000’s I received one of my most valuable business
lessons. During a business meeting I had dressed in nice slacks,
shirt and tie and was armed with several copies of my formal business
plan anticipating to share it with all the individuals attending the
meeting. There were a half dozen company representatives attending
the meeting. All entered the conference room wearing jeans and casual
shirts. They politely took the formal business plan I had prepared.
Without even opening the front cover the CEO held up my formal
business plan and said to me – “Joel I have learned that these mean
nothing. I want to know that you know, what you are doing, what you
need and that you know what to do with what you need.” The meeting
was very successful and we did use the business plan. However if I
had used a general business plan from the Internet that I had not
written myself I would have been lost attempting to present it. I
encourage everyone, always make a business plan yourself.
Just like going to an interview first impressions matter! Opening
statements in a formal business plan are not an autobiography. They
are to introduce your knowledge, research and plan to successfully
own and operate a trucking business to anyone reading the business
plan. No details or personal information (sports, politics, religion,
likes, dislikes, opinions, etc.) should be included in an opening
statement. Some exceptions may apply such as if you are planning to
transport a sports broadcasting trailer your knowledge of sports
venue locations and procedures would be significant.
Using your simple or rough draft business plan create an easy to
read, professional income, expense and profit expectations report.
Your lender will thoroughly dissect and evaluate this section of your
formal business plan. Be prepared to answer his/her questions on the
spot without hesitation and with confidence. In doing so you will be
projecting to your lender everything you have in writing but with all
the passion you can’t put on paper. This includes everything from
your knowledge, experience, commitment, dedication, hard work ethic
and never say die attitude. Since anything can be claimed on paper,
what a lender hears in your voice, sees in your eyes and confirms
with your body language means more than what is in your formal
business plan.
Being prepared for setbacks or disasters (read my personal experience with my first truck in the “EVERYTHING ELSE” category) can be the difference between succeeding or failing. Surprisingly to me this is the one part of planning that the majority of all new truck owners overlook. Have contingency plans! The one thing that is certain is that everyone needs a contingency plan sooner or later. So including it in your formal business plan shows the lender you know and are prepared for the adversity that is part of trucking. There are many ways to establish a financial contingency plan and they are easier than you may expect. Above the borrowed amount for your equipment you can requested a line of credit as part of your formal business plan. That is my preferred plan as it does not include placing any additional assets at risk. However most lenders will require that the line of credit is secured against the truck (if the line of credit does not exceed its value less the borrowed amount), real estate, savings account, personal asset or other personal property. Other options may include intentions to borrow from an IRA, 401K, personal savings account or other such investments.
Once you are able to agree to terms with a willing lender it is
time to find your equipment. Above all shop wise. Do not buy the
first truck and trailer you see. Have several to compare and choose
from before making your purchase.
Choosing insurance has become one of the easiest steps in starting
a trucking business. Agents call insurance brokers and insurance
brokers get quotes from a multitude of insurance companies such as
National Casualty, Great West, Carolina Casualty, Northland and many
more. So no matter which insurance agent you choose in most cases
they all are receiving the same quotes back from the insurance
broker. The one type of insurance I discourage truck owners from
using is insurance provided by national trucking organizations or
associations. The quotes I have received from these organizations or
associations has been dramatically higher. In fact almost double in
most cases! That said, you should still ask for a quote if you belong
to one of these groups because there is always the possibility that,
for you, they are competitive.
After reading Create a Simple Business Model (part 1) you’re probably ready to start creating your own business model. Before you start, there is more to learn about a trucking business model.
Surprising to most new truck owners establishing your base rate is
not what you will want to include on a contract for a potential new
customer. But rather it is a bottom line rate where you are able to
maintain an acceptable profit margin. Just as surprising to new truck
owners is that your base rate will be different for different lanes,
different directions and different seasons.
My best example I like to use comes from my many years of
experience hauling perishable meat and produce. During the winter
months there is more produce in Arizona than trucks to haul it.
Therefor your base rate will be higher during the winter months to
haul produce for 2 reasons.
1. Most likely your customers shipping to Arizona know when
produce season is because other carriers are calling them attempting
to garner their business by offering lower rates.
2. During the summer months your rates to Arizona will also adjust
higher compensating for the lower produce or general freight rates.
Produce haulers ideally will attempt to negotiate an all
seasons year around rate somewhere between summer and winter rates.
That gives them a consistent reliable cash flow they can manage their
expenses with. It also gives their customer the added benefit of
knowing their transportation costs. This gives the producer customer
the ability to more accurately and constantly provide quotes to their
customers. Knowing this and using it to your advantage will help you
negotiate a quality long term contract both you and the customer
appreciate.
To determine your base rate use the chart in chapter 1 to
establish your expected expenses. Then divide the total cost of your
expenses by the estimated total miles you anticipate operating. That
is your base cost. However some customers may through you a curve and
you’ll need an answer on the spot. Sometimes customers will say “our
rates include the fuel surcharge.” In that instance you will need
to know what your base rate is with the current fuel surcharge. I use
this formula to establish my base rates.
Base rate without fuel surcharge:
Expenses = E
Estimated Miles = M
Base Rate = B
E ÷ M = B
Base rate with fuel surcharge:
Expenses = E
Estimated miles = M
Base Rate = B
Fuel Surcharge = F
(E ÷ M) + F = B
Using the method described in Carrier Rate Agreement or Carrier Contract calculate your detention pay. We all know that while we are loading and loading most of us do not receive anything additional. Customers will say something like “that’s in the rate” or an all time favorite of mine, “that’s part of your job.” I personally prefer to have an appointment time for pickups and deliveries because that gives me the strongest position to negotiate from. I will tell the customer “I only have a 1 hour window before it costs me money.” Now the negotiations have begun. Typically if the customer is comfortable with 1 hour before detention pay begins they will accept. Many times they will respond with a 2 hour offer before detention pay begins. If the customer is being unwilling I will tell them there is a rate without detention pay however it is much higher. If it is first come first serve it can work for you or against you. Either way, if possible detention pay should still be included in your contract. If the customer is unwilling to take responsibility for any detention pay you may want to re-evaluate if they are a customer you wish to do business with. For example I have been known to charge a rate 3 times higher than my normal rate quote if I am asked to take a load to Kroger in Shelbyville IN. That distribution center is known to not unload produce trucks for 6 hours or more (it happened to me) and in some cases more than 24 hours beyond their scheduled delivery. So taking the time to ensure you are comfortable without detention pay, especially with all the added pressure for compliance from law enforcement and the FMCSA, may well be worth your time.
Labor rates include everything from tarping, hand truck,
tailgating, breakdown, pallet jack work, driving a fork lift and much
more depending on the industry. Normally your customer will be
familiar with labor rates especially if they have cargo requiring
labor. Just like with detention pay you will need to negotiate for it
and the customer will say the same things as they did for detention
pay “it’s included in the rate” or “that’s your job.” Same
negotiation skills are required as before. It must be noted that the
majority of freight does not require an added labor. In fact I have
frequently agreed to a contract with a customer with no labor rates
even though I had to do some labor. Why you ask? Because I expected
the customer would not want or agree to labor rates so I had it
already figured in my base rate before I negotiated the contract.
That is part of doing your market and customer research in advance of
any negotiations.
Fuel surcharges have been a mainstay in the trucking since the
late 1970’s. That was when oil and fuel first had it’s dramatic cost
spike. Since then customers have grown to expect and accept fuel
surcharges. Occasionally you will still find a rare customer or two
that insists that this to is included in the base rate. However they
are becoming few and far between. When negotiating a fuel surcharge
with a customer who has never agreed to one you should first point
out to them what they stand to gain from a fuel surcharge. A fair
consistent rate that when fuel costs goes up yes they will increase
their shipping costs. But likewise when fuel costs go down it
decreases their shipping costs. Not to mention the added value in
keeping you operating in the black and providing them with a
guaranteed truck to get their product to market instead of relying on
brokers or spending time on the phone trying to find a truck
themselves. Both can be very powerful positions to negotiate from.
Determining the fuel surcharge rate is easier than the negotiations.
The industry standard for many years has been that truck owners
accept the fuel cost in the base rate up to $1.00 per gallon and the
trucks average 5 mpg. Thus each time fuel cost rise $.05 per gallon
it costs the truck owner an additional $.01 per mile in fuel.
Therefor for every $.05 the national average of fuel increases over
$1.00 per gallon your fuel surcharge is an additional $.01 per mile.
When estimating your profit margin be reasonable and realistic.
Any loan officer will be able to read through embellishments or
exaggerations you may be tempted to use. Your goal when estimating
your profit margin is to show any bank, credit union or investor that
you have a solid understanding on how to earn a reasonable profit
owning a truck and running it as a successful business.
Now it’s time to organize and create your simple or rough draft business plan. I have always been most successful using the philosophy that less is more when creating a business plan. In the simple business plan you are organizing all your customer base, costs, gross income and profit. Since this a rough draft it is the foundation for creating your formal business plan. Learn how to write and Make a Business Plan for trucking in my post Make a Business Plan.
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 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.
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.”
“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.
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.
Changing the Oil By-Pass filter using the FS2500 is a far cleaner than any spin on filter… especially while on the road.
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.
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.
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.
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.
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…
Rate per hour this load will generate while in transit.
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.”
Limited
number of hours in a day you are allowed from the time you begin
“On duty not driving” or “On duty driving.”
More
time than scheduled on any one load reduces your overall revenue.
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.
When I modify my truck, I do so by locating and purchasing as many Junk Yard Truck Parts for the modification as I can. The easiest way to get used truck parts is to find a quality junk yard with OTR trucks. I have been known to spend hours with my tool bag at my favorite junk yard collecting Truck Parts. I enjoy the time invested in saving money while collecting parts to improve my trucks performance and profitability.
When truck owners
see my truck and ask about my modifications they are shocked and in
disbelief when I tell them that the majority of the parts I used are
Junk Yard Truck Parts. Take for example the picture of my 1999
International 9900i shown above. As you can see I added 2 fuel tanks
on the drivers side. The first is a 30 gallon fuel tank for my APU
mounted directly in front of my first drive axle. The other is a 130
gallon fuel tank for truck fuel mounted below the drivers door. On
the passenger side of the truck I added another 130 gallon fuel tank
for the truck below the passengers door. With my original fuel tanks,
that is a total of 560 gallons of truck fuel and 30 gallons of APU
fuel! I purchased both 130 gallon fuel tanks, their carriers, their
straps and all mounting hardware for a total of $300.00. If I had
purchased all those parts new it would have cost an estimated
$4,000.00. By using Junk Yard Truck Parts I saved $3,700.00. The
best part is I improved my trucks performance and increased my
profits by more than .30 cents per gallon of fuel!
After I decided to
add the fuel tanks, I had to decided where and how to mount my
battery box. You guessed it, I found my solution using Junk Yard
Truck Parts. I simply walked around the junk yard looking at
different trucks and focused my attention on the older trucks since
they had different battery box styles and mounts. And I saw my
solution on an old International cab over. A battery box mounted
right behind the cab on the frame rails. Because of the other parts I
was purchasing that day (fuel tanks, hangers, straps, etc.) it’s
cost, free!
Watch for my upcoming post “How Does IFTA Work?” to see why I added 3 fuel tanks to my truck and exactly how I did increase my profits by more than .30 cents per gallon of fuel. I must read for any truck owner.
If you would like to learn more about modifying your truck using after market truck parts, lowering your maintenance cost and saving money, read my post After Market Truck Parts.
