Business of Trucking – Page 3

Make a Business Plan

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.

Create a Simple Business Model Part-2

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.

Create a Simple Business Model – Part 1

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

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

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

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.

The FS2500 with a drain valve is easier to drain.
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.

Carrier Rate Agreement or Carrier Contract

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.

How to get an FMCSA Operating Authority

Deciding to get your own FMCSA operating authority and DOT number is a big step. Most use agents to help them get started. Unfortunately they cost a lot of money. I’m going to share with you all the different regulating agencies and how to contact them. By doing so, I’m giving you the ability to get set up with all of them so you can avoid paying an agent more than necessary. What better way to start your business than by saving money and learning compliancy requirements at the same time! Here are the basic Federal requirements (there are more and I’ll discuss them soon).

1. FMCSA Operating Authority “MC” “FF” or “MX” number

2. Department of Transportation (DOT) number

3. Commercial Insurance

4. *Unified Carrier Registration (UCR)

5. *International Fuel Tax Agreement (IFTA)

6. *International Registration Plan (IRP)

7. BOC-3

* These 3 are frequently done at the same time at your state or jurisdiction office. In most cases you can apply, pay and receive all of them in person and on the same day. It is wise to verify in advance what types of payments your state or jurisdiction will accept as they are all different.

FMCSA Operating Authority “MC” number

The FMCSA website states…

“In general, companies that do the following are required to have interstate Operating Authority (MC number) in addition to a DOT number:

Operate as for-hire carriers (for a fee or other compensation)”

Since the one time fee is only $300.00, I recommend every “For-Hire” carrier to not take any chances or run the risk of operating without having their MC (Motor Carrier) number. It is a fairly simple process and can be done through the SaferSys website (an FMCSA website).

Department of Transportation (DOT) number

I have never seen a truck or met a truck owner that wasn’t required to have a USDOT number. The FMCSA’s website states…

“You are required to obtain a USDOT number if you have a vehicle that:

Is used in transporting material found by the Secretary of Transportation to be hazardous and transported in a quantity requiring placarding (whether interstate or intrastate).

Has a gross vehicle weight rating or gross combination weight rating, or gross vehicle weight or gross combination weight, of 4,536 kg (10,001 pounds) or more, whichever is greater”

and goes on to state…

“AND is involved in Interstate commerce:

Trade, traffic, or transportation in the United States—

Between a place in a State and a place outside of such State (including a place outside of the United States);

Between two places in a State through another State or a place outside of the United States; or

Between two places in a State as part of trade, traffic, or transportation originating or terminating outside the State or the United States.

You are required by FMCSA to obtain USDOT Number and comply with the Federal Regulations.”

The FMCSA concludes with…

“Apart from federal regulations, some states require commercial motor vehicle registrants to obtain a USDOT Number. These states include:

Alabama, Alaska, Arizona, Colorado, Connecticut, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, Nebraska, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington, West Virginia, Wisconsin, Wyoming”

Obtaining a USDOT number is free. The FMCSA made it convenient to apply for a USDOT number at the same time you apply for a MC number by using the SaferSys website. You will be required to complete and submit the MCS -150 form which defines your business to the USDOT before they will issue you a USDOT number.

Commercial Insurance

Once you have applied for your FMCSA operating authority you will need commercial insurance before your MC number is ready to be used legally. Your insurance company is required to notify the FMCSA once you have purchased your insurance. This process of the insurance company notifying the FMCSA of your policy and the FMCSA updating your MC number with the insurance does take time. Your insurance agent and/or company will be able to provide you with the coverage requirements from the FMCSA.

Unified Carrier Registration (UCR)

The Unified Carrier Registration (UCR) is a registration based on the number of vehicles (trucks) you operate. You can complete your UCR either through the UCR website or many times through your state you operate from. UCR is paid annually.

International Fuel Tax Agreement (IFTA)

IFTA accounts are free and depending on your state or jurisdiction you may or may not pay for the IFTA stickers that are required for each truck in your fleet. I normally start my IFTA account and receive my stickers on the same day I pay for and receive my IRP plates (which I will discuss next). Renewal each year is typically done either on a state or jurisdiction website or by mail. Filing your IFTA taxes is a quarterly requirement.

International Registration Plan (IRP)

The International Registration Plan (IRP) is the registration and license plates for all your vehicles. It is an apportioned registration. Meaning you will pay a portion of each states registration fee based on the percentage of miles you operate in each state or jurisdiction. When you apply for your first IRP you will be required to use “estimated miles.” This does not mean you get to estimate your miles. The estimated miles are provided to you by your state or jurisdiction. In most cases it will be your responsibility to put the correct estimated miles for each state or jurisdiction in the correct field. If it is not correct the IRP official (in most cases) will not fix the mistakes but rather give it back to you and have you fix them. That means going back to the end of the line. I failed to get the correct estimated mileage one time and it took me 3 hours to get back to the IRP official so I could pay my bill and complete my registration.

BOC-3

The BOC-3 is one of the most overlooked requirements by the FMCSA. The reason is simple. There is not a “check and balance” or verification process before being allowed to operate using your new authority. The purpose of the BOC-3 is to provide the FMCSA with a list of agents from the states or jurisdictions you operate in that will receive legal documents. The FMCSA describes it’s purpose this way…

“A process agent is a representative upon whom court papers may be served in any proceeding brought against a motor carrier, broker, or freight forwarder. Every motor carrier (of property or passengers) shall make a designation for each State in which it is authorized to operate and for each State traversed during such operations.”

Now I don’t normally recommend using an agent for much of anything. However, in this case it is best. Otherwise you will need to locate representatives for every state or jurisdiction and continually verify that the representative is still in business. Personally, I have enough to do without calling 50+ representatives every week or 2 to verify they are still in business. Through an agent, a BOC-3 will cost you a 1 time fee of normally no more than $50.00. A list of agents is provided by the FMCSA on their website.

1. FMCSA Operating Authority “MC” “FF” or “MX” number

2. Department of Transportation (DOT) number

3. Commercial Insurance

4. *Unified Carrier Registration (UCR)

5. *International Fuel Tax Agreement (IFTA)

6. *International Registration Plan (IRP)

7. BOC-3

FMCSA Operating Authority “MC” number

The FMCSA website states…

“In general, companies that do the following are required to have interstate Operating Authority (MC number) in addition to a DOT number:

Operate as for-hire carriers (for a fee or other compensation)”

Department of Transportation (DOT) number

I have never seen a truck or met a truck owner that wasn’t required to have a USDOT number. The FMCSA’s website states…

“You are required to obtain a USDOT number if you have a vehicle that:

Is used in transporting material found by the Secretary of Transportation to be hazardous and transported in a quantity requiring placarding (whether interstate or intrastate).

Has a gross vehicle weight rating or gross combination weight rating, or gross vehicle weight or gross combination weight, of 4,536 kg (10,001 pounds) or more, whichever is greater”

and goes on to state…

“AND is involved in Interstate commerce:

Trade, traffic, or transportation in the United States—

Between a place in a State and a place outside of such State (including a place outside of the United States);

Between two places in a State through another State or a place outside of the United States; or

Between two places in a State as part of trade, traffic, or transportation originating or terminating outside the State or the United States.

You are required by FMCSA to obtain USDOT Number and comply with the Federal Regulations.”

The FMCSA concludes with…

“Apart from federal regulations, some states require commercial motor vehicle registrants to obtain a USDOT Number. These states include:

Commercial Insurance

Unified Carrier Registration (UCR)

International Fuel Tax Agreement (IFTA)

International Registration Plan (IRP)

BOC-3

Aside from the cost of your insurance and IRP, the entire cost to you should not exceed around $400.00. Many agents charge thousands of dollars. Since I’m always looking to save money and improve my profits, it only makes sense for me to spend a little time educating myself, complete the applications or filings, and saving money at the same time. If you want to learn more check out the category Business of Trucking.

How IFTA Works

IFTA rates available from the International Fuel Tax Association, Inc.

One of the most frequently asked questions I get is “So how does IFTA work anyway?” Once truck owners understand IFTA they all change their fuel purchasing ways. In doing so they lower their fuel cost and improve their profits.

In the day of the original “bingo card” registration, which no longer exists, truck owners had to buy just enough fuel to drive in each state. Since then the International Fuel Tax Agreement (IFTA) was created. IFTA completely eliminated the need to buy fuel in every state. In fact, doing so all but guarantees you are paying far more for your fuel than necessary.

IFTA fuel taxes are collected in all states and jurisdictions that have a state or jurisdiction fuel tax. Oregon does not have fuel taxes but they do issue IFTA accounts. All carriers who operate an apportioned IRP are required to have an IFTA account and a list of states or jurisdictions they operate in. At the end of each quarter you will file your quarterly IFTA fuel taxes. Here is where the value of understanding IFTA turns into lower fuel cost. You owe each state it’s fuel tax based on how many gallons you used while driving in their state. Not how much you bought! What that means is when you buy fuel at the lowest cost BEFORE taxes you will almost always be due a refund at the end of the quarter. Here is how that works using 2^nd quarter 2015 IFTA fuel tax rates.

Illinois Pump Price $3.399

Missouri Pump Price $3.259

Most truck owners will buy Missouri because it costs less at the pump.

2015 2nd Qt. IFTA Fuel Taxes

Illinois .4270

Missouri .1700

Your truck averages 5mpg

You drive 50 miles in Illinois and 50 miles in Missouri

You owe each state a IFTA fuel tax on 10 gallons of fuel

Buying fuel in Missouri

You buy 20 gallons of fuel in Missouri for $3.259 a gallon

Actual fuel cost without tax is $3.089

You have an IFTA tax credit of $1.70 from Missouri

You owe Illinois an IFTA tax of $4.27

You owe a IFTA tax Payment of $2.57

Instead, Buy fuel in Illinois

You buy 20 gallons of fuel in Illinois for $3.399 a gallon

Actual fuel cost without tax is $2.972

You have an IFTA tax credit of $4.27 from Illinois

You owe Missouri an IFTA tax of $1.70

You have a tax credit and Refund of $2.57

In this example the answer for “How Does IFTA Work” means purchasing fuel in Illinois is a 3 month investment that lowers your fuel cost by almost $.12 a gallon! If your truck averages 5 mpg, you are increasing your profits by $.025 per mile. If you drive 175,000 miles in a year, that is a total savings of $4,375.00! Yes, understanding IFTA can save you thousands of dollars every year for each and every truck you own! Learn more ways to save money and increase profits in my After Market Truck Parts post.