In thelast post, we discussed the pro side of the decision for a new owner-operator to lease on to a trucking company. In this post, we take a look at the reasons why the driver would turn down the option.
It’s Your Trucking Business
Anyway you look at it, building an independent trucking business requires one thing: a truck. Without the rig, it’s a brokerage, not a trucking business.
Not that there’s anything wrong with that. Brokers are a key part of the transportation industry, but if someone wants to be a trucker, the requirement is a truck.
So how to buy a truck? Lease? Loan? Save up until you’re 60 to pay cash?
Lease Purchase
If there’s one way we don’t recommend that a trucker buy a truck, it’s lease purchase. Simply put, it’s leasing a truck from a trucking company with some part of the monthly payment going toward the purchase price. At the same time, the driver is contracted to haul only for the same company, the loads that are assigned, regardless of the pay or time constraints.
Some of these companies have a well-deserved predatory reputation. They build their business on two revenue streams – the lease payments made by the truckers and the freight payments made by shippers. These companies frequently offer low shipping rates to customers by compelling truckers to take the load, regardless of the loss they incur.
We are not saying that all lease purchase programs work like this. Go into a trucking forum and you’ll see people talking about how good the lease purchase program they used was. And then you’ll also see story after story about how lease purchase was the worst financial decision of their lives.
Buyer beware. Lease purchase contracts spell out the details of the arrangement. Make sure you understand every clause in the contract before you sign.
Loans
When a new cab costs over $100,000 and even a used rig starts at $20,000, it’s easy to see that not many people have that kind of cash on hand ot make a purchase. Like cars, truck loans are available. Checking with a local bank or finding a financial institution that focuses on industrial vehicles will produce some options, but it’s not wrong to borrow from family or friends as long as the trucker agrees to make the repayments. (We suggest a contract to protect both the lender and the borrower.)
The average truck loan term varies based on the vehicle’s age and condition and the lender’s confidence in the borrower. The interest rates vary as well. Researching various options will help anyone find the best offer.
After the purchase, then the question of leasing on comes up.
The Trucking Company’s Cut
A trucker can buy a subscription to a load board and find their own loads. Plenty of owner-operators do it. Then they keep the money that the shipper pays (minus whatever a broker gets.) When a trucker is leased on, the trucking company keeps a cut to cover their costs. The services that a trucking company provides:
- dispatch and routing
- accounting – invoices and past due account management
- DOT compliance documents
- maintenance records and scheduling
- business reports
- IFTA
- IRP
have to be paid for, after all. But there’s no reason why an independent owner-operator can’t manage all of those tasks with a complete trucking software like TruckingOffice PRO.
Choosing Loads and Rates
With the load board subscription, an owner-operator can select their own loads. Instead of being assigned loads by a trucking company regardless of the profitability, the independent driver has the freedom to choose. Developing relationships with different brokers or shippers can lead to the most profitable loads that never make it onto the listings. If a trucker is leased on, they may not have the opportunities to take those loads.
If a trucker wants to focus on a particular type of trucking, leasing on to a trucking company might not support those plans. Not everyone wants to go on cross-country trips. If an assigned load isn’t one that the trucker wants, the refusal option is important – but what if that load is the difference between making a loan payment or going into default?
The Lease On Questions to Ask Before Signing
Detailed questions to understand the contract can help a trucker make the decision.
- How is the revenue split?
- What fees are charged?
- Can the truck driver decline loads?
- How often is the trucker paid?
- What happens if the trucker wants out of the contract?
Understanding every clause is important to avoid unwelcome surprises.
Is Leasing On a Good Decision?
It can be. To learn business management skills for a trucking company, leasing on is a great option. It gives a trucker time to explore the back office requirements with less stress. By using a trucking business management software, a trucker can track the critical data at the same time that they assure that they are paid what is owed. A year or two with a contract with a good trucking company can stabilize the trucker’s finances during a challenging time.
These days, we see a number of trucking companies that are being investigated for their hiring practices. Before a trucker signs any paperwork, do the research. Talking to truckers who are also leased on to a company will probably give insight to the benefits and drawbacks.
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