The Future of the Independent Operator Industry

The Independent Operator industry is split into two “types” of Operators: Lease Operators and Owner Operators. Most drivers think that Lease Operators have to do with the kind of financing the Operator secured. That is not the proper description. Lease Operators get paid cents per mile, and Owner Operators get paid a percentage of the load. These definitions come from both books published in
2007 and 2015 in the Making Your Miles Count series.

The historical understanding has been that Owner Operators make more money than Lease Operators. In normal times, a general statement like that can easily be justified. However, we are NOT in normal times. It’s not just the carrier contract rates that need comparison; it’s the volume of freight that often bears more influence than financial contract rates. Who cares if you get a good rate if you can’t get more than 7500 miles a month. Those who embraced a $4500 truck payment know how vulnerable a slow month can be to making it.

The trucking industry has been in a slump for over 3 years, and unfortunately, I see little light for it in the future. Dramatic shifts in freight levels and rates have changed the general comparisons between Owner Operators and Lease Operators. Carriers who have historically paid their Lease Operators well have too often been bought out by those who dramatically cut the prior Operator Contracts, sometimes $.08 – $.10 or more per mile. Those who have been happy with their carrier for decades suddenly have to move to another because they just can’t survive on the new changes. Owner Operators, who should be surviving better, have found the carriers they were licensed under have lost lucrative customers, watching their precious lanes/loops disappear or have their margins fall to poverty levels.

Determining who will survive and who will prosper is not nearly as easy to determine as a pen and paper can calculate. The Operator contracts are less important than the stability of the carrier customer base. If a carrier says, “we provide 11,000 miles per month,” it is primarily based on the assumption that they can keep their existing customers happy. Carrier reserves are a business assumption that vanished well over a year ago. Hand-to-mouth is the model of way too many. Operators must immediately carry their own weight, or they risk being disposed of. Sometimes, perfectly adequate and professional Operators lose their positions due to circumstances well beyond their control. With such volatility, it’s not realistic to describe the industry with historically predictable business models. It is one reason why so many Operators have retired or turned back to being a Company Driver: far too much volatility. It appears that the most stable of Operators are those who have secured their trucks financing to less than $3000 per month (or even fully paid off their truck).

The Independent Operator industry suffers from “Natural” turnover. Drivers who secure a truck and enter the industry, and other Drivers who retire/leave. Over the last 35 years that I’ve been in the industry, the turnover rate varied from 5-15% per year. According to my calculations, the last year has pushed the scale to about net 15% leaving, a figure matched only to the 2000-2001 recession. It’s usually at this time people speculate that the Operator industry will be dead in 5-10 years. Those who are inclined to agree with that will be proven wrong again. It is true that negative publicity, such as the time we are in now, will convince many to leave and scare many from entering. However, publicity (either positive or negative) just influences temporary thinking. As long as drivers have the passion for independence, there will always be Operators. Not all Carriers can provide this; it requires a different kind of leader to manage Operators. It’s the difference between leading dogs and leading cats… one of which has very little pack mentality. No matter what, the industry will always have dogs and cats.

There are still many Operators who are doing well; some very well. But with so much negative publicity, I assume they will be alone and keeping to themselves for a while.

About the Author:

Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.