With over 90% of trucking companies comprised of one- to six-truck fleets, independent owner operators dominate the logistics landscape, yet the failure rates for these small businesses are extremely high. Though alluring in their low barriers to entry and total independence, owner operator firms collapse at alarming rates due to factors like poor financial planning, regulatory noncompliance, and inadequate decision-making skills.
This article outlines the most prominent pitfalls confronting single truck operations, and the managerial capabilities necessary to sustainably run these transport businesses profitably over the long haul.
What are owner operator trucking companies?
An owner operator trucking company refers to a trucking company where the trucks are owned and operated by independent contractors rather than employees. Here are some key things to know about owner operator companies.
- An owner operator driver owns or leases their own trucks, and is responsible for the expenses related to operating them. This includes expenses like fuel, maintenance, insurance, etc.
- A truck owner operator is an independent contractor who gets work by contracting directly with various shipping companies, freight brokers, manufacturers or other customers needing cargo hauled.
- Owner operators can operate under their own authority (MC number) or lease onto the authority of big trucking companies. Either way, they can choose which loads to haul.
- They are typically paid a percentage of the revenue from the owner operator jobs they haul, so their income is based on how much freight they can move. Their profits depend on controlling costs.
- They have full control and responsibility over managing expenses, routes, maintenance and workload. Owner operator trucking provides independence but also business risk.
In summary, owner operator truck drivers have the freedom of running their own small trucking companies although they must also cover all the managerial and operating expenses required to keep their truck driving business going.
How to start a trucking business with one truck
Thinking about starting a trucking company of your own? Doing so requires researching regulations, obtaining operating authority, securing financing, buying insurance, finding customers, and more. Here’s a basic overview of the key steps.
- Research FMCSA regulations: Study regulations around safety, insurance, DOT authority, driver qualifications, etc. Determine if you’ll operate under your own or lease onto another truck transport company’s authority.
- Create a trucking business plan and get financing: Outline your operations, market strategy, startup costs, and projected cash flow in a trucking company business plan. Use this to seek trucking business loans, small business financing, and funds from investors.
- Obtain operating authority: File for motor carrier authority or lease onto another carrier’s authority to legally transport loads. Get your DOT number.
- Buy insurance: Obtain proper commercial trucking insurance including general liability, cargo/freight insurance and bobtail insurance. Meet state and federal minimums.
- Purchase a truck: Buy, lease or finance a truck that meets your cargo and routing needs. Install an ELD, get a DOT inspection and branding.
- Set up accounting and contracts: Establish bookkeeping, accounting systems and contracts to handle taxes, revenue tracking, owner operator agreements if leasing onto drivers.
- Market your services: Pitch your services to shippers, brokers and contractors. Use load boards and transportation exchanges to find freight to haul.
It takes significant upfront investment and detailed planning to start your own one-truck logistics trucking company profitably and compliantly. But it provides the foundation to grow.
6 top reasons owner operator semi truck companies fail
The top reasons owner operator trucking companies fail include:
1. Poor financial planning and cash flow management
Poor financial planning and cash flow management is a major downfall for many owner operators. They fail to properly budget for significant operating costs like fuel, maintenance, truck loan payments, insurance premiums and others. Many also do not account for the irregular cash flow common in the freight business. Without adequately planning for downturns or seasonal slow periods, owner operators find themselves cash-strapped and unable to cover fixed overhead costs when revenue decreases. Overspending on unnecessary purchases instead of reinvesting into the business also sinks many operators.
2. Regulatory non-compliance
Non-compliance with FMCSA regulations is another common pitfall. Owner operators who lack understanding around changing regulations for safety, required endorsements, emissions standards, and more end up ordered out-of-service after failed inspections or audits. They incur fines and penalties that slim already tight profit margins. In some cases, severe violations can even lead to suspension of operating authority altogether. Staying on top of the regulatory environment is crucial.
3. Poor record keeping and accounting
Many owner operators also fail simply from sloppy financial, tax and employment records. Neglecting critical paperwork leads to poor financial visibility and often unpaid taxes that suddenly come due. This ties into the fundamental need for sound budgeting and money management practices. Without accurately tracking the true income, costs and profit/loss overtime, it’s impossible to make informed business decisions and adjustments. And misclassifying drivers as 1099 workers instead of W2 employees also lands numerous carriers in hot water.
4. No strategy or business plan
Having no clear business strategy or plan in place is a surefire path to failure as an owner operator. Without identifying specific target customer segments and niches to market to, the owner operator has no way to focus sales and marketing efforts. They lack defined geographic territories or shipping lanes to concentrate on. There are no operational processes in place dictating important practices like driver assignment, load selection criteria, driver pay settlement details, and safety policies. And devoid of any forecasted budgets, operating costs, or target revenue goals, the business has no benchmarks to measure performance against or ways to identify when intervention may be required.
5. Inadequate insurance
Inadequate insurance coverage poses an existential risk to transportation businesses, especially small owner operator outfits. Absent or low commercial liability policies leave the company exposed legally in accidents involving damage to third-party property or injuries. Insufficient collision coverage means the business cannot repair or replace equipment after crashes. Lacking cargo insurance to the federal-mandated minimum of $100k makes them unable to pay claims for damaged goods, destroying relationships with brokers and shippers in the process. Injury claims from uninsured drivers or dock workers go unpaid without worker’s compensation, sometimes resulting in lawsuits and company bankruptcy.
6. Poor decision making abilities
An inability to make sound strategic decisions is what separates successful owner operators from struggling ones. In competitive freight markets, owners must analyze load board rates and carrier bids judiciously to determine profitable opportunities and avoid operating at a loss. Those unable to negotiate satisfactory contracts with consistent shippers and carriers will struggle earning reliable revenue each week. Owner operators that don’t track individual load profitability metrics will unknowingly pick unprofitable loads repeatedly. An inability to pivot by expanding service offerings or exploring new shipping lanes when encountering decreased demand or rising fuel costs also constricts income.
Don’t be a statistic
Running a profitable solo trucking business requires mastering the logistical complexities of freight, and the managerial and regulatory demands of transport operations. While the open road symbolizes independence for owner-operators, surviving as a single truck carrier depends on cultivating business acumen. Those entering the industry educated on the most prominent pitfalls have the best opportunity to avoid them.
Owner operator trucking profitability varies widely based on business costs, freight rates, and macroeconomic conditions, but typical earnings range from $30,000-$200,000 after operating expenses. Highly skilled owner-ops who control costs can produce healthy profits, but slim margins are more common industry-wide.
A trucking company operates a fleet with employee drivers, while an owner operator is an independent driver who owns or leases their own truck and gets work by contracting directly with brokers or shipping companies.
Being an owner operator allows independence and income potential exceeding employee driver wages, but also carries more financial risk and responsibility for all managerial duties plus truck operations.
Sign up for a FreightWaves e-newsletter to stay informed of all news and trends impacting supply chain careers and operations.