Motor carriers have innumerable methods of making money off truckers. You, the owner-operator, are taking it from both ends. You not only are losing dollars to the motor carrier for charges, fees and various “side enterprises,” but you also are hauling at depressed freight rates. So, if you are leased to a motor carrier, does the company treat you right or cheat you right?
Obviously, I don’t mean to paint all motor carriers as being the root of this evil, because there are many companies out there who deserve a pat on the back for their honest efforts. The cut-throat conduct that exists in this industry is tough on the good carriers, too. Keep in mind, those carriers who want to do business on the up-and-up, have to compete with the companies that are experts at squeezing a profit from little side enterprises that result in dollars leaving your pocket and going to the carrier’s bank account. In fact, some leasing arrangements give you just enough money to keep you working. For the trucker, it’s like being a captive. A really greedy motor carrier can use his freight business as a way to capture a group of owner-operators. Maybe we should call them victims, or even indentured servants. Let’s take a look at how this works using as our model, a motor carrier with 400 owner-operators.
Does your motor carrier get your license plates for you? Maybe he requires you to buy them through him. Do you think this is a good deal? After all, the motor carrier knows it’s a burden on you to come up with all this money at once because he knows how little you are making. He will deduct so much a week from your pay, ahead of time, so when your plates are due you will already have paid for them. He now takes $100 a week out of your check, let’s say for 20 weeks starting Jan. 1. After all your plates are due May 31. That’s $100 a week times 400 trucks. For the first week alone, that’s $40,000. This money he puts in an interest bearing account. If the account pays 5 percent and is daily compounded for 20 weeks that comes to $8,107.83.
Your carrier has arranged for you to get advances when you need money for fuel. He makes money on this, too. How, you say? Remember that escrow account you have? Well, your carrier doesn’t have to pay you interest on all the money in that account because he is giving you advances. But the money is still in the bank earning interest for him. At 5 percent on $1,000 per truck that comes to $20,000 per year. And here’s another deal you should beware of. Many carriers are charging an administration fee for giving you that advance. In effect, you are paying to use your own money.
Similarly, your motor carrier will give you these advances and you pay the charge. But what if he has negotiated a deal with the card company so you pay three bucks every time you use the card, but they only charge your carrier $1.50 or 75 cents each time you use it? If you use the service five times a week the carrier makes $2.25 each time you use it, this is $11.25 per truck times 400 trucks. That’s $4,500 a week and $234,000 a year. It happens.
Let’s look at a fuel program that is seen in plenty of leases. And most truckers believe it to be a good deal. The motor carrier has negotiated fuel discounts for you at certain truckstops. Let’s say he passes along a 5-cents-a-gallon discount. Sounds good, but the carrier may have struck a deal for a discount of 10 cents a gallon. At 120,000 miles a year at 6 mpg, you are using 20,000 gallons of fuel. If you make it a practice to use the cooperating fuel stop in order to get your nickel discount, you seem to save more than $1,000 a year. But that’s only half the discount. The other half goes to the carrier’s pocket and that’s $1,000 a year just for one truck. If he has 400 trucks leased to him, that is $400,000 per year. That’s almost a half million dollars. Don’t forget, usually these discounts are at places that already have higher priced fuel than you can buy at a discount fuel stop. So your real savings are less than our figures.
We also should mention insurance on your truck, and how your motor carrier can really cost...oops, I mean “save” you money on your premiums. The motor carrier wants to make it convenient for you so he is willing to assume the role of an insurance agent by deducting the premiums from your settlement check and pocketing the money to cover the high deductible on the company’s insurance. If you have a loss, the motor carrier uses the money from his own “insurance pool” to pay for it. By working this way, the motor carrier may never have to report any claims to his own insurance company, thus keeping his record clean and avoiding a rate increase for his company. Of course, you have no guarantee that your claim will actually be paid because you have no policy that shows you or your equipment as an insured, but you can trust this motor carrier, can’t you? Keep in mind that this company might have to add a little bit to your premium to cover the handling costs...let’s say $20 a month per truck on each policy. With 400 trucks, that’s an extra $96,000 a year in the pocket of the motor carrier who doesn’t even have a license to sell insurance!
Now, let’s look at where we are. We have the motor carrier making money from interest on your escrow funds, your maintenance fund, fuel discounts, interest on plates, advances on cards and maybe an insurance fee.
- $ 400,000 Fuel discount
- 8,107 Interest on plates
- 234,000 Advance cards
- 20,000 Interest on escrow
- 96,000 Insurance fee
And all this is with a relatively honest carrier. What about those that aren’t honest? Does your motor carrier have a clause in the contract that says if you don’t complete your lease in its entirety, you lose your escrow account? Well, this is in violation of the leasing rules, but if you signed the contract, you’ll lose your money and the only way to get it back is to go to court. A motor carrier with 400 trucks who has only 200 o/o’s complete the lease can make big bucks off the remaining half of that huge fund plus interest. Add that to the above “guesstimated” sums and a really enterprising motor carrier could make more than $1 million a year not including what he earns moving freight.
Additionally, there are huge opportunities for motor carriers to make large sums of money off owner-operators if the company has a lease-purchase program. Other avenues of profit include reselling license plates, failing to return escrow, or the rebates on your fuel tax overages, and I’m sure there are many more I didn’t think of. It makes you believe there are some carriers who have attended a school that gives a degree in how to screw truckers.
Some of these activities are perfectly legal, if they are spelled out in your lease and they don’t violate the federal leasing regulations. Others are not legal, however, for that very reason.
So now do you know why freight rates have not changed much in the last 20 years? Why your carrier has no incentive to raise rates? Because some carriers have found ways to make money off leased owner-operators that eliminates the need to increase rates.
OOIDA board members Bob Esler, John Mordus and Bill Rode contributed to this article.