Editor's note: Some of this material was first published in Land Line Magazine in July 2001. This fall, as we discussed the current business climate and challenges facing truckers, we looked back at this article and found that many of the same issues and information addressed by Board Member Ray Kasicki in 2001 still apply today. So, we've dusted off the old article, added more and back by popular demand, here it is.
Motor carriers have innumerable methods of making money off truckers. You, the owner-operators, 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. If the carriers can make money off of your operation, they don’t have to charge realistic freight rates.
You must ask yourself, if you are leased to a motor carrier, does the company treat you right or cheat you right?
Obviously, all motor carriers are not at the root of this evil, because there are many company owners 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 that want to do business on the up-and-up have to compete with the companies that are experts at squeezing a profit from side enterprises to inflate their profit and decrease your bottom line.
In fact, some leases give you just enough money to keep you working. Greedy motor carriers can use their 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 base plates for you? Do you think this is a good deal?
Motor carriers know it’s a burden on you to come up with all the money at once because they know how little you are making. The carrier deducts so much a week from your pay, ahead of time, so when your plates are due you will already have paid for them.
If a carrier takes $100 a week out of your check, let’s say for 20 weeks starting Jan. 1 for your plates, which are due May 31, that’s $100 a week times 400 trucks. For the first week alone, that’s $40,000. The carrier can put the money in an interest-bearing account. If the account pays 5 percent and is daily compounded for 20 weeks that comes to $8,107 in interest alone.
Some carriers arrange for you to get advances when you need money for fuel. But, they make money on this, too. How, you say?
Remember that mandatory escrow account you have? Well, your carrier doesn’t have to pay you interest on all the money in that account if you are getting advances against it. But the money is still in the bank earning interest. 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 charge an “administration fee” for giving you that advance. In effect, you are paying to use your own money.
Also, what if your carrier has negotiated a deal with the card company so you pay three bucks every time you use the card, but the card company only bills your carrier 75 cents? If you use the service five times a week, the carrier makes $2.25 each time you use it. That’s $11.25 per truck for 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 has many truckers believing it to be a good deal.
The motor carrier has negotiated fuel discounts for you at certain truck stops. Let’s say the carrier passes along a 5-cent-per-gallon discount to the owner-operator. Sounds good, but the carrier may have struck a deal for a discount of 10 cents per 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. For our theoretical 400-truck carrier, that is $400,000 per year.
Don’t forget, usually these discounts are at places that already have higher priced fuel than you could buy at a discount fuel stop. So your real savings are less than our figures.
Another item that greedy carriers try to make money on is insurance on your truck. Motor carriers say they want to make it convenient for you, so they are willing to assume the role of an insurance agent by deducting the premiums from your settlement check and pocketing the money to check the high deductible on the company’s insurance.
If you have a loss, the motor carrier uses the money from its own “insurance pool” to pay for it. By working this way, the motor carrier may never have to report any claims to its own insurance company, thus keeping its record clean and avoiding a rate increase.
Of course, you have no guarantee that your claim will actually be paid because you have no policy that shows you or your equipment is insured, but you can trust this motor carrier, can’t you?
Keep in mind that the carrier will likely say it must 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.
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 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 owner-operators complete the lease can make big bucks off the remaining half of that huge fund plus interest. Add that to the pure profit it has already made off the owner-operators and a really enterprising carrier could make more than $1 million a year, not including what it 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 and failing to return rebates on your fuel tax overages.
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.
So now you know why freight rates have not changed much in the past 20 years and why your carrier has no incentive to raise rates.
OOIDA Board Members Ray Kasicki and Bill Rode contributed to this article, along with OOIDA member John Mordus, attorney Paul Cullen Jr., OOIDA’s Larry Green and Land Line Managing Editor Sandi Soendker.
More good deals, for the carrier that is
How about the amount of money these carriers are making from “selling” trucks. For example, a carrier goes to Freightliner and leases or buys 400 trucks for say $1,200 per month?The carrier then leases or “sells” the trucks to owner-operators for $2,000 per month. The carrier takes $2,000 out of the drivers’ settlements and they put $800 in their account and send $1,200 to the Freightliner’s finance company.
Multiply that $800 per month by 400 trucks and it adds up pretty quick.
Also, how about the carriers that haul government freight and get paid immediately, then wait two weeks to pay owner-operators after they turn in their paperwork? Again, the carriers can put the money in interest-bearing accounts as soon as the government pays and collect interest on it until settlements are paid to the truckers.
And how about carriers that have broker authority and then take a percentage as the broker on top of an additional percentage under the lease agreement? How does that impact your fair share?
By Larry Green, OOIDA Member Assistance
Some companies make a mint off fuel surcharges alone
When it comes to breakdowns on the road, you need a game plan
By Jami Jones
An aggressive fuel surcharge program made the third quarter of 2006 a pretty sweet deal for J.B. Hunt.
The trucking company reported “record” net earnings of $57.8 million, a 12-percent improvement over the 2005 third quarter revenue. But a closer look by transportation analyst Donald Broughton of A.G. Edwards and Sons pointed to what some could consider a “record” fuel surcharge collection.
J.B. Hunt officials reported collecting $124 million in fuel surcharges. The company paid $119.6 million in fuel costs and taxes. That means the company made roughly $4.46 million more in fuel surcharges than it paid in fuel costs and taxes.
But, the company didn’t really keep all of that.
Broughton broke the numbers down in an Equity Research Recent Development Report, in which he downgraded J.B. Hunt’s stock to an aggressive/sell position.
The trucking company has a revenue-sharing agreement with intermodal partner Burlington Northern Santa Fe. Broughton estimated that J.B. Hunt paid the rail partner approximately $26 million of the fuel surcharges collected.
Another $7 million to $8 million was passed on to owner-operators leased to the company.
That left $90 million for the company. Broughton applied that toward what was spent on fuel and estimates that in reality, J.B. Hunt paid approximately 60 cents per gallon for diesel in the third quarter.
According to prices reported by the U.S. Energy Information Administration, diesel at the pump averaged $2.92 per gallon during the third quarter.