If you’ve got the vision to start a trucking company, now is the time to make that vision reality. If you manage your new business the right way, you can see $100,000 plus in profit per year as a single owner operator.
With CNS by your side, this roadmap to success will help you prevent the many headaches new trucking companies face when getting off the ground to year three of your business.
A visionary doesn’t just dream about starting their own business, they meticulously understand it inside and out. This starts with knowing what kind of lifestyle you want.
This means you need to know what your operation will look like, getting the right truck and/or trailer for your operation, know what type of cargo you want to haul, getting CDL endorsements to haul special loads, if you want to haul Amazon Relay cargo or not, how quickly you want to grow, how far you will travel, what state/s you want to haul in, and more.
Many who start out as a hotshot business want flexibility. This is where some people choose to start.
If you are looking to haul commercial loads, it is easier to get hired anywhere with a Class A CDL. A clean driving record and a CDL gives your hotshot business a starting point to build your reputation as well as your customers.
If you are driving hotshot as a steppingstone to bigger things, then hauling hotshot with no CDL is not worth it because you do not have a back-up plan. With a CDL, you can start your business driving smaller hotshot loads locally that might not need a CDL to haul.
If you are not making enough money this way, you can move up to a larger vehicle or 40-foot trailer for bigger and more lucrative loads and haul interstate across state lines. If this is not enough, you can step up to a semi or be a company driver.
Basically, without the CDL, you are stuck hauling smaller local freight, and it will be harder to grow your business and ultimately harder to make more money.
Hotshot haulers quickly find out the importance of understanding gross vehicle weight ratings (GVWR). The size of your truck limits the size of your trailer and ultimately limits the size of the load you can haul and the revenue you can earn.
Generally, commercial motor vehicles (CMVs) are defined as vehicles engaged in interstate commerce (crossing state lines) and:
As a hotshot your CMV can be a cut-away van, medium-duty box truck, a smaller F-250 or equivalent truck to a larger F-450/550 Super Duty or equivalent for towing. All of these vehicles differ in weight, which in turn affects the size of load you can haul.
Similarly, hauling hotshot can have a variety of trailers that are suitable for the types of loads you plan to carry. There can be smaller horse trailers, flatbed trailers, or larger 30 to 40-ft gooseneck trailers. These too differ in weight and affect the size of loads you can haul.
Remembering the regulations, if the GVWR of your truck, trailer, and cargo is greater than 26,000 lbs, then you need a CDL. Similarly, if you are towing, including the trailer weight, greater than 10,000 lbs, you need a CDL.
A CDL gives you the flexibility to haul different size loads with different equipment and vehicles needed for the types of loads you plan to carry.
Now that you understand the importance of GVWR, we can now talk about the economics of hotshot trucking without a CDL.
Simply, if you do not have a CDL, the max weight must be 26,000 lbs or less. If you have an F-350 that weighs 10,100 lbs and a trailer that weights 7,000 lbs empty, then this only gives the non-CDL hotshot the ability to haul a maximum of 8,900 lbs.
26,000 (max weight without CDL)
– 17,100 (weight of truck + trailer)
= 8,900 (max load for non-cdl)
If you have a CDL, you can haul over that 26,000 GVWR limit.
But let us take this a step further.
If you use a 2500 truck with a GVWR of 10,000 lbs and a tandem axle single wheel with 14,000 lbs GVWR, then the combination is rated and licensed for 24,000 lbs.
Empty weight is 14,560 lbs with fuel, luggage, and you in the cab. This means of the 24,000 lb rating minus 14,560 lbs empty is 9,440 pounds of cargo you can haul.
However, the rear axle is rated for 6,200 lbs and the trailer axles are rated at 7,000 each. That is a 22,000 lb design limitation, which you never want to exceed.
The trailer tongue adds 1,940 lbs of empty weight to the rear axle, which scales 3,200 lbs empty with no trailer and 5,140 lbs with an empty trailer.
So, 6,200 lbs minus 5,140 lbs means you can add 1,060 lbs to the tongue before exceeding the trucks design limits.
This is why it is imperative to know how much your cargo weighs and know where to put it on the trailer. If you do not have a CDL, you have fewer equipment and load options to make money.
For more information, contact us at 888.260.9448 or info@cnsprotects.com
Drivers who want to earn more in the trucking industry have a lot of opportunities to acquire high-demand skills and endorsements.
Hazmat CDL Endorsement (H): Roughly one-quarter of all freight hauled in the United States is transported in tanker trucks, and of that, nearly half is petroleum products like gasoline, diesel, and aviation fuel.
To haul hazardous material, drivers and companies face many rules, regulations, and requirements because hauling fuel and HAZMAT is a dangerous job.
This danger leads to a constant high demand for hazardous material drivers as well as a much higher pay.
Hazmat loads consist of dangerous and highly toxic materials found in 9 different classes: Explosives, Gases, Flammable Liquid, Flammable Solids, Oxidizing Substances, Toxic Substances, Radioactive Material, Corrosives, and Miscellaneous Dangerous Goods.
To be certified to haul hazmat, drivers must pass a TSA background investigation and maintain additional endorsements while following state and federal regulations.
Tanker CDL Endorsement (N): A tanker endorsements means drivers are qualified to drive any tank vehicle. These drivers transport water, different types of gas, fuel and more.
Hauling liquids in large containers can be difficult because turning sharply or slamming on the brakes too hard can cause the trailer to tip. A mistake with hazmat liquid loads such as gasoline, or liquid propane can result in large fireballs and extreme heat.
These drivers have a high level of skill in moving liquid materials safely and are often paid much more than regular CDL drivers.
Doubles/Triples Endorsement (T): This endorsement allows drivers to pull double or triple trailers with a commercial motor vehicle. To qualify, you must pass the Doubles and Triples Endorsement Knowledge Test and pass a vision screening.
The choices you make from this point forward greatly impact your startup cashflow, growth timeline, and large future payment dates. A solid business plan will list expenses and revenue expected in your new company. Expenses can be up to $20,000/month as a startup. This stage includes putting aside money for the investments needed in your new career.
And don’t forget… location, location, location. What do we mean?
A solid business plan will list expenses and revenue expected in your business. Be sure to include your own salary. Costs involved in a trucking startup include tractors, trailers, licensing, and registration costs. Also include the cost of insurance, and data tracking software and services.
The U.S. Small Business Administration website has downloadable templates to create your own business plan.
There are a variety of factors that determine the cost of obtaining a CDL, which include:
Additionally, you can save money by avoiding expensive schools and choosing a quality tutor-styled training. Many are choosing this route and will even choose out-of-state CDL training because the price difference is so drastic, even when factoring in travel costs.
In general, truck driving schools typically cost between $5,000 and $10,000 while CDL tutor training can cost between $2,000 and $3,500.
With that said, there is only one way to receive free CDL training, find an employer who is willing to train you themselves or pay for your CDL training. This is referred to as Company Sponsored CDL Training and you should expect at least a one-year commitment after training.
Where you choose to start your trucking company could save you thousands on insurance.
Startup business location is important: One of the easiest ways to save thousands of dollars in insurance premiums when you first start your trucking company is the geographical location of your business. In most cases, it is best to avoid major cities or areas susceptible to severe weather.
For example, trucking insurance is expensive in Atlanta, GA. However, a new carrier can save thousands of dollars if they just start the location of their business outside of the city.
Location consistency is important: It is best practice to live and have your driver’s license in the same state that your business will be located in.
If your place of business has an address in New Jersey, the insurance company expects your driver’s license to be in New Jersey as well.
Additionally, if you declare to the insurance company on your application that you are going to operate within a 500-mile radius of your New Jersey place of business, yet have a Florida driver’s license, that causes yet another unexpected mismatch.
If there is a mismatch, you will almost always see a significant insurance premium increase.
Garaging address location is important: In general, living in an urban area compared with a rural area can have a major impact on rates. In a metro area where there are more cars on the roads and more traffic, accidents are more likely, pushing rates higher.
If you plan to make changes to your garaging address, it is recommended that you notify your insurance company as soon as possible. Your insurer can make the necessary adjustments to your insurance policy to protect you against possible risks.
Delivery radius is important: It is also important to consider your expected routes and delivery radius. Most insurance companies want you to stay interstate or within a 500 air-mile radius from your business location for the first couple of years of your business.
As you prove your safety history and show you can manage your company well, then expanding to long-haul trucking will be more affordable.
If you are committed to start as a long-haul trucking business, then expect to pay expensive insurance premiums for a couple years.
Employing out-of-state drivers can be expensive: If you want to grow your young business by adding new drivers, insurance companies want these drivers to stay within a localized 500-mile radius location for the first couple of years until you gather more evidence of good business management and safe driving history.
For example, out-of-state drivers tend to cost $10,000 per person in insurance premiums for startup carriers.
It is recommended to not use out-of-state drivers for the first three years of business.
Routes matter too: Underwriters also look at the location of frequent routes your drivers travel.
Insurance companies are big fans of regular routes as it lowers the overall risk of an accident because the more regular routes you operate in, the more familiar your drivers are.
However, the location of these frequent routes could negatively affect your risk as well.
Underwriters use road safety data that highlight the more dangerous roadways to map out which states, metropolises, and cities are the riskiest to travel in.
Should you purchase or lease a new or used truck?
As your most expensive and most important asset, a used truck will likely cost around $60,000 or more while a new truck will cost around $100,000 or more.
To get a new truck, most dealerships require two years of driving experience, a clean driving record, 20% down payment, and a credit score of at least 650.
Many new owner-operators cannot afford to put 20% down and will often choose to lease the truck with around a $1,000 down payment.
In the short-term, leasing is always cheaper because leasing focuses on the value of the truck at the end of the lease term lowering the initial investment with an option to purchase or refinance for the remaining value of the truck after the lease ends.
For example, a $150,000 truck is leased-to-own for 4 years. After 4 years, the value of the truck is worth $50,000. So, during your lease, you are paying off the difference in value of $100,000 and then still owe $50,000 at the end.
Now, during the last 4 years, your business plan would be to save money to purchase the rest of the value of the vehicle at the end of the lease or refinance for the residual left on the truck.
The average cost to lease a semi-truck is between $1,600 to $2,500 per month for new trucks and $800 to $1,600 per month for used trucks. Don’t forget that there is still likely around a $1,000 down payment if you’re leasing from a dealer.
Do you have enough money saved right now?
The biggest reason owner-operators fail is not having enough money saved up before going on their own to manage start-up costs, maintenance emergencies, or lagging payments after finishing a load.
Truck drivers who are looking to go on their own must find a way to start a savings plan where you are regularly setting aside money, at least $200 per month. As you build your savings, you should learn how to build and use your credit score for when you later need to borrow for a truck purchase or repairs.
How much money do truckers need to save before becoming an owner-operator?
Starting your own business has a lot of expenses you should be prepared for, which includes:
On average, truck expenses alone for a new owner-operator is usually around $15,000-$20,000 per month for a single truck.
Before starting out, you should save up at least twice that to manage the first couple months of your new business. Ideally, many consultants recommend saving for at least 6 months of operation, which is closer to $100,000.
This advice stems from the biggest issue after starting your new trucking business, dealing with your load payment terms.
Cashflow is the amount of money coming in versus coming out of the company. The issue for owner-operators at the beginning is not having money come in for at least 30 days after completing their first few loads.
This is where we chat about choosing your start-up compliance with company type (LLC) and Federal EIN; licensing compliance of DOT#, MC authority, BOC-3, special tax requirements, UCR, IFTA, IRP, and more; and DOT Compliance of drug and alcohol consortium, driver files, ELD, and more.
Let us help you get started.
You may want a sole proprietorship, a partnership, or a limited liability company. Each of these has pros and cons, which vary by state.
To own and run a private company in the United States, you’ll need to form a limited liability company (LLC). This is a business structure that combines pass-through taxation (like a partnership or sole proprietorship), with the limited liability of a corporation.
CNS can prepare and file your LLC application with your home state. Or if you want to start a partnership or sole proprietorship, click here.
This unique nine-digit number gets assigned to businesses in the United States by the Internal Revenue Service. Use this number to file your business tax returns.
CNS can obtain your EIN on your behalf. Click here to begin obtaining a Federal EIN.
First be sure you even need a USDOT number. Obtaining a USDOT Number can be confusing and costly. Here’s where CNS can help by getting your number quickly and accurately. Click here to learn more.
Companies are required to have interstate operating authority (MC Number) in addition to the DOT Number if they do any of the following tasks:
CNS can file for your MC Number at the same time we apply for your DOT Number.
A BOC-3 is a required United States filing that activates your Motor Carrier Authority. This filing assigns legal agents in the event court papers ever need to be served to your company by an outside state. It is required before federal operating authorities can be granted in the U.S.
CNS, unlike many of our competitors, does not charge an annual fee for a BOC-3 filing.
You may need to apply for further credentials if your company drives in the following states:
A trucking startup needs to be aware of special tax codes and procedures in accordance with State, District of Columbia, Canadian, and Mexican law. When a vehicle has a taxable gross weight of 55,000 pounds or more, the company has to electronically file a HVUT Form 2290.
Once this is filed, you will need to get a stamped copy of your Schedule 1. Companies are required to file all taxable highway motor vehicles registered in your name during the tax period when the truck first operated.
The Unified Carrier Registration (UCR) program requires ALL interstate carriers (private, exempt, or for hire) to register their business with a participating state and pay an annual fee that is based on the size of their fleet.
Brokers, freight forwarders, and leasing companies also are required to register and pay a fee, unless they are also operating as a motor carrier.
This agreement is between the lower 48 states and Canadian provinces and it simplifies reporting of fuel use by motor carriers operating in multiple jurisdictions. Alaska, Hawaii, and Canadian territories do not participate.
An operating carrier with IFTA receives an IFTA license and two decals for each qualifying vehicle. The carrier files a quarterly fuel tax report. This report determines the net tax or refund due and redistributes taxes from collecting states to states where it is due.
You need this when over 26,000 pounds. This registration gives reciprocity between the United States and Canada without the need for additional registrations. Under this Plan, only one license plate and one cab card is issued for each fleet vehicle.
Trucking companies need to keep impeccable records in the event of an audit. Physical or electronic driver files allow you to pull an MVR report, look at previous employer inquiries, PSP reports and more.
CNS has solutions to keep your Driver Qualification Files up to date with regulations and ready to help you pass an audit. All of our driver files are monitored by actual DQF specialists to ensure documents don’t expire. We communicate personally about soon-to-expire materials to avoid computer overlooks. Click here to learn more.
Anyone holding a Commercial Driver’s License needs to have a pre-employment drug test and be enrolled in a DOT drug and alcohol consortium.
CNS offers a low-cost, DOT-compliant service that covers DOT random testing through the year. Our service gives you a secure portal to track test results. We also have personal representatives to call when you have questions. Click here to learn more.
Per a 2017 Electronic Logging Device mandate, non-exempt carriers are required to install an FMCSA-registered and compliant electronic logging device.
Today’s ELDs can actually help you grow your business. ELDs offer many fleet management features like diagnostic tools and advanced reporting. With their reports, you can maximize your fleet efficiency and simplify your operations.
There are different types of insurance available include: Primary Liability, Cargo Insurance , Physical Damage, Non-Trucking Use (Bobtail), Worker’s Compensation Insurance. You can expect to pay much higher insurance rates if you do not have 2+ years of experience. The higher premiums will impact your profit and monthly cash flow. Other factors to the cost of your insurance include age, personal driving history, garaging location, the distance you drive, and your credit score.
Trucking companies deal with big numbers, from large revenues to large expenses. As a start-up, you must be ready for these numbers to come in and out of your bank account frequently. Remember, on average it takes 35 to 45 days to receive payment after completing your first load.
The way you control positive cashflow is to speed up the inflow and reduce the cash outflow. Let’s discuss…
To increase inflow, we need more money coming in or speed up when that money comes in. Three ways to do this is to Charge more, work with trusted shippers directly, and follow-up on invoices.
Many trucking companies experience cash flow problems because they don’t charge enough per mile to cover their expenses.
If you accept these super low rates, then the shipper assumes they can continue to get away with it. But you are the one moving the product, you are the professional, so make sure you know what your costs and worth are.
The most important thing for you to do for every load is determine your truck freight rate and cost per mile so you can cover your expenses and expected profit.
Just remember that these rates will fluctuate depending on your routes, if you are going in or leaving certain regions, and more.
To calculate cost per mile, you need to examine your current expenses and forecast the number of miles you plan to drive this year. Then divide the expenses and profit by the miles.
A truck freight rate is a price a shipper or broker will pay you to haul a load. While this sounds simple, these rates per mile can vary significantly depending on the time of year and current fuel prices.
The most important number when it comes to calculating truck rates is the number of miles between your starting point and the destination.
After distance, you need to know the weight of the shipment. To control costs, you must carefully manage the overall weight loading for your fleet. If you start with a higher rate for heavy loads, even if the shipper negotiates a discount, you will still end up with more total revenue.
Lastly, is the shipment density so you know how much room a shipment will take up in your truck. Once you know the weight of the shipment, calculating the shipment density is simple. All you do is divide the cargo weight by its cubic feet.
Now, to find the best trucking rates with loadboards, you should:
This dance of loads, lanes, and rates is hard to manage, so if you can find a trusted broker, you can pass this headache to them. But, as always, this comes with a fee.
Loadboards are not the only source of loads.
The best way to find reliable, high-paying freight loads is to focus on your sales efforts to get your own trucking contracts. This effort is time consuming, and often difficult, but is worth the time.
In the next video, we will discuss how to build these relationships, however, when it comes to customers and cashflow, here is what you need to know:
First, vet your customers carefully by understanding their Risk Profile. To guard against payment default, you should regularly check the credit ratings of the companies you serve.
A low or declining credit score could mean that a customer or broker is in financial trouble. So, you should credit checks and bank references, learn from their other vendors on how they pay their bills, keep notes on customer payment history, and then avoid slow-paying customers.
Some factoring companies and other financial providers offer free credit scores and days-to-pay information on thousands of brokers and shippers.
And second, state your terms clearly on both the credit application, rate advisory, and invoices before moving the load with them.
Remember, our goal right now it to increase money coming in or the speed which they come in.
However, businesses are often too busy running day-to-day operations to remember to follow up with clients about paying past-due invoices.
While mistakes happen, invoices can sometimes get lost in the shuffle. If you aren’t following up on your open invoices, you’re leaving cash on the table and your cash flow will be slow.
It is best practice to invoice your customers every day versus saving those invoices up as a batch and send out a week or two later.
Then, create a follow up plan that helps you professionally collect on your invoices from your clients in a timely manner. Simply, make receivable calls the day an invoice is due, work your receivables weekly, and run account receivable reports weekly.
If you do this well, it can also be a great way to check in with your customers and strengthen your relationships.
Now, the other side of cashflow.
To slow down the outflow, we need to find ways to spend less or move when the bills need to be paid to a later date.
To achieve this, let’s look at factoring and quickpay options, how to use IFTA correctly, set-up fuel cards and tire or maintenance accounts, manage rate negotiations, and find other operation inefficiencies.
Factoring is the selling of the invoice after you complete the load to the factoring company.
Doing this allows you to get paid that same day, but with a cut for the factoring service. Carriers then use that cash to fund operating expense moving forward.
The goal here is to look for good factoring rates.
Factoring companies often take 10% for their service, but you can see them as low as 5%, so look around. If you are dealing with slower cash inflow, then factoring is an opportunity to manage the market downtrend until things get better.
However, factoring should ONLY be a temporary solution. So, find ways to save and prepare for slow invoice so you are not dependent on giving away your profits to another company.
Another option with brokers is their quickpay programs.
Depending on the broker and your relationship with them, they may offer to pay your invoice early, in one to seven days, and take a 1% to 5% fee. This option is cheaper than dealing with a factoring company but may not be available with all brokers and they determine the terms and cost.
Typically, fuel is the largest operating costs in a trucking company and the average truck today can consume more than 20,000 gallons of fuel a year, costing more than $70,000.
In fact, due to record-high fuel prices and their roller-coaster swings in 2022, fuel prices became the top concern in trucking according to ATRI annual issues report.
Unfortunately, many carriers purchase fuel using the wrong strategy, leaving thousands of dollars on the table.
Fuel purchases are governed by IFTA and are subject to “taxes due” or refunds. Buying fuel at a location that has the “cheapest pump price” does not guarantee you the cheapest fuel.
Why? Because each state sells fuel at a different price and taxes the fuel at its own rate. On top of this, the International Fuel Tax Agreement (or IFTA) requires that you pay taxes to each state (or Canadian province) that you drive through regardless of where you bought the fuel. Specifically, you have to pay for the fuel consumed (and sometimes miles traveled) in their jurisdiction.
Smart carriers develop a strategy to help optimize their fuel purchases.
This concept is easier to explain with an example. Let’s assume you have the option of buying fuel in Illinois or in Missouri. Here are the per-gallon pump prices from a few years ago:
Where would you buy your fuel? At first glance, Missouri has the cheaper fuel. Seems like the obvious choice, right? Let’s look at the same numbers, but with more details:
Although Missouri has the cheaper pump price, Illinois has the cheaper pre-tax price. Illinois is the better deal because you are paying a lower BASE PRICE for the fuel. Then, using your IFTA calculations, you can add the relevant taxes later, as required.
The numbers add up when you drive thousands of miles every month. Using this strategy, you could rack up huge savings that simply drop to your bottom line as profit.
There is a simple excel spreadsheet calculator in the description below that you can use as part of your trip planning process.
Fuel cards are payment cards that can help you get discounts on your diesel purchases from a network of fuel stations, which will help you maintain cash flow.
These cards function like a credit card, where you can make the necessary fuel purchase through the card, and get 60-90 extra days to come up with the cash to repay the bill.
Based on price point, fuel cards are categorized into:
In Fixed price fuel cards, the fuel rate is determined for the whole week. And you are informed a week ahead. So, if you expect a rise in fuel prices in the upcoming days, you can refill at lower prices.
On the other hand, with Pump price fuel cards, you will be charged according to the price displayed on the pump.
Apart from fuels, few companies also allow you to buy additional items such as toll payments or similar expenses like lubricants, car washes, and more.
While a fuel card is the best way to optimize the fuel expenses, not all fuel stations will accept your fuel card and not all the fuel card companies give you the same discounts.
To choose the best fuel card for your business you must consider different factors such as location, discounts, type of vehicle, and more.
For location, some fuel cards will only work in a particular region or at certain fuel stations. If you are a local or small feet operator that runs in a particular area choosing a branded or fleet fuel card with a limited operating territory can be a cost-effective choice.
For discounts, fuel card providers offer you different types of discounts, from point-of-sale and rebates.
Point-of-sale discounts reduced the fuel cost at the time of purchase. The company immediately provides the amount to the fuel card company, which reverts it to the fuel station.
On the other hand, in the rebate model, the fleet receives the fuel receipts for the total amount of fuel purchased at the end of the month.
So, what card is the best? Well, we aren’t sponsored so we wont pitch anything. However, some trucking businesses use several fuel cards simultaneously.
This is particularly helpful if they don’t cost anything for you to use and you want to maximize access to different stations. But research routes and costs to determine whether this makes sense for your business.
Like the fuel card, tire and maintenance accounts are credit accounts that defers payment of big expenses to pay them later. Most cards provide detailed monthly reports on transactions and let you set restrictions on purchases.
This eliminates the risk of your drivers fudging on their expense reports and costing your fleet more money.
Look, freight recessions come and go and the bull and bear cycles are vicious. In 2023, we are in a bear market with a chance of a recession hitting this summer.
If a shipper asks for a rate cut of 10-15%, instead of accepting it across your business, take a lane-by-lane approach to negotiation versus a unilateral cut.
On the flip side, just because a shipper is asking for a rate reduction, don’t be shy about asking for an increase if one is needed. Just note that a carrier might have to work with the shipper on a series of increases that get the rate where it needs to be.
Efficiency is key to profitability and your trucking business makes money by optimizing efficiency.
After all, if your trucks spend days idling and wasting fuel, you won’t be profitable.
Instead, make sure that you’re maximizing your equipment utilization to ensure that you’re generating the most revenues possible of your fixed expenses.
Look at any other inefficiencies you may have in your business as they could be costing you in the long run.
To find them, analyze all your expenses. Ask yourself if the expenses are necessary and if there are cheaper solutions that can provide the same results. Understanding your business expenses can help you become more efficient, operationally and financially.
Additionally, make sure you are limiting mistakes, especially with DOT violations that can cost you thousands, leave you out-of-service on the road, ruin business relationships, and increase future insurance rates.
So, you want to make money in trucking? The biggest problem when finding loads is knowing the good ones from the bad ones. When do you pass and when do you accept certain loads?
With current technology and the excess numbers of trucks on the road in many transport lanes, carriers must be as fast as possible or have great relationships to win loads with good rates.
To build these relationships, you first need to understand what the three types of freight are and why they matter when negotiating rates.
Contract freight, otherwise known as direct shipper freight, are a type of fixed, long-term truckload pricing for consistent freight volumes, and make up 85% of all loads.
Basically, shippers commit to a certain load volume, and carriers offer fixed transportation rates. As a carrier, if you are moving this type of cargo, you are expected to move the load at the rate you agreed upon previously.
For example, Pepsi knows they have “x” amount of loads they want to send in the year. They work with their trusted carriers or brokers to handle 100 or so loads at a determined rate on various routes or lanes.
But, as we have seen, the market can quickly shift in either direction, hurting or benefiting the carrier.
When diesel prices or other costs rise, it can squeeze a carrier’s bottom line because they are now paying more for fuel on a previously contracted rate.
In this same scenario, the shipper is protected because the contract has locked in a transportation rate giving them control over their expected costs for the year. So, carriers cannot raise the rate to offset the increase in fuel prices.
However, on the positive side for carriers, if the market is on a down trend and you have a lot of contract connections, the new rates will drop slowly compared to the wild swings in the spot market.
Do you ever wonder why a broker might not have all the details of a load, like appointment windows, customer characteristics or weight?
It goes to the heart of what is spot market freight.
Traditionally, spot freight is used to find rates for a last-minute shipment or expedited loads. These are loads available on the market for a very short time, usually gone in 60 seconds, and are usually offered by freight brokers.
This type of freight typically makes up 10-15% of all loads.
Many brokers are often blind-copied in an email with other brokers for these quick loads and is a race among brokers to land the load.
So, there is not a lot of time to ask for details or heavily negotiate these loads.
Additionally, spot rates are more volatile and change rapidly.
This is why knowing operational costs and lanes are important, so you can quickly analyze a profitable load that the broker is recommending and try and grab it.
If carriers are constantly fishing the spot market, they need to expand your load types by getting contract loads directly from shippers.
So, know that we know the basics, why does knowing freight types help you negotiate with brokers?
Did you know that the average owner operators work with 20-40 brokers each year!
This is because brokers have spent the time and energy to create relationships that many owner-operators and small carriers may not have the skill to do to earn direct shipper loads.
When it comes to contract freight, brokers get the bulk agreement for a certain number of loads at the agreed rate that come from the shippers directly.
Brokers then often look to make 5-15% margins when negotiating with carriers.
However, when the market drops there is not much margin for brokers because diesel prices and other costs rose, but their contract stayed the same.
Carriers need to know that when working with brokers on these loads, there may not be much wiggle room for their profit and your profit.
Eventually, these contracts get renegotiated and if the market improves, margins will rise for brokers and there will be much more wiggle room to negotiate with brokers on rates.
With spot-market freight, speed wins.
Sometimes brokers do not have a lot of details about the load because they were blind-copied in a mass email and are in a race with others to win that load.
Carriers may not be able to negotiate back and forth multiple times for a few hundred dollars because the lost time with slow negotiations means the broker may not get the load.
Also, the broker may be getting 10-15 calls per second for this load.
This is why it is important to know your profitability, your lanes, and trends happening so you can quickly negotiate with a broker at the right price.
Sometimes, you need to be willing to just walk away.
Good freight brokers can bring peace of mind by connecting you with trusted shippers, negotiate the best rates to haul cargo, optimize routes to prevent deadhead miles, and help you save time to keep your wheels moving.
But with so many brokers, carriers should look for brokers with experience and make sure they are licensed, bonded, and insured.
Look for brokers with experience and be sure to read both the positive and negative reviews and start growing a relationship with them. The more you both trust each other, the better the loads being offered.
When you receive a load, note that the broker is negotiating rates on the back end with the shipper. We discussed this in a previous article.
Make sure the load makes sense for you and will make you money after the fees and general expenses.
You also need to be wary of double brokering.
Double Brokering occurs when a carrier accepts a load and then rebrokers it to another motor carrier. This is not a legal practice.
Likely, the motor carrier that rebrokers the load is not authorized or in compliance with FMCSA and has become a big issue in the marketplace.
The rule of thumb here is if the rate seems too good to be true, then it IS too good to be true.
For example, if you know the market and see a load 75% over the fair market rate, the load is likely double, or even triple brokered and you may be ghosted after delivering the load and never get paid.
If you see these too good to be true rates, trust your gut and ask for more details. If they can’t answer them clearly, don’t keep wasting your time. These loads can hurt a month of profitability and, in this current market, could ruin your business.
Let’s start with the basics. It’s all about your sales attitude.
Like with any relationship, no one wants to be called or look “cheap”, so don’t call the broker rates too “cheap”. Complaining will make the negotiation go cold quick.
Similarly, do not demand “their best rate”, every haggler knows this.
Carriers need to know their lanes, average rates, and operational costs so you can make a decent negotiation. Show the broker that you know your numbers and be honest with not accepting a load if it doesn’t make you money.
For example, if you know that lane capacity is high, meaning there are a lot of carriers but not a lot of freight, then you may want to change lanes or accept a cheap load to get you out and accept a second more profitable load on the new lane.
The more quickly you can meet in the middle, the more you will consistently get good loads from the broker.
Next, you need to provide full details to the broker, they are not mind readers. Tell them your actual location and what equipment you are running so the broker can better estimate what loads are near you, anticipate loading times, cutoff times, and more.
Lastly, tell the broker which lanes or regions you run consistently as this helps you build consistency and reliability. The more details you provide upfront, the quicker they can work with you.
Need some sales training? My favorite book on this subject is “How to Win Friends and Influence People” by Dale Carnegie.
The book teaches you to:
Not only will the book help you with your business, but any personal relationships as well.
Can’t get a good load from a broker and don’t want to deadhead for a long time?
The easiest way to find loads without a broker doing the research for you is using load boards. But be careful because they are very competitive.
Load boards are websites that allow shippers and brokers to make arrangements with carriers to move freight.
Many of these websites or apps allow you to search for loads in many ways, such as:
They also let you check credit scores of brokers, see reviews of shippers and other carriers, and provide a source for additional services.
Some of the most popular load boards are:
You will have to experiment with each one to determine which load boards to use, how many to use, build relationships and improve your profiles overtime to increase your competitiveness when finding loads.
There are also websites that feel like load boards but are slightly different, offering specific types of freight or a different type of third-party tools.
Unfortunately, too many carriers rely heavily on load boards. Using them excessively can squeeze your profit margins to the point where pulling the load is not profitable.
Much like spot-market freight, load boards have a place in the market, but if you rely too heavily on them, you will need to shift focus to other types of freight and get contract loads directly from shippers.
The last option to consider are the local, state, and federal governments freight. This can open more load opportunities for you as you build other customer relationships.
Unlike the other types of loads, you will have to first register as a government contractor to be able to haul their load or partner with another company who is already under a government contract.
You can register by visiting the U.S. General Services Administration (GSA) website.
It is important to note that the government might have stricter guidelines about delivering some loads, such as requiring you to be a fleet owner, that you meet requirements set in the Service Contract Act (SCA) of 1965, which helps determine wage rates, performance expectations, and more.
For some military loads, you need to become an approved FAK carrier.
Small fleets and owner-operators with their own authority for at least three consecutive years in good standing have two options for getting approved as an FAK carrier:
First, there is the SDDC’s carrier registration program.
The approval process for carriers wishing to haul FAK for the military with this program follows clear guidelines:
Remember when we said that there are daily, monthly, and annual compliance requirements? This is the time they will make sure you are following the rules. You must undergo a safety audit within the first 6 – 18 months after receiving your DOT number.
This is the first chance for a new carrier to garner safety history that will later be accounted for during the next insurance renewal. If the safety history is bad due to not complying with federal regulations found in the audit, insurance rates will stay high.
You did it, Congratulations!
If you follow this roadmap and utilize CNS to guide you through these 3 years, we guarantee success for your business and your insurance rates will drop.
One secret in the insurance industry is that carriers who prove their low-risk safety history will get much lower preferred rates as they go into their third year of business.
Do you now realize that owning a trucking company and maintaining everything can be overwhelming and time-consuming?
You can outsource many of these tasks and requirements to CNS. Our Proactive Safety Management Programs are designed to fit your company.
For more information, contact us at 888.260.9448 or info@cnsprotects.com.
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