Owner operators in the trucking industry run their businesses with small profit margins. In simple English, this means as money is coming in, money is also going out simultaneously. Because of the nature of the trucking industry, it is essential for owner operators to understand the many factors that can determine how profitable someone may be.
Drivers should consider several aspects before becoming an owner operator in the trucking industry. In this article we have listed some of the more prominent items to help a prospective owner gauge profitability.
The rates that an owner operator is able to negotiate for hauling loads is a critical factor in determining profitability. In 2021, there was a significant shortage of truck drivers, which drove up rates. However, the industry has seen an increase in driver recruitment efforts since then, which has contributed to lower rates in some areas.
Economic conditions also impact supply and demand. In a recession, demand for trucking services tends to decrease, which can lead to lower rates and lower profitability.
Emerging trends will impact the trucking market. For example, the rise of e-commerce has led to an increase in demand for last-mile delivery services, which has led to growth in the trucking market.
Technological advancements, such as autonomous vehicles and electronic logging devices, are changing the trucking industry as well. These advancements can lead to increased efficiency and lower operating costs but can also require significant investments in new equipment and training.
The trucking industry is highly competitive, and carriers must remain competitive to maintain profitability. Carriers may need to offer lower rates to win contracts, which can impact profitability. Especially as new entrants come into the industry, rates will decrease as competition increases.
An owner operator’s ability to effectively sell themselves can be very helpful. The experience and qualifications of a driver can impact the rate they can command for a load. Drivers with specialized skills or experience may be able to charge higher rates for certain types of loads.
Fuel is the largest expense for an owner operator, typically ranging anywhere from $30,000 – $70,000 in a year. Drivers need to find their truck’s cost per mile average by using the following equation:
(Average MPG) / (Fuel Cost per Gallon) * (Expected Miles) = Cost Per Mile
We share 8 ways to increase fuel efficiency in another article but there is only so much a driver can do there. The current cost of fuel will drastically impact an owner operator’s profit margins.
The truck is the second largest expense for an owner operator. According to a report by the American Transportation Research Institute (ATRI), truck ownership costs were the highest operating expense for owner operators in 2019, accounting for 43.5% of total operating costs.
Maintenance repairs also assume roughly $.10 – $.15 per mile. An article by FleetOwner states that maintenance and repair costs typically range from $15,000 to $20,000 per year. This is why it’s very helpful to either join a carrier like DVL Express with an on-site truck repair shop, or to be good friends with a shop owner.
Insurance is another significant cost for owner operators, with premiums varying based on factors such as the type of freight being transported, the driver’s age and experience, and the owner operator’s driving record. According to the ATRI report, insurance costs accounted for 7.7% of total operating costs for owner operators in 2019. The typical insurance types include bobtail, cargo and liability, occupational, physical damage, and health insurance.
Food & Drink Costs
Food expenses may fly under the radar, but they will really add up. If a driver averages $30-50 a day on food/drink, this will result in spending over $14,000 each year! To help mitigate these costs, a lot of drivers will pre-make meals and store them in the truck refrigerator.
Owner operators need to budget for fees like licensing fees, permits, and tolls. According to the ATRI report, these expenses accounted for 3.7% of total operating costs for owner operators in 2019. It may also be helpful for owner operators to hire an outside professional to handle their taxes.
Before becoming an owner operator, drivers should do a cost/benefit analysis involving these factors which can impact profitability within the trucking market. And everyone, whether already an owner or not, may need to adjust their operations at times to maintain profitability.