Summary
Owner-operator’s (OO) and Independent Contractor’s (IC) are often confused with each other and experts within our own industry often use them as one in the same. They should be assessed independently, as they bring light to some of the problem areas - and opportunities. My colleague Mr. Schultz analysis offers a good overview, so we offer the following input.
Analysis
Trucking company problems and failures have definitely accelerated. Our business assessment requests and Web Site hits for help are way up. One can also look at repo rates, truck lot numbers, financier numbers, number of insurance (liability) cancellations, etc. and can get the drift.
A widely-used definition of an OO is one who has 1-3 trucks who operates under their own operating authority soliciting their own freight. The majority of their freight comes from brokers like Transcore DAT, Internet Truckstop or the myriad of “brokers.” They are operationally for all intents and purposes a microcosm of a fleet. This segment is estimated to be about 15% of the trucks on the road today.
The most used definition of an IC is one with any number of trucks who is leased to a fleet under the fleets operating authority. The fleet generally takes care of the major issues like freight, billing, fuel surcharge, fuel programs, insurance, licensing, etc. within the contract. Some fleets offer equipment sales programs, along with other services. Most major fleets like FedEx Ground, Conway Truckload, Schneider National, JB Hunt, Swift, Werner, etc. offer such programs. This segment is estimated to be 25% of the trucks on the road today.
Logic follows failure rates in that OO’s are experiencing most problems today. It’s about the fuel - again - more so than anything else. A major part of the problem for them is that brokers have traditionally offered the exception (non-covered) freight. As volumes have been brought back toward fleets, traditional broker numbers have dropped and they have a take-it or leave-it approach wit OO’s - not necessarily negotiating a proper fuel surcharge, only passing on a part of it or saying it’s in the rate. These are the folks that we are hearing about in the news. We see major fleets growing their brokerage units, too.
The IC segment follows the fleet model more closely. Most good fleets are transparent with their contracts and are passing through most fuel surcharges (some have just capped the fuel price realized by the IC). This leaves the IC’s with the primary goal of getting miles (utilization). When looking at numbers, one can easily do the math on the fleet percentages - like Schneider with 3,000 IC’s, Hunt / Werner each with about a thousand, Swift with thousands, etc. Landstar operates to a 100% IC model (appx. 7,000), as do most Household Goods and Intermodal operators. This segment can be easily flexed to meet their needs - for those who have it figured out.
The small fleet segment is the wild-card today. They have a smaller version of a major fleet model and also utilize IC’s. Unfortunately for them, many in trouble today do have good primary hauls but utilize broker freight to get back home. Those who are targeting a specific traffic lane (or a few) have their own freight both directions and are fairing fairly well. Otherwise, they are downsizing to get back to their core business. The major problem for them is cash flowing increased fuel costs (until invoices are paid). Of course it’s better news when fuel prices fall.
This is the way it has been over the last several cycles, although the fuel costs have never been this high. Getting fuel surcharge is however easier this go around in more professional operations. As freight levels pick up, we will see the parked trucks easily put into service in the IC model. Almost every trucker aspires to be an IC / OO (or has been one), so the ramp-up will be easier than some think - again!
