For owner-operators who choose to go out on their own in trucking you have two options. You have to decide between leasing on with a company and obtaining your own trucking authority. Leasing on vs getting your own authority each have their own set of advantages and challenges.
Leasing on with a Company
What is leasing on with a company? When you lease on with a company you use your own equipment. Additionally, you act as an independent contractor for the company as opposed to an employee. You are leasing your equipment and driver to the carrier.
- Lower Costs: Joining a company as a leased driver typically requires less upfront investment. Additionally, costs for things such as insurance can be lower due to economies of scale.
- Stable Work and Income: Leasing on with an established company often makes things easier. It provides a consistent flow of work, ensuring steady income for drivers without the hassle of securing their own brokers, shippers, or contracts.
- Reduced Administrative Burden: Companies managing leased drivers handle various administrative tasks. Tasks include paperwork, permits, and regulatory compliance, alleviating these responsibilities from individual drivers and owner-operators.
- Access to Company Resources and Discounts: Leased drivers may benefit from the company’s resources, discounts and infrastructure. In fact, these can include maintenance facilities, support staff, and potentially discounted fuel and insurance prices.
- Limited Flexibility: Leased drivers might have limited control over their schedules and routes, as the company typically determines assignments. Plus, sometimes trucks that are leasing on will not get the “good routes/freight”. We have seen companies give their company trucks the better more profitable freight rather than the lessor trucks.
- Fees and Income Sharing: While stable, the income earned by leased drivers might be subject to deductions for various fees. These fees include, lease payments, insurance, and administrative costs, reducing the overall take-home pay. In our opinion these fees, generally lead to less profitability for those who work hard. When you combine the fees and limited flexibility mentioned above it often can seem to put a cap on your earnings.
- Dependency on Company Policies: Leased drivers are bound by the policies and regulations of the company they contract with. Sometimes they might not align with the drivers individual preferences or long-term career goals.
- You must own your own truck: You must already own your equipment.
- Make sure to read the fine print: When initially signing on, your contract will have many details you need to read through and understand. Some of these details can significantly impact you and your bottom line.
Obtaining Your Own Trucking Authority
What is obtaining your own trucking authority? When you obtain your own trucking authority, you are your own boss responsible for all details associated with your equipment and hauling loads. The Federal Motor Carrier Safety Administration (FMCSA) will issue your operating authority. This authority will allow you to get paid for hauling loads by giving you a motor carrier (MC) number.
- You are Your Own Boss: Trucking authority allows drivers to set schedules, choose routes, and negotiate rates directly with shippers or brokers, providing greater control and flexibility.
- Potential for Higher Earnings: Operating under your own trucking authority allows drivers to retain a more significant portion of their earnings after covering expenses, potentially leading to higher overall income compared to being a leased driver.
- Business Expansion Opportunities: Acquiring your trucking authority opens doors for expanding your business, hiring additional drivers, and building a fleet, thereby scaling the operation according to individual aspirations.
- Tax Deductions and Benefits: Independent operators with their trucking authority may have access to various tax deductions and benefits not available to leased drivers, potentially reducing tax liabilities.
- Higher Financial Responsibility: Establishing and operating under your own trucking authority involves substantial financial commitments, including insurance, permits, equipment maintenance, and regulatory compliance, which can be financially burdensome, especially for newcomers.
- Administrative Responsibilities: Obtaining and managing your trucking authority entails handling administrative tasks such as paperwork, permits, compliance, invoicing, and collections, which can be time-consuming and complex, requiring significant attention to detail. Owner-operators can forge partnerships for some of these tasks, such as with a trucking factoring company that can handle your invoicing, processing, and collection.
- Load Acquisition: Independent owner-operators must actively seek and retain clients or contracts, facing competition in the market, which will require dedicated effort in building relationships to create a client base of brokers and shippers.
- Managing Expenses: By being on your own, fewer fleet perks are readily available to you. Since you are the boss, you are responsible for finding discounts and tracking expenses. Knowing your cost per mile is critical to ensure you accept loads that will make you money. Some partnerships can help you with discounts, such as freight factoring companies that offer access to different discount programs.
Which should you choose?
The choice between leasing on with a company and obtaining your own trucking authority hinges on several factors. The factors include individual preferences, financial capabilities, and long-term career objectives within the trucking industry. Leasing with a company offers stability, reduced administrative burden, and some lower costs. However, it comes with limited autonomy and potential income deductions.
On the other hand, operating under your own trucking authority grants greater autonomy, potential for higher earnings, and business expansion opportunities. Still, it involves higher financial responsibility, administrative tasks, and the need for proactive client acquisition.
Understanding the trade-offs and evaluating personal goals, financial readiness, and the desired level of control and responsibility is pivotal in making an informed decision. Some might prefer the stability and support offered by leasing with a company. However, others might aspire for the independence and potential financial rewards of having their own trucking authority. Ultimately, the choice should align with individual aspirations and long-term career objectives within the dynamic trucking industry.