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Trucking Operations Can Be Costly, Complex, but Can Generate Revenues
Trucking: There are many considerations a pallet or sawmill company must take into account before adding trucking operations, including a lot of federal red tape.
By Matthew Harrison
Date Posted: 7/1/2007
There are plenty of considerations a pallet or sawmill company needs to take into account before adding its own trucking operations. There is a lot of federal red tape associated with trucking, and it must be navigated.
Commercial trucks operating only in one state generally must obtain a number from the federal Department
Depending on the type of commodities a company plans to transport, it also may have to apply for an Operating Authority or Motor Carrier (MC) number; the MC number is used to classify the goods transported by truckers into two primary categories, exempt and non-exempt.
The only exception for pallets is when they have been used and are being delivered to a different location for reuse or they are transported unassembled in the form of cut stock. For all other circumstances, the company needs an MC number to haul pallets, even when transporting reconditioned used pallets for sale elsewhere.
A Web-based guide for registration assistance from the FMCSA is available at www.fmcsa.dot.gov. The step-by-step guide asks questions about a user’s prospective business and recommends which application forms and fees are necessary.
Businesses also must consider how far they will travel with their trucks; distance is a factor in determining what a company must pay in terms of regulatory fees and insurance.
Commercial trucking operations also are required to pay state taxes and regulations. “If you’re going from state to state, you’re going to pay fees to each of the states you’re going to operate through rather than just your home state,” said James Lamb, a trucking consultant and president of DOTAuthority.com. Through the process of apportioned registration, companies can file for vehicle registration in one state without having to obtain trip permits when they enter a different state.
Some states, particularly New York, Oregon, Kentucky, and New Mexico, require commercial trucks to pay taxes based on the truck weight and the number of miles traveled.
Commercial trucks have to provide proof of insurance to the FMCSA. “Anybody who’s operating a commercial motor vehicle that’s going from one state to another has to have a minimum of $750,000 of liability insurance and a $5,000 cargo insurance policy, assuming that they’re going to register as a common carrier of property,” James noted. Most companies that hire contract truckers require the trucks be insured for at least $1 million in liability and $100,000 for cargo, he said.
Drivers have to obtain a commercial driver’s license (CDL) for trucks that weigh over 26,000 pounds, which includes most tractor-trailers. Each state usually has slightly different regulations for obtaining a CDL, but a basic knowledge and skills tests is mandated by the federal government, based on the type of truck an applicant plans to drive.
Truck leasing businesses are eager to prove their cost-effectiveness to companies that are looking to start or expand trucking operations. “We have a number of accounts in the (pallet) industry,” said Bill Toerpe, vice president of national sales for Ryder System Inc.
One of the major benefits of working with a major leasing company like Ryder is the consulting that is available from Ryder representatives, who are knowledgeable about commercial trucking, he said. Ryder works directly with business owners or chief financial officers to meet the “strategic needs of where they want to go,” said Bill.
Ryder focuses on five main areas when talking with a business owner about whether he should buy trucks or lease them, including a company’s financial, operational and customer service goals. A Ryder consultant can help a company evaluate the economics of purchase or lease, as well as customer service requirements.
Ryder, which offers several truck leasing plans, also works with companies to ensure safety and regulatory compliance as well as addressing human resource concerns such as route management and driver training.
Penske Truck Leasing is another leading truck leasing company. “Our sales were up significantly in 2006, and about 62% of that new business came from the ownership market —from companies that used to buy trucks,” said Jim Molinaro, senior vice president of sales. “The need to manage costs and improve productivity is driving former buyers to leasing.”
Leasing plans are based on the predicted life cycles of trucks, which in turn are based on miles traveled and operating time. “For the first few years, maintenance expenses are low,” said Bill, “but eventually cost justifies the means of replacement. It can be difficult for people to understand all their costs.”
Bill touted Ryder’s expansive infrastructure as another reason why more businesses are leasing commercial truck fleets. Ryder has invested millions of dollars in everything from maintaining safety and complying with EPA emissions requirements to upgrading electronic sensors in its trucks. Ryder also provides logistics consultations to increase fleet efficiency and reduce truck deterioration.
By keeping a strong, working fleet up and running, leasing companies like Ryder and Penske enable their clients to provide strong trucking service to their customers.
Stewart Pallets & Trucking
Not everyone is convinced that leasing is the best way to go. Thomas Stewart, Jr. is the owner of Stewart Pallets and Trucking in Lincoln, Neb. The company has been buying tractor-trailers for its trucking operations for 19 years.
“We get most of our work hauling pallets,” said Tom. “Sometimes we get involved in doing some trucking, too.” Although most of the company’s revenues are generated by its pallet recycling operations, the trucking business is significant, comprising 20% of revenues.
Independent freight brokering helps add some profits to his company, Tom acknowledged. By brokering his own terms, he is able to find work without a third-party intermediary — and without their fees. “When someone needs something done, we try to get it done that day,” said Tom. “We don’t put it off, and people keep coming back.”
Tom confines his company’s trucking operations mainly to the Lincoln area so he can avoid the regulatory expenses of interstate commerce. His company charges for pick-up and delivery and occasionally will haul other commodities.
Like other pallet recycling businesses, Tom’s company keeps trailer vans at customer locations. “They put their bad pallets in there, and we come and switch out the trailer,” he said. “They like that because they’ve got free storage. The pallets are out of sight and secure.”
Another benefit of having your own trailers is signage advertising. The trailers are like traveling billboards and have helped Tom promote his company.
Tom’s initial decision to buy trucks years ago instead of leasing was one of necessity. “I couldn’t afford to lease,” he recalled. “I would buy an old trailer and fix it up. From then on I expanded and was able to buy more trailers.”
Most of Tom’s tractor-trucks now are Freightliners. “They give good service, and they try to keep you coming back,” he acknowledged of the truck manufacturer. “International and Sterling give you good service, too.”
A new truck is a costly capital investment; prices range from $60,000 to well over $100,000, depending on options and accessories. Slightly used late model trucks tend to be much cheaper, usually ranging from $20,000 to $50,000.
Even with new trucks, the cost of running them is a burden. Independent truckers will spend about 50% of their income on fuel and maintenance, according to James of DOTAuthority.com.
Publications like Big Rig Network, Truck Paper, and Truck Trader, most of which can be found at a local truck stop, are a good starting point for someone looking to buy used trucks, said James. Most truck companies have Web sites, too.
More information about the trucking industry is available at Web sites like www.truckinginfo.com and www.truckstop.com, James noted.
The decision whether to own or lease trucks eventually boils down to a company’s overall long-term business plan and other factors. Leasing may be more beneficial on a small scale, especially if a company wants to avoid regulatory headaches. Ownership may be more suitable for a company willing to make a long-term investment in increasing business opportunities.
Truck manufacturers and leasing companies both have a vested interest in satisfying their clients, and they are willing to work with businesses to devise a pragmatic and financially viable solution to cargo delivery needs.