Is it really just a question of timing?
By Tim Brady
One of the most common questions I’m asked: Is now the right time to get one’s hauling authority and start a trucking business?
The answer actually brings on several more questions before it can be answered. Just because trucking is in an economic downturn or in an upswing, is not reason enough to start a business.
So what are the determining factors in deciding whether the time is right or not?
- What is the demand for the products or items your trucks will be hauling?
- What is the cost of providing this particular service?
- What is the hauling rate range that is currently being paid in this niche?
Things to think about:
- Are you looking to haul just generalized freight?
- Are you assuming that you can do it at a lower cost than the carriers currently in the industry?
- Are you thinking: If I can just get X per mile, I can do this?
You need to rethink getting your own authority.
Why?
The advantage a smaller operation has over a larger carrier is being more nimble, meaning you can react to changes in your market quicker than the large trucking company can. By trying to compete with these larger carriers on their turf, you have to look to volume and lower rates to be equal. These larger carriers can provide a greater number of trucks to a single shipper without putting all their revenue eggs into a single basket. If you, as a small carrier, were to place your trucks with one single shipper, you’d become dependant on that one shipper for the vast majority (if not all) of your revenue. If that single shipper has any reduction in freight, it can put a real strain on your revenue. This scenario has put more than one small carrier out of business. You must not have more than 25 to 30% of your revenue tied up in a single revenue source.
The general costs of doing business in trucking are pretty much the same for all trucking companies. Fuel is about the same for everyone running in the same lane. The cost of parts, repairs and maintenance affects everyone’s company an average percentage. But the larger trucking companies buy in bulk, in large enough quantities that just by reducing costs by a penny or two a mile or a dollar or two per day, gives them a competitive edge. So to go into trucking thinking you can compete by beating the big carriers on price is a flawed approach that will drive you to the poorhouse.
The last misconception is ‘all I need to do is charge X per mile, and I’ll have all the revenue required to be successful.’ This is incorrect because a per-mile rate isn’t static. It’s more important to look at the overall revenue that can be produced over a period of time, like a week, month and quarter: not how much you’ll produce per mile; but total dollars produced over a period of time compared to your costs, fixed, operational and variable over the same period. Too many truckers and trucking companies become fixated on revenue per mile, when they should be concentrating on covering all costs and making a profit over time.
Starting a trucking company is more than purchasing a truck, getting your hauling authority and insurance. Those are the easy tasks. The real challenge is developing an idea which becomes your niche and making sure this niche market can sustain the revenue needed. The only way to know your income requirements is know what it’s going to cost, not by the mile, but by the week, month, quarter and year.
When you can match those figures with reliably estimating what your niche market will produce in the same time span: that will tell you when the time is right.
Great roads and great loads, everyone.
Tim Brady © 2010
www.timothybrady.com
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