Our truck is CARB-due at the end of this year (2013). After researching our options and the expenses, the decision was made to leave the expediting business and we are in the process of doing so.
In
my Career Change in Progress post, I said that we were leaving the business because the bug bit, and that remains true. It was not CARB that forced us out. Rather, the new-opportunity bug bit and inspired us to move. But CARB was a contributing factor. Without CARB, it may have never occurred to us to leave the expediting industry.
Long before we decided to become gym owner/operators, we looked ahead to the CARB requirements, did the research and ran the numbers. With a 2006, reefer-equipped truck, we learned that it would cost just under $40,000 to replace the reefer and equip the truck engine with the required emissions devices.
That price could have been reduced by replacing the reefer engine only, but given the age of the reefer and all the other things that can go wrong with one as it ages, and given Landstar's movement into the TVAL business, putting a brand-new reefer on the truck seemed to us to be the better way to go.
It made little sense to spend thousands of dollars to put a new engine in an aging reefer (that is reliable and runs like a top today). Better, we thought, to spend more to buy a whole-new reefer. Without CARB, that's what we planned to do further down the road. With CARB, we are required to do so well before our perfectly-good reefer would normally be replaced; that is, if we want to run in California (and we would).
Finances are not forcing us out of expediting. We can pay cash for these upgrades without making lifestyle sacrifices. But the idea of putting $40,000 into our perfectly-good truck when there is absolutely no reason to do so beyond the CARB requirements was repugnant.
We considered buying a new truck but the upgrade costs are built into those too. New truck costs are substantially higher because of the emissions systems that are now required. Maintenance costs are higher too because of the same. Down time may be higher too if reports from some owners are to be believed.
The money is not as good in expediting as it used to be. We paid $250,000 for our truck in 2006 and paid it off in 22 months. It would cost close to $300,000 to build the same truck today and with today's rates and incresed operating expenses, there is no way we could pay a $300,000 truck off in the same amount of time.
$20,000 gross was considered a good month ten years ago. Sadly, the same amount is still considered a good month today. But operating costs have risen in those same ten years, significantly eroding profit margins.
To stay in the business with a new truck and preserve our profit margin, we would have to take used equipment off the old truck to use on the new one, but that reduces the resale value of the old truck, thereby reducing our net worth.
Yes, we could run a successful business by upgrading our old truck or by buying a new one, but it would not be as successful. Putting money in the bank is the name of the game for us. With the ability to do that degraded by CARB regs, operating cost increases and freight rates that have not kept pace, the desire to stay in the business faded.
A lot of expediters would be pleased to bank $40,000 after taxes and expenses for a full year of running. We felt no desire to give away that much in profit just to comply with regs that were retroactively applied. CARB is not letting trucks age out under the rules they were built under at time of manufacture. They are making new rules and applying them to old trucks.
Retroactive rules. When you hit the baseball, you had to cross four bases to score, but now, with this great new retroactive rule that will make things more fair for everyone and create the social good we say it will, we are changing the rules as you round second base. Now, you have to pause three seconds on third base before you run home; because we say so. Thank you for your cooperation. And by the way, if you don't pause, we'll fine you thousands of dollars.
Retroactive rule making is a terrible power for regulators to have, and I fear this may become a regulatory trend. But I digress.
The upgrade expense would be $40,000 of after-tax, net profit dollars coming out of our savings ... and for what? What benefits would come that we do not now enjoy? Would the freight volume increase? No. Would rates increase? No. Would we get more miles? No. Would we gain a competitive advantage? No.
I know the answers to these questions are no because we asked about the results California-based truckers are seeing. The short story is that everything is status quo, except that the newer, more-expensive trucks, and the older trucks that have been upgraded are able to legally operate in California.
We found nothing in the research to suggest that rates and opportunities are increasing for upgraded trucks. They are only staying the same. Yes, we might have a good year in 2014 if we upgrade before the end of 2013, but we had a good year in 2012 too, and we expect good things in the 2013 months we will run. Hypothetically, an upgraded truck should do better but, factually, as far as we are able to determine, it is not happening.
In theory, there is a social good in the cleaner exhaust that the upgraded trucks emit, but that hypothetical benefit is B.S. in our case, we believe. Our truck is only six years old and met all EPA and CARB requirements when purchased. Additionally, we drive only a small percentage of our miles in California. The miles for the important California runs are logged mostly in other states as we travel cross-country. Also, because we get good fuel economy, keep the truck tuned and do not idle this generator-equipped truck, it is preposterous to suggest that some questionable and tiny social good justifies $40,000 out of our pocket to regulate the emissions coming our of our two tailpipes (truck engine, reefer). Our truck is not a dirty truck. It is a perfectly-good machine that runs clean and has many years of useful life remaining.
So, faced with these circumstances, we started asking ourselves, where could $40,000 be better spent? That question prompted us to look around and that's what enabled the bug to bite. The gym franchise opportunity was discovered, the bug bit and the career change was initiated.
We will spend much more than $40,000 (several times more) to open our gyms, but the gyms will provide a greater return on capital than anything we can find in the trucking industry as it is currently regulated.
(That's return on capital, not return on investment. There is an important difference that is frequently overlooked by the ROI evangelists in this forum. Kindly don't go there in this thread. Stay on topic, please.)
So, to summarize, CARB did not force us out of the business, but their regs, retroactively applied, would have increased our expenses and reduced our profits and provided no new advantages in return. That prompted us to look around, and in doing so, we discovered a better opportunity outside the expediting industry.
The truck itself may or may not be lost to California freight. That depends on what the next owner will do with it. But two proven owner/operators will be lost when Diane and I complete our career change, and you can blame CARB partly for that.
For the reasons stated above, we are quitting expediting while we are ahead. Thank you CARB people, for prompting us to look around and discover a better opportunity. May your California state retirement and healthcare benefits be subject to and degraded by the same kind of retroactive rule making that you imposed on us and our trucker friends.
