In The News

What Expediters Should Consider When Evaluating Carrier Compensation Plans

When you’re evaluating a trucking carrier to lease to, one of the key starting points is to understand the carrier’s compensation plan. This will give you a clearer picture of the overall business opportunity to help you determine how much money you can make with that company.


 
What should you consider when comparing compensation plans? Keep these three points in mind.

1. Flat Rate vs. Percentage Pay

Will you be paid a flat rate per mile or percentage of revenue on each load?

According to John Mueller, President of Safety and Recruiting/Partner for
Premium Transportation Logistics LLC, the typical flat rate for expedite freight in the industry ranges $1.10 to $1.30  (plus FSC and accessorial charges) averaging $1.90+ per loaded mile.

What about unloaded (deadhead) miles? Do you receive any pay when the truck is empty? Some carriers offer some form of compensation for deadhead miles. For example, although Premium Transportation Logistics does not offer a deadhead rate per mile, “there may be a supplement paid if the deadhead is more than 50 miles,” says Mueller.

Another compensation plan is based on the percentage of revenue on every load, which can range from the high 50’s to low 70’s percent.

Which is better – flat rate per mile or percentage of freight?

It depends.

“If it’s a high-paying load, the percentage plan could be advantageous,” says Mueller. “But as an owner operator, you have no control over what the negotiated price with the customer will be. If there’s a discount rate for the customer, this will impact your pay.”

Veteran expediter Linda Caffee, who leases to Fed-Ex Custom Critical, prefers the percentage of freight compensation plan but says that there are “pluses and minuses to both scenarios.”  

“A flat rate truck only has to worry about where the load will go and whether they are willing to go there. It’s easier to figure out how much money you’re going to make before accepting a load,” Caffee says. “The downside [to flat rate] is that if the load is to go to a bad area of the country for freight, do you want to go out there and possibly sit for a few days waiting for a load or have to deadhead out on your own dime? An owner-operator on percentage will take this is into consideration and maybe ask for a little more money to deadhead out. A percentage truck has to think a little more than a flat rate truck to decide if they are making enough to get out of an area.”  

The flat rate plan can be especially advantageous to fleet owners (those who lease multiple trucks to carriers), while percentage pay tends to be favored by individual and team owner-operators, says Michael Abood, Sr. Manager of Capacity for FedEx Custom Critical, which offers both flat rate and percentage compensation plans, depending on the type of freight.

“As a fleet owner, it's easier to predict your costs and income with a flat rate,” says Abood. “Since you're dealing with multiple vehicles, this makes things much easier to manage. But for a single truck owner, the percentage plan has its advantages. The percentage floats with the rate charged to the customer and some runs will pay very well. These drivers want to take advantage of the potential upside for the higher rate per mile with the percentage of freight.”  

Linda Caffee offers this example:

Suppose a load pays $1500.00 for 500 miles.

If the load pays is 59.5 percent of $1500, that’s $892.50, plus applicable fuel surcharge compensation. If the flat rate per mile is $1.25 at 500 miles, the your is $625.00, plus applicable surcharge.
That’s a $267.50 difference between the two plans, with the variable being the price charged to the customer ($1500.00). If the load is set at $1,050 for 500 miles, the two compensation plans would pay virtually the same.

2. Fuel Surcharge

Most (if not all) carriers pay some level of fuel surcharge to owner-operators. But the exact amount and how it’s calculated is different for each carrier.

“It’s up to the carrier as to how fuel surcharge is calculated,” says Caffee. “So, when evaluating a carrier, you want to know: how does this carrier figure fuel surcharge?”

Fuel surcharge is expressed in cents per mile. The typical range according to Caffee is high 20’s to low 40’s cents per mile. “It’s higher for loaded miles and lower for empty miles.”

You’ll want to know whether the carrier pays fuel surcharge on all miles or only on loaded miles. If it’s “all miles,” what is the difference in rate for loaded and unloaded miles?

Carriers also take into account the vehicle type and size when calculating fuel surcharge, by setting mile per gallon (mpg) standards for each vehicle type – whether a van, straight truck, or tractor-trailer. So, if you operate a straight truck that the carrier has classified as a 9-mpg truck, but your truck is getting 11 to 12 mpg, you may actually be able to cover all your fuel costs through fuel surcharge compensation – or even make a little money.

“Once you understand fuel surcharge, you can make money on fuel. The higher fuel the fuel price goes, the more money I make,” says Caffee.

For more information on fuel surcharge and how it’s calculated, check out the Fuel Surcharge Calculator on the Owner-Operator Independent Drivers Association (OOIDA) website at http://www.ooida.com/EducationTools/Tools/fuelsurcharge.asp.  

3. When Will You get Paid?

A lucrative pay plan on paper could prove to be less attractive if it takes a while for you to get paid. And any delay in cash flow – especially when you’re just getting started – could make or break your business.

“Talk with the carriers. Find out how quickly that they’ll get the pay out to you. This is very important,” Caffee advises.

“Some carriers may hold driver pay up to as long as three weeks,” says Mueller with Premium Transportation Logistics. “For us, the driver turns in paperwork on Monday and is paid on those loads on Friday.”

The Bottom Line

These three points only scratch the surface when evaluating carrier compensation plans. To dig deeper, talk with owner-operators with the various carriers and get a real-world perspective on how a particular compensation plan works for them. Find out the pros and cons of each plan to help you determine which plan – and carrier – best fits your lifestyle and business goals.