Truck Topics
5 keys to entering expediting as an owner-operator
Entering the expediting business as an owner-operator can be as intimidating as owning any other form of business. At times, it can seem as though there are more questions than answers and fear of the unknown and failure are ever-present.
Many prospective expediters have discovered expediting from a relative or a friend, so they have a rudimentary grounding on what the business is about, while at the same time, they have a mentor to help them over the bumps in the road.
Others come to expediting from other segments of trucking, possibly over-the-road, local delivery, etc. These folks have a background in transportation and probably have a handle on what this business demands of it's people.
Another route that many prospective expediting owner-operators have taken is that of driving for a truck owner or fleet owner. Long recommended as the best entree into the emergency freight business, driving someone's truck for three months, six months or a year is the least financially "painful" way to gain the experience and knowledge of this industry and it's lifestyle. And, as we'll see, this experience will also weigh heavily in the prospective owner-operators' favor during the truck loan process.
Adam Walter is Ohio-based Panther II Transportation's Recruiting Manager, and he states, "I'm an advocate of testing the expediting waters by driving for an owner first. We've had a number of couples who have experienced great success in the business, who started driving team for an owner or fleet owner. They used that experience to their advantage and are now owner-operators."
There are also those people who discovered expediting through word-of-mouth, a magazine ad, Expediters Online and other methods. They possibly have spent their working lives in non-trucking related professions and as retirement approaches, are looking for a second career to supplement their retirement income.. Many of these folks are attracted to the idea of being a "paid tourist." For them,living and working in an expediting truck is a fascinating, yet scary prospect.
So, let's assume that the prospective expediter or expediting couple has paid his/her dues in an owner's truck and is ready to make the leap into truck ownership. Or, throwing caution to the winds, the absolute newbie to expediting sees the opportunities available in the business and wants to jump into a truck of his own.
1. A Business Plan
If you're planning on starting your own expediting business, but haven't created a business plan yet, put that on the #1 priority list.
An expediting truck is probably the single most expensive component of the expediting owner-operator's business, but it still is just a tool of that business. It's vital to the enterprise, but business lenders want to see evidence of planning in other aspects of the expediters' business.
A business plan precisely defines your business, identifies your goals, and serves as your company's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions.
Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
Glen Rice had an extensive career in truckload trucking before moving into the expediting world. He and wife Janice designed and operated their well-known Lil' Deuce Coupe - a working show truck leased with FedEx Custom Critical's White Glove division. The couple was sidelined in a tragic accident last year and are still recuperating.
He states, "A business plan is very important to show what your expectations are and what your goals are. It's critical to prove to a lender that you can make a go of it - after all, why would anyone invest many thousands of dollars in you without a likely return?"
"When I've put together business plans in the past, I've based my numbers on what other owner-operators have been doing and my own experience."
Scott Hancock is a recruiter for Michigan-based expedited carrier Express-1. Hancock spent a number of years on the road in his expediting truck before moving into the recruiting field and he says, "It's not very smart for anyone to get into this without a business plan. If you were to start your own home business, you would probably invest less money than when you buy your own truck. When you invest that much without a business plan, you're setting yourself up for failure."
"As part of a good business plan, you want to have three to six months of expense money put aside. It would be the same if you were opening a barbershop or movie theater, you've got to have that operating capital."
John Lalonde of Fyda Freightliner of Columbus agrees with Hancock: "I think an owner-operator has to have a bare minimum of three months of operating expenses, that is, money for the truck payments, fuel, insurance, repairs, etc. Actually, in expediting, many of the potential truck buyers have good credit and cash reserves."
Don Portice is a Sales Representative for Alumi-Bunk in Woodhaven, MI. He says, "The majority of people I see do not have a business plan but they often inquire about the necessity of having one. Fully eighty percent of the people I see are first time owner-operators."
"As a rule of thumb, I would get a job first before I buy something. I tell people that I can't get them financed unless they have a letter of intent with a carrier. It builds a comfort level and it builds trust."
He continues, "As part of the business plan, I recommend an escrow account into which a driver puts 500 dollars per pay check, or possibly six months of cash reserves. After all, It's going to rain sometime."
2. Selecting a Carrier and Buying a Truck - Which comes first?
It would seem that the logical way to proceed would be to buy the truck and then find the carrier to lease it with, right?
Actually, according to the experts, you should reverse that process. Or, they say, it can be done simultaneously.
Jon Mosier is the Expediting Truck Representative for Freightliner of Knoxville. He also has a background of recruiting with both Roberts Express and Con-Way NOW. He says it's best to contact the carrier first and find out what that company's owner-operator requirements are, particularly if the prospective expediter(s) has no experience in expediting.
"They can use the truck shopping experience as an information gathering process as well," says Mosier. "Generally, the people selling the trucks will have some knowledge about the expedited carriers and how they operate, their equipment requirements., etc."
John Lalonde of Fyda Freightliner says that the truck salesman is often called upon to give the first-time truck buyer some advice:
"I would say that with maybe half of the people I see, they have their carrier choices narrowed down to about three companies. Quite often, they ask for my opinions on the companies. Unless they're coming to us because of a referral from a carrier, they want our input on the carriers."
"You can do both at the same time, but talking to the carriers is probably first on the list," says Panther II's Adam Walter. "The recruiter can help answer those questions about equipment."
"Don't commit to buying a truck until you have solidified the deal with the expediting company. The carrier can give you information about getting tags for the truck, securing insurance, etc. , so it's important to find a carrier who's willing to work with you during the buying process."
He continues, "When dealing with a prospective owner-operator with Panther II, I make sure that they have three to six months of working capital before they enter the business. We find that too frequently, people tend to put all their money in a truck and then they have no money to run with. That's a road to disaster."
Larry Greenlee of Tri-State Expedited Service says, "Get together with likely carriers and see what their recruiters have to offer. Talk to drivers and owner-operators when you see them in truck stops or gathering places.
Rick Franks is the Recruiting Director at FedEx Custom Critical and he says that: "Although we've had people do it both ways, I would suggest that it's probably best to find the carrier first."
"We try to find out what the prospective expediters' needs are and what they're looking for. The lifestyle that they desire will dictate whether they'll be in a cargo van or straight truck. Of course, if they have the experience, they might want to run in a tractor."
A favorite question that Scott Hancock has heard is, "If I'm available 21 straight days, what is a realistic revenue expectation?" He says, "You can make the recruiters think with that one."
Selecting a truck - What size?
What size, indeed! This is a question that is always a topic of discussion whenever expediters gather. The question should probably be phrased - What size truck will be profitable for me and what size would I feel the most comfortable with?
For the purposes of this discussion, we're going to narrow the choice down to cargo van and straight truck. This is because the prospective expediters who have an interest in operating tractor-trailers will, in all likelihood, be coming to expediting with training and over-the-road experience in that size truck. The expedited carriers will require at least one or two years of experience in a tractor anyway, so that leaves out our neophyte expediter.
The first choice for the prospective expediter unfamiliar with professional driving is usually the cargo van. It's less expensive than a straight truck, it's similar to driving the family car and there are less regulatory issues, specifically, no logging unless you're transporting Hazardous Material.
The flip side of the coin is that the cargo van is, of course, limited to the smaller size loads and the fact that it's not dock high. Because this size vehicle is such a popular size with which to enter expediting, a driver can expect to find more competition for loads, particularly with the larger carriers. Comfort can be an issue, especially for a husband/wife team.
The remaining choice of vehicle is the straight truck, which has become the expediting standard. A husband/wife team in a straight truck with a 22-foot box is considered "golden" by most expedited carriers. This size unit has much to recommend it: It can handle a wide range of loads, many expediters have derived very good incomes from this class truck, it can be outfitted with very comfortable sleepers and the expedited carriers are quite partial to the straight truck.
Glen Rice says, "Select a carrier first. You need to know what kind of equipment your company's work will require. If you're going to stay regional and run just a few states, you can probably get by with a smaller motor size. If you think you might need to run to the west coast, you'd probably be happier with a larger engine, bigger sleeper, etc."
Experience
This component in selecting a carrier also has ramifications in obtaining credit which is addressed in the next section. As far as a carrier's requirement regarding experience, it's probably easiest to say that some do and some don't. Panther II for example, does not require driving experience in either its Cargo Vans or Straight Trucks, while Express-1 usually requires two years experience in the six-wheelers, but the company will look at an owner-operator's credentials on a case-by-case basis. Check with the carrier.
3. Credit
John Mosier says, "Credit can be difficult to secure at times, but the rates have been coming down. The main thing that the lenders want to see is experience in the field. I encourage customers to check their own bank or local credit union to see if they do commercial loans. Sometimes, they can get a loan that's 1 or 2 percent above prime. For great credit, you can find lending around 7 percent. I can get most of my customers financed on a new truck at around 8-9 percent."
John Lalonde states that "Expediting attracts many second-career or retired people who are financially comfortable. Credit has loosened up because there are few repossessed expediting trucks, which means few used trucks available. The finance companies are aggressive in finding loans for new truck buyers. If the buyer is totally new to expediting, the finance company is going to require A-1 credit and around $10,000 down as a rule of thumb. "
Don Portice states, "There are a lot of factoring variables in figuring out a loan. There's debt to debt ratio, high credit line and driving experience is a big help. A lot of finance companies that I deal with will approve a guy with ten years driving experience with less than perfect credit over a guy with no driving experience and perfect credit."
Panther II's Adam Walter: "We're finding that truck financing is loosening up a bit and first time truck buyers are securing loans."
He has a note of warning, though: "It can be a temptation, particularly for those couples who have had success in a previous career, to want to start out as owner-operators with that expensive truck. There's a lot to learn about this business and I think it's important to keep the expenses down as much as possible at the outset I would rather see someone buy their first truck without all the bells and whistles and run that truck before they go out and buy that $100,000 straight truck."
Express-1's Scott Hancock takes a different tack in recommending a larger truck: "I tell prospective expediters to consider a Class 8 platform for their straight truck. I think the Sterling or Freightliner Century Class are great trucks. If they can afford it, I also recommend a generator. With the price of fuel and the no-idling laws, these will become more important and they will pay for themselves very quickly."
"If you can add a 24-foot box, put it on the truck. You may only need it once every six weeks or so, but it could be worth it."
4. Expediting Lifestyle Adaptability
"It's a different lifestyle, even from truckload trucking," says Tri-State's Larry Greenlee. "There is the downtime of expediting and there is a learning curve in finding the busy areas of each company."
"I just had a couple in the office the other day. They had taken a load to Washington State and he said the only reason he took that run was because he had never been there. Expediters enjoy those opportunities. It's whatever you make of it There are many who carry their golf clubs and fishing poles in the truck."
"They're entering into a way of life that will keep them on the road for three weeks at a time. There is a lot of downtime in regards to living in a truck. It's a great way to see the country and especially for those folks who have family spread out across the country."
5. The transition into expediting
"Our orientation is pretty thorough," says Panther II's Adam Walter, "and when they come out of class, the new expediter's head is spinning and we understand that."
FedEx's Rick Franks: "We cram a lot into the two and three days they're here in orientation. That's a lot for anyone to absorb. Many of them are apprehensive about accepting that first load, especially if it involves Canada. They remain apprehensive until they get out on the road, do it and start to feel comfortable."
"There's a lot of on the job training along with trial and error experiences. We go over everything we can to make it a smooth transition, but there's nothing like that C-Link beeping and that first load offer coming across. They have the basics down, but until you go through it, it can be a little unnerving. We tell them that we're only a phone call away."
Glen Rice says, "For young people with a young family, this is a difficult lifestyle. They're going to want to go home more often to be with the family and that will mean deadhead and time off the road. This business is more suited to the older folks with a grown family and no demands on them to be home."
Adam Walter states, "Many of the prospective expediters that we see at Panther II are quite often somewhat familiar with the business; they have friends or family members in expediting. The husband/wife teams usually know someone in the industry and that makes my job easier."
"They know that it's a different type of lifestyle - living in a truck for weeks on end. If they're not aware of this, we tell them the story. This goes back to the idea of driving for someone first and make sure that you can handle living on the road together."
"Panther II has a transition team that monitors both new drivers and teams for 45 days. After that time period, we graduate them into our general fleet. In other words, we don't just throw them into the business and let them sink or swim. We have a program to monitor their success and to guide them through the rough areas."
Scott Hancock of Express-1 says, "You really have to do your homework. You have to determine what you're willing to give the industry and what do you want from the industry in return."
"As I often tell prospective expediters, 'If you know where you're going tomorrow, you're not an expediter'. If you have to wait for a day or a day and a half, that's how the expediting world works. We work in emergency freight.
Expediting is a lifestyle, as well as a career."
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