Can the owner-operator business model survive?
I know better than to predict the death of the owner-operator. The business model has been declared dead many times before, but that resilient bunch keeps proving the naysayers wrong. The famous Mark Twain line ‘Reports of my death have been greatly exaggerated,’ comes to mind.
But the outlook for owner-operators may never have been as grim as it is currently, and they’ll need help if they’re to survive. I’m not talking about a handout. But rates are going to have to better align with the cost of doing business, and stronger partnerships will be required with the carriers that benefit from the services that owner-operators provide.
Let me tell you about my friend Greg Decker, one of the smartest, most business-savvy owner-operators in the business. He knows his costs down to the second decimal – maybe the third. Yet, in November he was flirting with the very real possibility of bankruptcy due to breakdowns, rising costs, and an inability to get the parts needed to get back on the road.
When we chatted in November his truck was parked at a Calgary dealership, victim of a blown engine and a potentially faulty one-box emissions system. These major breakdowns came among other, smaller issues that resulted in 23 days of downtime in October and 17 in November. Those breakdowns ate $20,000 of net income, the engine was expected to cost another $46,000, and a one-box, if it needs to be replaced, would cost another $15,000.
A bleak outlook
“I’ve never had to pay these kinds of bills before,” Greg told me. “All I know is this is our last truck. Rebuild now and drive it into the ground, or bankruptcy in December. I am done with being an O/O and if I can clean up enough debt, done with the trucking industry in four years, once I get this truck and engine rebuild paid for.”
That’s a bleak outlook indeed, and if Greg can’t make it as an owner-op in this environment, then I question who can. Greg priced out a new truck and it was north of a quarter million bucks. Interest rates have surged and freight rates are coming back down to Earth. Fuel costs are rising and expected to remain high for the foreseeable future. If we’re to look further into the future, what will zero-emissions transport requirements look like to owner-operators? How much complexity and costs will that add to their businesses?
“Right now, I could pay $300,000 for a truck and make the payments. But at what cost? 24/7, 335 days a year is how. I always believed that O/Os had a choice: payments or repair bills. That belief no longer applies. I have payments and massive repair bills,” Greg told me.
Fleet executive views
The vulnerability of the owner-operator business model hasn’t been lost on the more forward-thinking fleet executives who rely on them. At the Truckload Carriers Association’s recent Bridging Border Barriers event, Michel Robert, president and CEO of Groupe Robert said, “I’m nervous we are going to lose good owner-operators in the coming year. Financing is going to be a killer.”
Murray Mullen, chairman and senior executive officer at Mullen Group, sat beside Robert on the same panel and added “I think what most will do is not go buy a new truck. Particularly the old-timers will call it a day.”
As for Greg, he rented a company unit from the carrier he’s leased to so he could keep earning income while his own truck sat in the shop waiting for parts. He got the financing needed to complete the repairs, albeit at higher interest rates than he’s accustomed to paying. He found an extended warranty to cover the one-box for nearly half the cost of replacing it outright, if and when it needs replacing. He’ll live to fight another day.
Some others won’t make it. Carriers will need to be creative in how they support their owner-operators as they weather this storm of unprecedented equipment prices, rising interest rates, high fuel costs, and softening freight demand – all within the framework of maintaining an appropriate independent contractor business relationship.
Those carriers that use owner-ops to simply adjust capacity on the fly with the ebb and flow of freight demand will find themselves without. To ensure their immediate success, owner-operators will need to partner with the right carriers, and those carriers will need to support their businesses to the extent possible. If all that happens, we can worry about the impact of zero-emissions truck mandates another day.
Have your say
This is a moderated forum. Comments will no longer be published unless they are accompanied by a first and last name and a verifiable email address. (Today's Trucking will not publish or share the email address.) Profane language and content deemed to be libelous, racist, or threatening in nature will not be published under any circumstances.
What I’d like to know is how can fleets purchase these expensive new trucks and service? The rates can’t be the same as it was 3 or 4 years ago … and they still go out and purchase other trucking companies… something not right here who throws good money after bad ?
Wow. I don’t know what time of work Greg doing or what type of truck he has but I bought a new Volvo 740 last Nov. pulling flatbed into the US. I spent 6 months researching and specking it out to give me a truck that would give me great fuel milage and payload. Last year was my best year ever as a o/o. I had a profit of $120 thousand. I only run my trucks 5 years and always buy maximum warranty. This works really well for me.