Aligning your earnings with a realistic costs per mile is the only way to remain profitable
The actual cost of operation of a typical highway tractor seems to be some mystical science. Ask ten people what their cost per mile is, and get ten vastly different answers. Many operators, it seems, calculate their operating cost based on unrealistically low maintenance costs, and advertised attainable fuel mileage, rather than reality, factors which can have wild swings depending on your weight group, area of travel, and if the truck is spec’d properly. These factors must be accounted for.
For the sake of simplification, this article assumes you have the truck properly spec’d, and you are pulling tandem trailers, travelling 120,000 miles per year, which fits the majority of you. Those who pull heavy should obviously realize that fuel, licence costs, and maintenance increase by at least 15%, over the life of a truck. So should the drivers pay. We’ll assume you have truck payments of no more than five years duration. We’ll also assume the cost of licence and insurance, so this may suit the situation of not only owner- operators, but small fleets as well.
Fuel is, and will always be, your biggest cost. If your truck averages 7.5mpg (imperial), assume 6mpg. Last winter was six months long. Even with anti -idling accessories, thinner fuel burns easier, so don’t sell yourself short. Current pump prices in Southern Ontario are about $1.23 per litre, or $1.09 before HST. At 6mpg, this is a cost per mile of $.83. Some new trucks are notoriously thirsty. A drop of 1 mpg gives you a cost per mile of $.99. If you burn DEF, add up to another $.03 per mile. When you review these numbers, it sends the message home that anti-idling equipment, of some form, is not optional; it’s a necessity. A typical Class 8 truck engine burns a minimum of one gallon per hour on fast idle. A typical bunk heater burns about that every eight hours. Add the cost of seven extra gallons burnt for every cold night (about $35 per night) and even without the quieter sleep factor, it shouldn’t even be a question. Spec’ing a truck for maximum fuel economy is a very treacherous slope, one easier travelled if we had psychic powers about our future employment. The simplest miscue when assuming your needs could carry an annual cost of several thousand dollars. An overpowered, or underpowered, engine is the most obvious potential loss. Moving between trailer types is also a profit killer. A high rise bunk truck pulling a regular, typically loaded flatbed, will cost you about ¾ mile per gallon over a flat or mid roof. A flattop bunk in front of a van will translate to at least a one mpg drop.
Assume a value of $.35 per mile covering truck payments, repairs, and maintenance. It’s been argued that this is an unrealistically high number, but a typical smaller company or owner- operator has much stricter maintenance schedules than do the big fleets, as well as quite often keeping the truck longer. These items are lumped together for a reason. This number is based on a five year maintenance cycle. If you keep the truck longer, you may have no payments, but your maintenance costs will increase. Assuming a $2600 monthly truck payment, you’ve already spent $.26 per mile. The remaining $.09 disappears quickly with regular maintenance, scheduled repairs, tires, the pro-rated cost of future larger repairs (which you must save for), infrequent maintenance issues, etc. Soon, legislation will insist that annual inspections involve removal of wheels and brake drums. No more $200 safeties. Just the usual number of wiper blades, air filters, and headlights alone can add up to $350 annually.
Licence and insurance are set figures, which is why we assume an annual mileage. Assume $.11 per mile for licence ,insurance, and tolls. If you run strictly Canada, insurance is cheaper, and you have few tolls, but the US East coast is all tolls, so this is an average.
This leaves us with our second largest expense: you. I’ve purposely left this for the last, because it’s, I feel, the most significant point for an owner-operator. Figures obviously vary, but an approximate average company driver pay is $.48.
Add all these figures up, and a typical owner- operator has a cost per mile of $1.80, at current fuel prices. A small fleet needs to add about $.06 for your payroll source deduction contributions to bring your break even number to $1.86, assuming drivers attain comparable fuel mileage with the owner-operators.
Arguably, we arrived at these figures with maintenance/ repair costs at the high end of reality. Depending on your equipment, your fuel mileage will vary, either up or down, which is why we used a somewhat pessimistic mileage figure. If your repairs factor in lower over the truck life cycle, enjoy your bonus. Others won’t be so lucky.
Compare these figures to those on the recruitment boards at truckstops, and you’ll see that almost nobody pays enough to cover these costs. How then, are there any owner -operators and small fleets in existence? First, and most obvious, lower fuel costs. Properly spec’d and maintained equipment, operated by a gentle right foot, makes better fuel mileage possible. Second, a reason used more in recent years than in past decades, is many operators playing a very dangerous dice game with the repairs and maintenance fund. If it works, you’ll have a healthier bank balance when you next trade trucks, but heaven help you if the dice roll the other way. Third, and unfortunately most common reason why owner operators work for less than these target earnings, is their own personal paycheque. An alarming number of owner operators are taking “what’s left” as a paycheque, often considerably less than typical pay levels for drivers. This is, bluntly, very poor business. Assuming the financial risk of ownership, for less personal remuneration than a hired driver with no investment, is foolhardy, but sadly, very common. This could be why we often hear of ex long time owner operators driving company equipment, and claiming better earnings.
Emission standards, and declining fuel quality aren’t going away. Trucks will continue to escalate in price, and your repair shop will charge more to fix them. Costs are unlikely to change, except to increase. Maybe e-mailing this article to your carrier or favourite customers would be a good start to right the financial ship. More closely aligning your earnings and your realistic costs is the only way to remain profitable. Simply hoping for black ink in your annual accountants summary isn’t responsible business practice.
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I see these cost per mile numbers or similar on many trucking related sites, and these same numbers jive well with my own findings… So somebody please tell me how everyone else is doing it out there. A quick look at the truck news owner/ operator help wanted section shows a pretty average across the board number of 1.35-1.55 with everything including Fuel surcharges per mile added in . There’s gotta be a few guys out there who can tell or explain how everyones getting by when the reality vs the article show a loss of approx .40 mile. Not everyone can possibly survive running at a loss ?? Anyone willing to share. All ears here.
I think you might have missed Accident Sickness Dental Prescription and Term Life. Group Plans from companies are not really any =good to an O/O as the are not portable. $200,000.00 Life and $3000.00 month Disability for A/S plus Prescription and Dental can be well over $500 a month. And it you got a truck payment it is a must. And then there is down time and towing … the list goes on. The Bill for myself and one employee scares the heck out off $1000 a Month
HI Guys only way for OO to make money buy used good truck (we tocking on expert drivers )no particulate payments and do LTL