It’s no secret that truck owners are having a tough go in today’s freight market. Freight rates, especially spot rates, remain at levels that can make it difficult to find loads that pay more than the owner’s operating cost per mile. Inflation has driven up the cost of parts, supplies and labor. Insurance rates continue to climb, as do interest rates for equipment financing.
According to “carrier start” numbers published by the U.S. Department of Transportation, record numbers of carriers, mostly one- to three-truck outfits, are having their authority revoked. While owners can voluntarily surrender their operating authority, revocations often occur because of insurance lapses when owners simply can’t afford to pay the premiums.
One solution some truck owners turn to is leasing their equipment to another carrier through an independent contractor (IC) arrangement. Doing this provides both advantages and disadvantages for the truck owner, and it comes with a few “watch outs” as well.
Leasing to a carrier allows the truck owner to have access to the carrier’s customer base; often these clients pay contracted rates that may be higher than current spot rates. Of course, if the lease arrangement calls for per-mile compensation, the rates don’t matter as much.
The general idea is that the IC can benefit from the carrier’s sales and customer service teams, as well as its billing and accounts receivable staff, and can concentrate their efforts on delivering loads and maintaining the truck.
Many carriers offer maintenance at their facilities at reasonable rates, or at least the opportunity to participate in carrier discount programs at the vendors they use. Additionally, many carriers offer fuel cards and discounts on fuel purchases, as well as national tire discounts and other benefits. Most carriers require a maintenance escrow, but some are willing to help out if an IC’s repair expenses exceed escrow amounts.
Insurance rates vary among carriers. Most will require the IC to provide their own non-trucking liability, or “bobtail,” insurance and Occupational Accident or Worker’s Compensation insurance, but some allow them to participate in carrier policies at a reduced rate.
Tags and permits are another area in which carrier policies vary. Some carriers provide the tags and necessary permits at no cost. Others require the IC to pay but may be willing to absorb upfront costs and deduct them from contractor settlements over a period of time. On the other hand, some carriers require the IC to handle all of these on their own.
There are also disadvantages to leasing to a carrier — and some things to watch out for.
While the “independent” part of “independent contractor” indicates the contractor is free to accept or reject loads — and even to accept loads from elsewhere, such as from another carrier — some carriers don’t abide by the concept. Some allow contractors to accept loads from brokers or load boards, but if the contractor is pulling the carrier’s trailer, they may be choosy about whose freight goes in it.
Forced dispatch is a legal no-no when it comes to ICs, but some carriers insist the contractor run their system as their own company drivers do. Two questions that must be answered before any lease agreement is signed are:
- Is the IC permitted to haul freight from other sources?
- What happens if the IC refuses a load assignment?
Insurance, tags and permits can be an issue if the IC decides to leave the carrier. If the contractor paid for these items, even if paid over time, then he or she keeps them. Understandably, the carrier may not want a former IC listed on their insurance or hauling for someone else using permits with their company name on them. In those cases, the IC should be reimbursed for the unused portion of the tag, insurance or whatever.
Compensation often becomes an issue when carriers pay different amounts for different miles run. For example, some carriers pay a lower rate for deadhead miles, and they may pay nothing at all for miles the contractor drives to get home. Some pay different rates for loads going to the Northeast, New York City or other areas. Some pay differently depending on the total miles of the load, with longer dispatches earning a lower per-mile rate.
ICs who are paid a percentage of the load should know exactly what the carrier was paid, as well as their percentage of the revenue total. Fuel surcharges can be another issue. Some carriers claim a “100% pass-thru,” meaning the IC gets every dime the customer pays. Some pay based on the agreed rate with the IC, regardless of what the customer pays, or doesn’t pay.
And don’t forget accessorial pay. What is the IC paid for detention time, layover or for labor, such as tarping or operating unloading equipment such as pumps or lifts?
Some carriers charge rental fees for the use of their trailers, while others offer a higher compensation if the contractor owns their own trailer. Maintenance of the trailer can become an issue if the company charges the IC for items like tire repair or replacement, mud flaps, hoses and so on.
There can also be charges for cargo claims by customers. Sometimes the IC is liable for a specified amount or percentage of the damage claim or to cover the insurance deductible. Unfortunately, other than providing details of how the damage occurred (if known), the contractor usually has little say in whether the claim is paid. If the contractor is on the hook for a $1,000 deductible and the carrier can settle the freight claim for that amount or less, they may not even contest it.
The instrument for making sure you fully understand the compensation, obligations, charges and more is the lease agreement. Unfortunately, the agreement is often presented after orientation is completed, and the IC has little time to carefully read it — and zero opportunity to have it reviewed by legal counsel. Ask for a copy of the agreement, with all appropriate amendments, before going to orientation. Read it carefully and have your lawyer take a look, too. Know what you’re in for before you sign.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.