Owner-Operator Trucking Start-Up CostsAlex Milzer
Due to driver shortages in America, new trucking companies have ample opportunity to enter the shipping and freight industry and make an immediate impact. Perhaps you are a driver ready to jump from employee to entrepreneurship. Or maybe you have never been in the trucking industry but see the dollar signs in a career change. Either way, before entering a new, lucrative career in trucking, it is essential to understand the start-up costs of owning your own small business. Below we dive into the initial costs you should expect upon becoming an owner-operator or carrier and how to prepare for these necessary expenses not to get caught off guard.
Purchasing a Semi-Truck
To purchase or rent, that is the question! Well, it all depends on your cash and liquid assets. New semi-trucks typically cost between 110,000 – 150,000. This is without upgrades such as a night cab, additional axles, and adding more horsepower. Used semi-trucks usually cost between 50,000 – 80,000, although the price will vary depending on the age and condition of the vehicle. You will also need to purchase a trailer, which can cost between 10,000 – 50,000, depending on if it’s used or new.
Most new owner-operators or carriers lack the resources to purchase a semi-truck without additional financing. Not to worry, the purchase process is similar to that of a regular car. A typical down payment costs 10% to 20% of the total purchasing price. Thereafter, you will pay an interest rate of 5% to 30% based on your credit score and history. You can also lease or rent a truck if you lack sufficient funds for a significant down payment.
Insurance is a crucial component of owning a semi-truck and a significant expense you should expect. How much you pay for insurance will depend on how you run your trucking business. If you are an owner-operator, you will be required to pay all insurance needs, which means you will average between 9,000 – 12,000 per truck every month. If you lease your trucking company on a motor carrier, you pay less because most motor carriers cover some of the insurance costs. In these instances, you will pay between 3,000 – 5,000 per year for each truck.
Dock and Parking Lot Rental
Each State’s Department of Transportation has different parking rules for the safety of truck drivers and citizens alike. One commonality among all states is parking your semi on the street is illegal except when loading or unloading freight. Sure, there is free overnight parking at truck stops throughout the United States, but that is only practical when you are on the road. What to do in situations when you are home and not using your truck over the weekend or for long periods? You will need to rent space at a dock or parking lot in such instances.
The average overnight rental is approximately $15 per day, $60 per week, and $170 per month. How often you are on the road will determine which plan you purchase. Of course, you will want to rent monthly to save money, but that must be determined based on need.
Diesel is more expensive than gasoline but has higher energy efficiency and produces less pollution than gasoline. In the long run, it is cheaper to use diesel than gasoline to fuel a vehicle, which is why semi trucks use diesel. As an owner-operator or carrier, expect that your trucking fleet will require abundant diesel fuel to function each year. In fact, according to Fleet America, an 18-wheeler uses approximately 20,500 gallons of fuel each year compared to a passenger vehicle that uses about 500. That is an astonishing number!
Furthermore, fuel prices are volatile and fluctuate frequently. The cost of crude oil on the global market is determined by supply and demand. When demand for gasoline rises or supply decreases, prices will increase. As a business owner, you can attempt to predict fluctuating fuel prices, but regardless, you have no control. Hence, be prepared to have extra cash in the bank in the event of rising prices.
Commercial Drivers License (CDL)
To get your commercial driver’s license (CDL), you must be 18 years old and have a valid driver’s license. You must also have had your regular driver’s license for at least one year and have the ability to read and speak English fluently. In addition, you need to pass the knowledge test for commercial vehicles and the driving test for commercial vehicles.
The cost of a CDL varies from state to state but is relatively inexpensive. For example, a CDL in Colorado is less than $20 per year. However, most people cannot pass the test with assistance and require CDL classes, which can cost between $1,500 – $3,000
Other Licenses, Permits, and Fees
As an owner-operator or motor carrier, you must obtain several other licenses and permits to work in the commercial trucking industry. Below is a list of required items and their approximate cost:
USDOT Number – Companies that operate commercial vehicles transporting passengers or hauling cargo in interstate commerce must be registered with the FMCSA and have a USDOT Number. There is no cost for a USDOT Number.
Motor Carrier Number (MC Number) – Companies that transport federally-regulated commodities owned by others or arrange their transport (for a fee or other compensation in interstate commerce). MC Numbers are approximately $300 per year.
Unified Carrier Registration (UCR) – Replaces the former system for registering and collecting fees from the operators of vehicles engaged in interstate travel – the Single State Registration System (SSRS). Unified Carrier Registration fees range from approximately $11 to $10,282 per entity, depending on the number of vehicles owned or operated by the affected entities.
BOC-3 Form – New transportation companies must file a BOC-3 before commencing to operate within the United States, whether they plan to work as a motor carrier, broker, or freight forwarder. Only a process agent, on behalf of the applicant (carrier), can file Form BOC-3 (Designation of Process Agents) with the FMCSA. BOC-3 form registration fees vary by state but approximately cost $50 – $100. It is important to remember you need a processing agent and pay a fee in every state you operate.
Business Registration Fees – Business registration fees, also known as company registration or company incorporation fees, vary from state to state. Regardless if you are a sole proprietorship, limited liability company, limited partnership, or incorporated company, expect to pay between $100 – $300 per year.
Tax is an area that most companies can save money if strategically planned correctly. The type of business you are registered as will determine how you prepare your taxes. The first step for a business to calculate its taxes is to know the total income. Income can be from different sources, such as salary, bonuses, interest, dividends, etc. The business must also know the deductions that are available to them.
Don’t forget about employee tax. Employee tax is the amount of money an employer must withhold from their employee’s wages to pay income taxes. This tax can be either a flat rate or a percentage of the salary. The IRS has set rates for different types of income and withholding allowances. If an employer does not withhold enough taxes from their employees, then they are liable for any unpaid taxes owed by the employee.
Maintenance and Repairs
It is crucial for semi truck owners to ensure their vehicles are maintained to avoid costly repairs and keep the vehicle’s value. Semis are on the road for extended periods, excessive miles, and haul thousands of pounds of freight. Consequently, the wear and tear of the road takes its toll on the truck.
Be prepared for regular maintenance to check items such as the engine, suspension, brakes, axles, and tires. You will want enough cash in the bank just in case your truck needs a more significant repair, not to sideline your business for weeks on end.
How Outsource Financial Can Help New Trucking Companies
We hope this article helps you understand the start-up costs necessary when starting your own trucking company, whether you are an owner-operator or motor carrier. Although Outsource Financial Services (OFS) cannot help with your initial startup costs, you might encounter limited cash flow once you operate and deliver loads. In such instances, factoring is a viable cash flow solution for small businesses wishing to pay their employees and bills on time.
OFS is located in Denver, Colorado, but we provide factoring solutions to truck drivers, owners, and carriers throughout the country. Contact us today for a free quote for your invoice factoring needs.