William Price

Math 1030
APR, 24, 2016

Building a Successful Business in the Transportation Industry

By William Price

The 1960s and 70s were top of the scale for the American
Independent Truck Driver. A driver could own and operate their own
business, and do really well, all while working without the constraints of a
mother-corporation. The reason this era was the crme of the crop for
drivers was because the number of Federal Interstate Commerce
Commission (ICC) Licenses was limited, only a certain amount were issued,
around 20,000. Also, every piece of freight was categorized and
standardized. Meaning that each item shipped Over-The-Road (OTR) had a
set price. Steel shipped for one price, Iron for another, and perishables for
another. The standard prices were mandated by the federal government.
It wasnt until 1980 that Congress passed The Motor Carrier Act of
1980 (MCA) that completely changed the market for shipping goods. The Act
made it much easier to obtain an ICC license, and it also abolished federally
mandated pricing. According to a paper published by Thomas Gale Moore,
the MCA doubled the amount of ICC Licenses by 1990, and the price of
shipping fell twenty to forty percent in some markets. This was a
devastating blow for an independent driver.
Ironically, the first president to call for transportation deregulation was
President John F. Kennedy (Democrat). He was a genius economically but
disregarded the affect it would have on the small business owners. The MCA
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William Price
Math 1030
APR, 24, 2016

Brought transportation to the free market and to its credit, had a positive
impact on the economy.
Today it is near impossible to be a true independent truck driver. Large
corporations like England Transportation, Central Refrigeration, and Knight
Transportation have taken over the transportation industry. Ive interviewed
many senior drivers who, prior to becoming a company driver, formerly
drove independently some even owned fleets of trucks. Most say the same
thing. Theres no money in owning a truck anymore. Company drivers make
the same without the responsibilities of owning a business.
With due respect to those drivers opinions and experience, I believe I
have come up with a business plan to become a successful fleet owner in the
transportation industry. And at a relatively low startup cost. Thus will be the
subject of the rest of this paper.
There are many ways to make money in the transportation business.
My business will focus on the transportation of dry-goods. Perishable items
like groceries are also available to the business I will be starting, but dry
goods will take priority. More risk lies with perishable items, as well as more
cost. It takes money to buy fuel to keep a refrigerated trailer running. The
less expense the better. Which leads to my next topic.
Expenses, variables, and labilities. The three main expenses when
starting a transportation business are cost for the truck, cost for the fuel, and

William Price
Math 1030
APR, 24, 2016

maintenance. Upfront I calculate I will need around $35,000. The truck I am

considering is pre-owned and has a price tag of $21,000 dollars. If I buy with
cash I may be able to talk them down to around $18,000 or $19,000. I will
need $2000 dollars upfront for two weeks worth of fuel costs. When buying a
truck, the buyer should do their best to find a happy medium between miles,
wear-and-tear and condition, and price. As a rule of thumb, every truck
should have brand new tires at the time of purchase, and should be included
in the cost of the truck. I will discuss maintenance cost when I discuss
variables.
Liabilities include licensing for the truck and operating fees, insurance
for both the truck and the cargo, and taxes. But I will discuss taxes later.
Insurance is the killer. An average cost of truck insurance is $2500 dollars
per month, Cargo averages $1000 per month. Licensing is done annually just
like a car. However it is much more expensive, and I need to register to
operate in all 48 mainland states. I will also need an Oregon International
Fuel Tax Agreement permit (IFTA) as well as a Hazardous Materials permit for
all 48 states. The IFTA permit is also a quarterly tax. There is permit
specifically for California, but I dont plan on operating within the state of
California. Because in my opinion the state government of California
maliciously targets the transportation industry with astronomical operating
fees as well as unjust fines.

William Price
Math 1030
APR, 24, 2016

The main variables of my business are maintenance and reliable

drivers. Maintenance is easy. I will store ten cents per mile that the truck
runs in a separate account that I use for maintenance purposes only. If a
light needs to be changed, a tire blows, and for an oil change every 40,000
miles, the maintenance account will already be in place for these expenses.
Maintenance is considered a large variable because there is a possibility of a
catastrophic failure. The head gasket could blow, a radiator could go out, or
the turbo could blow. These are some examples of catastrophic failures. As a
driver and future fleet owner, I believe in proper maintenance. Proper
maintenance lowers the likelihood of a catastrophic event.
The second biggest liability is the drivers. In order for my business to
be profitable I need a minimum of 5000 miles per week from my drivers. I
will be relying on a team of drivers, 5000 miles a week is not unrealistic. A
solo driver can easily run 3500 miles a week inside of five days. But the key
word is reliable. It is hard to find a responsible, reliable individual to drive. To
help with this common issue I will have some incentives in place as well as a
structure that is unique to my business plan.
My team structure will consist of one Driver and one Lead Driver. The
lead driver will be responsible for reaching the 5000 miles a week goal I have
set as a standard. The lead will have the power to choose which loads to
take, and is responsible for the overall maintenance of the truck. As the
owner I will restrict the loads to the West, Midwest, and Northwest, the South
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William Price
Math 1030
APR, 24, 2016

and the Southeast. Other than that the lead driver is the individual in
charge. For this additional responsibility the lead driver will receive 5% of
the trucks profit the end of each year. For every week the truck runs 5000
miles or more the team will earn a bonus of $100.00 that will also be paid
annually.
The driver pay will be as follows. The team will earn .40 Cents per mile
for every mile the truck runs. The team will split the check evenly.
However, for each week the truck runs less than 4500 miles, the team will
take an .08 cent pay cut bringing their mileage pay to .32 cents per mile.
The same rule applies for a solo driver that gets less than 3000 miles per
week. If a solo driver runs 3500 miles or more per week, they will earn the
weekly bonus of $100.00.
The next topic will be profitability and corporate taxes. By now you
may be wondering how my business will generate revenue. I plan to lease
my truck on with the #1 rated Owner Operator carrier, Landstar. Landstar
brings drivers and loads together. The truck earns 65% of the revenue the
load pays, Landstar keeps the rest. There is a potential to make 72% to 75%
if I owned a trailer. Landstar also offers services like permit and registration,
fuel and tire discounts as well as tax preparation and book keeping. Each
load is broken down into pay-per- mile and fuel surcharge per mile. For
example a load from Salt Lake City to Las Vegas will pay $1.81 per mile plus
a .45 cents per mile fuel surcharge, totaling $2.26 per mile that the truck
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William Price
Math 1030
APR, 24, 2016

generates in revenue. This makes it easy as the owner to explain to my

drivers what I expect. As the owner I would expect the lead drivers to accept
loads that pay no less than $1.80 per mile plus the fuel surcharge. The fuel
surcharge is a number set by the federal government, it changes every
Monday.
There is another benefit that draws me to Landstar. They allow the
driver to choose which loads to take. This benefit makes it much easier to
run a business by allowing me as an owner to manage where my drivers
travel.
Corporation taxes in the United States are 35% if the business earnings
exceed $335,000, it is 34% if they do not. After talking it over with my
accountant, I plan to register my business as an S-corp. The benefit of an S
Corp is that I would pay taxes on money earned after expenses. After that I
would not need to pay personal income tax on money I pay myself, because
it would have already been taxed. On a recommendation from my
accountant, I would take no more than $500 dollars a month pay for the first
two years. I originally planned on taking nothing for the first two years.
Some short term goals of my business include. Achieve 5000 miles a
week every week, and build the fleet to three trucks in a year. A long term
goal would be build the fleet to nine trucks in five years and own a fleet with
an annual revenue of $5,265,000, and a fleet value of $315,000+, and
continue building the fleet year after year.
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William Price
Math 1030
APR, 24, 2016

In conclusion, I think that I will be able to achieve the goals I have set
for my business. They are some-what bold, but achievable nonetheless.
Most failure comes from the fear of failure itself. He who fears being
conquered is sure of defeat. If we do not try to gain anything in our lives,
nothing is going to come about on its own. Ultimately I want to make films.
One of my favorite movie quotes is the world meets nobody half way, if you
want something you got to take it
-

Sylvester Stallone, Over the Top (1987)

References

William Price
Math 1030
APR, 24, 2016

Trucking Deregulation, Moore G. Thomas,

http://www.econlib.org/library/Enc1/TruckingDeregulation.html