Starting A Successful Trucking Business Is Possible For Everybody
The trucking industry is the backbone of our economy. Without it, goods would not reach stores, factories, or homes. Every single product we buy has likely traveled by truck at some point in its journey. This makes trucking a vital and evergreen sector that continues to grow.
According to the Bureau of Labor Statistics, the median annual salary for heavy-duty truck drivers is $47,130, or about $22.66 per hour. With over two million truckers in the U.S. as of 2020, the demand for drivers is expected to rise by 11% from 2020 to 2030. This growth is driven by an expanding economy and ongoing infrastructure needs.
One concern many new drivers have is the impact of autonomous trucks. While self-driving technology is advancing, it’s unlikely to replace all human drivers in the near future. Instead, it may change the nature of the work, but the need for skilled operators will remain strong.
It's also important to note that trucking isn’t just about long-haul tractor-trailers. Light and medium-duty trucks play a significant role in local deliveries, construction, and other specialized services. This diversity means there are opportunities across different segments of the industry.
In recent years, the demand for truckers has been high, with good freight rates available. Many owner-operators are finding success in today's market. The driver shortage has led to increased pay and better job security, making now a great time to enter the industry.
FMSCA Trucking Industry Registration Statistics
Source: DOT FMSCA
The trucking industry is highly fragmented, with small businesses and owner-operators making up a large portion of the market. In fact, about two-thirds of all carriers are independent owner-operators. This highlights the potential for individual success in the industry.
Trucking Industry By Carrier Size
Source: DOT FMSCA and Equipment Radar
Takeaway: Small owner-operators make up about two-thirds of the trucking industry.
Transportation Industry Statistics
According to Bob Costello, Chief Economist of the American Trucking Associations (ATA), trucks move about three-quarters of the nation’s freight by weight. While ships and railroads are cheaper for long distances, trucks are more flexible and accessible for most businesses.
Freight often moves through multiple modes before reaching its destination. Trucks are ideal for shorter distances, while ships and rail are better for longer hauls. This combination allows for efficient and cost-effective transportation.
Transportation Value Shipped By Modes & Mileage
Source: US Department of Transportation Bureau of Transportation Statistics
Takeaway: Trucking (yellow) is the primary method that goods are shipped in the United States. Trucking represents 80% of goods shipped under 100 miles, and 50% of goods shipped between 1,500 and 2,000 miles. Data are as of 2018.
Transportation Services Index
The Bureau of Transportation Statistics (BTS) Transportation Services Index (TSI) measures the volume of freight transportation services moved monthly by the for-hire transportation sector in the United States. The index incorporates monthly data from multiple for-hire transportation carriers. The TSI is used by many economists and industry experts to monitor the overall demand for trucking.
Trucking demand is cyclical. When the economy is strong, demand for trucking increases. During economic downturns, demand can drop significantly. Understanding these cycles is key to long-term success in the industry.
Source: BTS
Takeaway: Transportation Services Index follows the general path of GDP and the broader economy. It is cyclical and has ups and downs.
Be Aware Of The Cycle
The cycle can be your friend and foe - and it is something that you as a trucking business have very little control over. The broader economy oscillates over time - it is good most of the time, but it has rough patches during recessions.
Typically freight rates follow the economic cycle. Rates tend to rise when the economy rises, and rates tend to fall when the economy is in recession. In order to run a successful trucking company that lasts long-term, you should be aware that recessions can and do happen. You should always think about your business "what if" cases and have a plan to adjust your trucking business and expenses for cyclical downturns.
Source: DAT Flatbed Rates
Takeaway: Freight rates have climbed over 25% in the past year as the economy rebounded. Data are through August 2021.
Getting Started With Only One Truck
Every great business today started with an idea. Most businesses start small, and they grow if they have a good business plan and strategy. Jeff Bezos started Amazon in 1995 by shipping books from his home garage.
When you start a business, you need three basic items to become a successful company:
- Capital (Money): All businesses require some sort of money invested to start. The source of your money can vary - it can be personal savings, a bank loan, a family loan, or investors. Money investments usually make sense when you put in $1 and you can generate more than $1 of profit over time. This term is "economic value add" where you are creating value.
- Labor & Perseverance: Starting a small trucking business is a lot of work. You will need to wear many hats - driving the truck, keeping track of expenses, working with customers, maintaining your truck, planning for the future, and more. As an owner-operator, you will need to take on more responsibility than someone working as an employee at a large carrier.
- Luck: Whether we like to admit it or not, luck plays a major role in most people's lives, and it is something we cannot control. Sometimes it helps us, and sometimes it forgets about us. It's simply part of life, and we need to accept it as it is. Since it is something out of one's control, it's best to know that it is a factor but not to get too stressed out over it.
Create A Business Plan
You should create a business plan before starting your trucking business in order to maximize your chances of success. A business plan is the same concept as a trucking route - you need some sort of idea of the path you need to take in order to get from Point A to Point B. The same concept applies to your trucking business - you need to create a business plan to take your business from Point A (an idea) to Point B (a successful owner-operator company).
When you create a business plan, it's important to be realistic and not overly optimistic. At the end of the day your business plan is used by you, your bank if you get a loan, and others that might lend or invest money. Overly optimistic assumptions can give you and others a false sense of confidence - it might feel and seem good at the moment, but you could pay a high price down the road later in terms of wasted time and money.
A business plan can be as short as one page or as long as dozens of pages. Your business plan is a blueprint of how you will make your business successful. Similar to how athletes train before a game or match, writing your business plan forces you to think about your business and get prepared.
Components of a business plan typically include:
- Summary: Wait to write this at the end. This is the 30,000-foot view of your entire business plan summarized in a few paragraphs. This helps others understand the business plan without reading the entire document.
- Company Description: Write about what your company will do, who it will involve (you, and any others), where it will be located, what kind of truck you want to buy, what hours you plan on working, etc.
- Market Analysis: Understand the trucking industry (use the stats above), and look at your local market. Trucking is very regional - rates in one region will vary greatly compared to rates in a different region. Get to know your market and the rates. Also, understand the different services in your region - it could be for flatbed, reefer, dedicated, LTL, etc.
- Competitive Analysis: Trucking rates are often determined by supply and demand. When there are many drivers in a region, rates tend to be lower than areas where there are limited quantities of drivers. Talk with people in the industry to understand the market dynamics. Understand if there are large carriers in your region.
- Product/Service Offering: Determine the service you want to offer. Trucking covers a large range of services - from flatbed to reefer to dedicated. Each service has a different rate, different market demand, different lifestyles for you as an owner-operator.
- Marketing Plan: Figure out how you will tell the world about your business. You can create your own Facebook page, get your profile on load boards, etc.
- Financial Plan: Create a budget to understand how much you will need to start and operate your business (see below).
Getting Your Commercial Driver’s License
All long-haul truck drivers must have a commercial driver’s license (CDL). Qualifications to get a CDL are determined state-by-state. Generally, requirements include passing a written test and a driving test. Some states will refuse CDLs to anyone who has had a CDL suspended by another state.
Drivers can add additional endorsements to their CDL for specialized types of vehicles. These can include transporting hazardous materials (HAZMAT) and other specialty loads. Getting additional endorsements requires passing additional knowledge tests and a background check.
Federal regulations require CDL drivers to maintain a clean driving record and pass a physical exam every two years. Drivers are also subject to random testing for drug or alcohol abuse. Truck drivers can have their CDL suspended if they are convicted of driving under the influence of alcohol or drugs or are convicted of a felony involving the use of a motor vehicle.
Other Legal Requirements & Regulations
US DOT Motor Carrier (MC) Authority Number
You will need to obtain your own DOT MC Authority Number by registering your business with Federal Motor Carrier Safety Administration (FMCSA). The DOT uses your MC Number (also known as "operating authority") to track your regulatory compliance and safety records. Your MC will also classify your trucking company and the cargo you can carry.
You must also complete the Motor Carrier Identification Report (MCS-150) and Safety Certification Application. FMCSA will review your application by posting it on the Federal Register for a "mandated dispute period" of 10 business days while seeking out any public comment that might rebut your request.
Unified Carrier Registration (UCR)
Register your company in the UCR after you have obtained your DOT and MC numbers. The UCR validates your active insurance coverage within every state your company operates.
International Registration Plan (IRP) License Plate
The IRP plate issued by your trucking business' state enables you to operate in the entire United States and most Canadian provinces. The license plate requires you to pay annual fees to renew.
Heavy Highway Use Tax Return (Form 2290)
Trucks weighing over 55,000 pounds must pay the Federal Excise Highway Tax ("heavy highway vehicle use tax"). You should complete Tax Form 2290 annually with the IRS to settle your tax dues.
International Fuel Tax Agreement (IFTA) Permit
This rule permits your business to get one fuel license and requires you to file fuel use tax returns every quarter in your registered state. Learn more about IFTA here.
BOC-3 Form
Your business must register an updated BOC-3 Form with the FMCSA. This designates a process agent to obtain interstate operating authority.
Electronic Logging Devices (ELD)
Starting in 2017, the DOT requires trucking companies to use Electronic Logging Devices to ensure compliance with federal hours of service regulations. You should read more about ELD mandate.
Understanding Start-Up Costs and Operating Profit / Expenses Of Trucking Businesses
There are two main buckets that you should consider when starting a trucking business - your start-up costs and your operating costs. You should create a spreadsheet or notebook to estimate both of these figures to help you get a better idea of how the numbers flow. When you make assumptions, it is prudent to be realistic and also add in some extra padding ("budget buffer") as a contingency for items that come up that are unexpected.
Start-Up Costs
When you start your business, you will have several upfront costs required before you can start earning revenue. Trucking businesses can be started with between $10,000 and $30,000 of upfront capital. Start-up costs include:
- Truck
- Upgrades and/or modifications you want to make to the truck
- Business registration if you want to create an LLC or legal entity
- Licensing and regulations
- Training
Your truck will likely be your largest start-up expense. According to Owner-Operator Independent Drivers Association's (OOIDA) 2020 Owner-Operator Member Profile Survey, the average cost of a new truck is $140,000, and the cost for a used truck was $60,000. A new trailer costs about $60,000, and a used trailer costs about $30,000.
Currently, most truck manufacturers are experiencing supply chain constraints, which is curtailing new truck production. Lower new truck availability is increasing the overall cost for used trucks.
The good news is most banks and truck manufacturers offer financing. This means that you can buy a new or used truck for no money down or very little money down. Over time you can pay off your truck as your business generates income.
Revenue
Most jobs will pay you a certain amount per mile you drive. You can calculate your revenue by multiplying your average rate per mile times the number of miles you plan on driving each week.
Trucking is a regulated industry - Hours of Service regulation limits the number of hours a driver can be on the road. HOS puts an effective cap on the maximum number of miles you can drive in a given time.
Your mileage will also depend on the area where you drive - typically, you are able to drive more miles in a given time if you drive mostly on highways. Traffic jams and speed limits will lower your total mileage.
You should also plan for deadhead mileage - this is the mileage that you have to drive and you do not get paid for it. For instance, if you drive a load 500 miles to a location from your home base and you do not have any other jobs to return home, you have to drive that 500 miles back without getting paid.
Deadhead miles are a real drag on trucking profitability (industry average is about 20% of total miles driven)- so you need to be aware of it and factor it in when you calculate job profitability. Higher rates routes may not actually be the best choice if you have to incur meaningful deadhead mileage as part of the job.
Operating Costs
Operating costs are the normal day-to-day costs that are required to run your routes and generate income. Operating expenses include:
- Fuel
- Oil, diesel exhaust fluids (DEF) and other fluids
- Regular maintenance (see heavy-duty truck preventative maintenance and diesel engine maintenance)
- Tires
- Tolls
- Meals on the road
- Insurance
- Lodging and showers if have longer routes and do not have a sleeper
- Accounting to keep track of your financials
- Cell phone
- Advertising
- Subscriptions, plans and commissions (load boards, logistics, etc)
Fuel is the largest expense for most drivers. Some jobs include fuel, while others do not. Truck fuel efficiency also varies greatly - newer models tend to have better fuel efficiency than older trucks. Some trucks may get 3 miles per gallon, while others can get 7-8 miles per gallon. This difference is a factor of 2-3x, which has a meaningful difference on the bottom line. OOIDA's owner-operator survey stated that the average mileage is 6.2 miles per gallon.
Maintenance is also a real expense that you will incur. Typically as trucks age, the maintenance cost will increase. As a general rule of thumb, maintenance costs tend to increase at a faster rate after the truck is five years old. Some maintenance costs are covered under a factory warranty for a limited time or mileage threshold.
Often there can be a meaningful delay between the time you spend money to drive a route (while you have to pay for fuel, food, etc.) and the time you get paid for that route. The timing difference between your operating expenses and when you collect your revenue is often referred to as "working capital."
You should plan on having some extra cash to cover your working capital needs. This amount can vary. Many businesses target 1-2 months. The amount you will need depends on how quickly you get paid for your services, and the costs that you incur.
Keep in mind that not all customers may pay you. You should factor in an expectation that a certain percentage of your revenue will need to be written off ("bad debt expense"). The percentage varies by industry, but typically it is low or mid-single-digit percent. Larger and more established companies tend to pay their bills on time. Smaller and under-capitalized companies often are at higher risk of not paying.
Average Industry Numbers
According to OOIDA's 2020 Owner-Operator Survey, the gross revenue for an average owner-operator is $190,000 driving about 121,000 miles (of which 26,000 miles are deadhead miles - about 20%). Total expenses were $124,500, which leaves a net profit of $65,500.
Expenses included:
- Fuel $42,865 (35% of total expense, $0.35 per mile, 17,713 gallons at $2.42 per gallon)
- Maintenance $21,000 (17% of total expense, $0.17 per mile)
- Tires $5,000 (4% of total expense, $0.04 per mile)
- Tolls $3,000 (3% of total expense, $0.03 per mile)
Keep in mind that the owner-operator still has to pay taxes on the income. So the take-home pay can be lower than the net profit above. As a business owner, you will be able to write off the value of your new or used truck ("depreciation") over time to offset your taxable profit. This helps reduce your overall tax bill. See Section 179 deduction and bonus depreciation here.
Importance Of Having A Budget Cushion
We all know that earthquakes happen, but no one knows exactly when and where they will occur. The same principle applies to running a business - you should expect and anticipate business earthquakes will happen at unknown and unexpected times. These earthquakes could include a major accident, a personal injury where you have downtime, a major change in freight rates, a major change in fuel costs, etc.
You should build in some cushion in your budget, and keep some extra money for a rainy day. Also, make sure that you buy proper insurance to cover your business for issues. This will help your business survive an earthquake.
You will increase the probability that your business will survive long-term if you think ahead and have contingency plans for the unexpected. The freight market changes constantly, and it has ups and downs. During the industry downturns, many operators lose their trucks and livelihoods. Those operators who are able to survive the downturns are then in a position to benefit from the next upturn with higher freight rates because many drivers were forced out of the industry.
You should target having three to six months of operating expenses as a cushion. Also, speak with your insurance provider to make sure you are covered for a wide spectrum of issues. Make sure you understand what your insurance covers and what it does not.
Can I Start My Business With No Money?
Yes, getting started in the trucking business is possible with no money upfront. It's important to understand that even though you can start trucking with no money upfront, you still will need to have a source of money for your start-up costs and short-term operating expenses. Sources can include loans from family, friends, or a bank.
Often you can use financing to buy your truck (likely the largest upfront expense), or you can lease it. The truck dealership you work with will consider many factors before offering you financing or leasing - they will want to know your credit history and see a business plan.
You should always keep in mind that your business will need some extra capital for unforeseen expenses and normal operating expenses.
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