Why are so many Owner Ops getting their own DOT Motor Carrier Authority in 2019?

A couple of weeks ago Shelly Benisch and John Mueller were playing hooky from work at a cute little coffee shop when we stumbled on an interesting pattern within both CIS and The Transportation Station.

A lot of leased on Owner Ops were calling us for help to start their own brand new DOT Motor Carrier authority.  But as we chatted we agreed we hadn’t really thought deeply about WHY it was happening…it just was.

 

There’s an understandable amount of trepidation when venturing into the maze of FMCSA for a new DOT business registration, right?

…The challenge to start a new DOT authority…how long will it take…the required base plates, ELDs, IFTAs, 2290’s.  Then the cost of insurance….will there be steady work…will there be less profit…how hard is it to get paid…

 

It’s simply EASIER for an Owner Op to lease on and drive exclusively for one Motor Carrier because most of these challenges are already handled.

(And to be sure, leased on Owner Ops have always griped that Brokers take the profits while they do the driving:)

 

But what had changed where so many were motivated to make their “own DOT authority” plunge NOW?

Well the more we chatted about it, the more we became curious and decided to do a little exploring within our own client base.

 

Here’s what we found:

 

Some Owner Ops shared that they were finding a certain comfort level with APP based communications enabling direct access to freight instead of the prior broker approach.

We’re told that Riteload, Uber Freight and FRAYT are certainly humming along.

 

A few Owner Operators simply determined that they could make more money with a better standard of living by switching to last mile delivery and regional vs long haul.  They believed now was the time to generate their own customer base.

Given the number of hub and spoke Freight Distribution Centers popping up that is certainly possible.

Several Owner Ops mentioned positive articles and reports like JB Hunt, FleetOwner,  Overdrive, Movin’ Out, etc… and thought this was a good time to give it a shot and get their own authority.

 

A common thread of inspiration came from both the TEAM Run Smart blogs and online video stories shared by successful Owner Operators like Henry Albert who had “made it on their own.”  (There is also the noteworthy LIVE Smart within the website that shares unique and healthy tips for life on the road.)

Another helpful Owner Op pointed to the daily free online truck tips and resources available through Top 100 Trucking blogs and Websites in 2019.

 

…But the overwhelming pattern of why so many formerly leased on Owner Ops were getting their own DOT Motor Carrier Authority was this…

 

The majority of Owner Ops were guided by their prior contracted Motor Carriers who were switching from a traditional “leased on” model to a “co-brokering” contract setting up a new “Free Agent Owner Op” model.*

*In simple terms, The “Free Agent Owner Op” model is utilized by existing “Big” Motor Carriers who no longer wish to provide primary insurance for “leased on” Owner Operators.   Each driver establishes their own DOT number as a true Independent Contractor and provides their own primary insurance.

As the insurance obligation shifts from the “Big” Motor Carrier to each individual “Free Agent Owner Op” there is a subsequent increase in compensation to that Independent Contractor.  Many continue to haul just for that one “Big” Motor Carrier’s broker side while others choose to also haul for additional entities.  It’s dependent on contracts.

 

One “Big” Motor Carrier choosing the “Free Agent Owner Op” model shared his fear of the current threat to the traditional Independent Contractor status via the “ABC test”:

 

“Look, we’re heading into a sinkhole with our current Owner Operator model. The way I see it, drivers who are free to haul for numerous entities are no different than other free agents bidding their time and talent.  We need to change if we want to get out and win.”

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Read here for more from James Jaillet with Overdrive regarding “Legislation that would, in effect, bar companies from hiring independent contractors to perform tasks that are part of the business’ core function…”

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It’s important to note that very few of the Owner Ops we worked with were brand new drivers.  Most were currently insured Owner Ops who had been leased on with Motor Carriers for  several years and had established credit.

 

This in turn produced a reasonable premium for their truck insurance which now included coverage for the BMC-91X Public Liability Insurance and MCS90 Endorsement.

 

These new Motor Carrier applicants also had a good understanding of trucking terms and definitions when they decided to establish their own new trucking company…they weren’t “newbies”.

 

Many were also establishing a Corp or LLC and utilizing additional professionals like accountants or attorneys.  They understood that running their own Motor Carrier business was a professional full time job.

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So a week went by and Shelly B and John M chatted again…were we the only ones noticing this trend?

 

We decided to reach out to Craig Lack with Carrier Software – The Motor Carrier Data Specialists

(Craig is the “Data Wizard” of FMCSA and DOT statistical analysis for the truck insurance market.)

 

Here are the stats:

2016   104,741 new DOT registered Motor Carriers

2017   115,003 new DOT registered Motor Carriers

2018   143,216 new DOT registered Motor Carriers

2019     80,400 new DOT registered Motor Carriers as of 7/9/2019…

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So bottom line, these Owner Operators we talked with are now operating as Independent Contractor Motor Carriers under their own DOT authority.

Some plan to strike out on their own to haul freight generated from APPs or established connections for Last Mile Delivery.  But the majority are still hauling for essentially the same entity as when they were leased on Owner Operators and believe they make more money with more freedom under a new contract as “Free Agent Owner Ops.”

 

Will this be the “New Owner Operator Model for 2020?” Not necessarily.  There are still plenty of Owner Operators very happy with leased on agreements to one Motor Carrier.  There are a lot of benefits and less challenge with the “mother ship” providing the loads from an established customer base.  But either way, it looks like the Owner Operator is finally in the driver’s seat:

ATRI reported driver shortage as the number one industry concern in 2017 and 2018.

ATA estimated that 160,000 driver positions will go unfilled over the next 10 years.

 

It appears that the value of skilled Owner Operators should continue to expand.  Supply and demand promises more options, compensation and respect to future professional drivers like no other industry.

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Closing thoughts from Shelly Benisch, TRS, CIC, Commercial Insurance Solutions (CIS):

 

Berkshire, Northland and Progressive Truck Insurance are all receptive to new startups, with other truck insurance companies accessible when there is prior experience and existing NTL insurance as a leased on Owner Operator.  (Rates still vary from state to state for all insurance carriers.)

 

When you choose to establish your own DOT authority be sure to contact an accredited “TRS” Agent to shop the insurance for you.  All graduates are certified Transportation Risk Specialists schooled by The Motor Carrier Insurance Education Foundation.

 

Refresh your memory on the 4 Keys to Owner Operator Truck Insurance and remember that  Primary Commercial Auto insurance insures 24/7 which replaces the prior Non-Trucking Liability you probably carried in the past.

 

Your insurance company will post your new proof of insurance on FMCSA SAFER so that at any time brokers and customers can see that promise to protect the public is in place.

(When every driver has his own DOT authority, there is far less exposure to Uninsured Units or the need for Hired Auto coverage.  There is also less risk of uninsured Cargo thanks to monitoring services like Carrier411.)

To eliminate surprises, be sure to get an idea of what your insurance costs will be BEFORE you establish your DOT.  Then get advice from other pros in safety, registration and compliance before you make your move.

 

Closing thoughts from John Mueller, CDS, The Transportation Station:

When you decide to start up your own DOT authority, look for more than a typical permit agency which has limited resources.  As a new Motor Carrier you will likely need consultation and guidance to get through an FMCSA New Entrant Audit (Compliance Review.)

Spend your time and energy focusing on safe driving and generating income.

Save yourself a lot of  headaches and get a professional safety consultant to navigate DOT regulations and start managing that CSA score right when you form your new company.

Look for a certified NATMI “CDS” pro, for “Certified Director of Safety”, experienced in technical licensing, tax, registration, recruiting, consultation, safety and compliance services.

Whether you plan to operate under the “Free Agent Owner Op” or “Traditional” model, you are responsible for your own CSA score.

…And you may find there are better avenues to avoid dealing with lagging CSA scores such as those caused by drivers no longer driving for you.

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Well thanks for joining us for our coffee shop chat.   Shelly B. & John M. wishing everyone a Safe and Sunny Summer…talk with you again after our next “hooky” from work day!

 

Written by Shelly Benisch, TRS, CIC, Commercial Insurance Solutions Inc. (CIS)

AND

John Mueller, CDS, The Transportation Station

 

 

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