Running a trucking company in the United States is a complex and demanding endeavor that requires meticulous planning, efficient operations, and careful consideration of various costs. From fuel expenses to maintenance, insurance, and regulatory compliance, understanding the financial aspects of the business is crucial for long-term success. In this blog post, we will explore the key cost considerations from a carrier's perspective, shedding light on the challenges and providing insights for aspiring trucking entrepreneurs.
1. Driver Compensation:
Truck drivers play a vital role in the success of a trucking company. Attracting and retaining qualified drivers is paramount, and competitive compensation packages are a significant factor in achieving this. Driver wages, benefits, and bonuses should be structured to align with industry standards, while also considering factors such as experience, performance, and industry demand.
ATRI research provided guidance on driver wages and it averaged $0.627 per mile. Total $0.809 driver based costs in 2021 in a total cost of $1.855 trucking rates per mile. This is almost 43% of total costs.
2. Fuel Expenses:
Fuel costs are a major expenditure for any trucking company. Fluctuations in fuel prices directly impact profit margins, making it crucial for carriers to closely monitor and manage consumption. Employing strategies such as route optimization, fuel-efficient driving techniques, and utilizing fuel cards or contracts with discounted rates can help minimize fuel expenses and improve profitability.
Depending on the price, fuel prices comprise 20%-30% of total costs and it is variable cost. Very volatile at times and can go up to $0.64 per mile. Wrong fuel management can squeeze truck carriers from the market.
3. Truck & Trailer Lease or Purchase payments:
One of the most significant expenses for a trucking company is the cost of acquiring and maintaining a reliable fleet. Whether purchasing or leasing trucks, the initial investment can be substantial. Additionally, regular maintenance, repairs, and upgrades to meet industry standards can incur significant ongoing costs. Ensuring the fleet's efficiency and compliance with safety regulations is essential to avoid penalties and maintain a reputable image.
Average truck costs or leases range from $0.20 to $0.28 per mile which could make up approximately 15% of your running costs. Repair & Maintenance with Tire of the equipment costs about $0.18 to $0.21 per mile which could make up about 10-12% of total costs. Therefore, Combined Equipment costs range from 25% to 30% of fleet management costs.
4. Insurance Costs:
Trucking companies must carry various types of insurance to protect their assets, drivers, and cargo. Commercial auto liability insurance, cargo insurance, and workers' compensation insurance are essential to safeguard against potential liabilities and risks. Premiums for these policies can be substantial, particularly for carriers with less experience or a history of accidents. Engaging with insurance brokers or consultants who specialize in the trucking industry can help identify the most cost-effective coverage options.
Average insurance costs range from $0.07 to $0.10 per mile and makes up about 5% of total costs. It also depends on the safety score of each carrier and sometimes can go up to $0.20 cost per mile.
5. Compliance and Regulatory Expenses:
Trucking is a heavily regulated industry, and non-compliance can result in severe penalties and legal complications. Carriers must allocate resources for compliance with federal, state, and local regulations, including licensing, permits, taxes, and safety inspections. Staying up to date with changing regulations, investing in training programs, and implementing robust compliance management systems are critical to avoiding costly fines and maintaining a good reputation. It can cost up to $0.03 per mile for the truck carriers.
6. Other Variable costs
Other variable operational costs include dispatch cost of 1-3%, Factoring costs of 1-2% and toll, scale and other costs that are necessary to run the trucking business.
7. Administrative and Other Operational Costs:
Running a trucking company involves various administrative and operational expenses. These may include office rent, utilities, office supplies, dispatch software, tracking systems, and communication tools. Efficient administrative processes and technological advancements can help streamline operations and reduce costs in these areas.
It is also important to understand the difference between different types of truck carriers. When the fleet consisting of owner operators are different than company owner or leased truck companies. One tool to keep in mind is to always calculate and know the breakeven or Total costs per mile so that Rate per mile is won by quoting the right amount. Here is the tool that can help carriers to keep track of expenses: https://truckercalculator.com
Overall, running a successful trucking company in the USA requires a thorough understanding of the costs involved and diligent financial planning. By carefully managing equipment expenses, fuel consumption, driver compensation, insurance, compliance, and operational costs, carriers can optimize their financial performance and achieve sustainable growth. Adapting to industry changes, embracing innovative technologies, and fostering a strong company culture are additional factors that contribute to long-term success. While the costs of running a trucking company are significant, strategic management and a commitment to excellence can pave the way for profitability and a prosperous future in the industry.
Please check out the latest report from ATRI on the operational cost of trucking: