Shiftin’ Gears… & Understanding Trucking Leases

This week I worked at shiftin’ gears. Not the kind that you find inside of a truck, but the metaphorical kind. I’ve apparently gone from Owner Operator Independent Hotshot Trucker to Office Girl in one slippery little slide.

Ok, not just Office Girl, but Terminal Manager. And let me tell you, I’m learning new and fun stuff on an hourly basis in my new role… But just the fact that I am able to learn at my age is pretty OK with me! Old dogs can sometimes learn new tricks, apparently. At least this one has been doing just that all week long. Scratch that, for the past couple of months is more like it.

Which leads me to the point of today’s post… When an independent such as myself has enough of the feast or famine roller coaster and finally decides that it’s time to join the big boys instead of banging their own head on a solid wall and getting nowhere, there are some things they need to know about trucking leases.

This was a taboo, painfully touchy subject for me in the past due to my unfortunate first lease with a little local outfit that I have since discovered was very well known as being shady. OK, they were outright crooks. But nobody bothered to warn me at the time of their reputation. And honestly even if they had, I was so desperate to get going I would probably have put on my “dummy blinders” and had to suffer through it anyway.

Learning the hard way has always been my standard MO… so I can’t blame anyone but me for being a real good sap. (Now I do know better and maybe you can benefit from my newly hatched knowledge…)

Being just fresh out of trucking school and ready and willing to run, I still had the problem of not knowing what the heck a lease was, what it should or shouldn’t do for either party involved, or what to even look for in a company to lease to. I was, like a lot of newbies, just eager to get going and make some cash.

Which is exactly what will bite you in the backside on a lease. You need to know what the lease says, exactly, what your obligations are, and what you get for your money. Keep in mind that when you lease your equipment, you are agreeing to pay XX % of every load you haul for the privilege of running under a particular carrier’s authority and insurance. You need to know exactly what you are paying and getting in return.

In other words you need a good lease. Not a crappy, get-nothing but trouble for your money lease.

And I can assure you from painful first-hand experience, paying a little bitty local carrier 25% of some doctored number on a load they already skimmed the cream from and you are too dumb or inexperienced to know it; to throw some overweight crap load on your trailer, then send you out with no support system in place, and then leave you to your own devices to find a “backhaul” home on your own just to make fuel money, while raking in $300-$500 per month off the top of your settlement pay for “insurance” that they never forward to their insurance carrier (leaving you completely exposed, by the way) is not a good lease. But it is typical of the lousy leases newbies end up with their first go-round with some tiny mom & pop carriers (and some bigger ones as well) who prey on the ignorant… it’s far, far worse than paying a legitimate, ethical carrier 30% when they’re on the up and up.

And yes, that was a run on sentence….

And just a side note on those “backhauls” because this is a part of the equation that causes some confusion (and hard feelings) if folks don’t understand it… and the word gets tossed around all the time.

In my book, a backhaul is a load that they put on your truck in the same place they just unloaded you, and the rate on that type of arrangement can be, and usually is, 50% of the outbound rate for the return trip. Backhauls are normally built in to the original load and agreed to ahead of time and are done as a courtesy discount to a good customer with freight going both ways.

A reload is a new load from a new place (or maybe the same place,) but one that was not figured into the original plan, and any reload should pay normal rates, not a “backhaul” discounted rate.

Okay, now that I got that off my chest, on to leasing…

The first thing you need to know about leasing is what a lease actually is. Sounds simple enough, but until you know, you don’t know.

A lease is typically an agreement that gives control over your truck and trailer (or whatever your equipment is) to the company you lease it to. They dictate how and when you use that equipment, and the lease you sign dictates who pays for what, and how much each party pays. It also details the cost and amount of insurance coverage is required, and spells out your specific obligations and theirs.

Now, our leases are very strict, but we also have the ability at each terminal to give our leased owners the option to accept or turn down any particular load. At my terminal, we do not force dispatch. Some companies and some terminals do. That’s another thing you need to know when you consider leasing your equipment.

I’ll start with the things you need to be prepared to accept that nobody likes, but everyone must understand and be prepared to live up to when leasing…

With most companies, once you sign on the dotted line, you are not free to use your own truck for personal use, and are never allowed to use it to haul an unauthorized load.

Leasing your truck gives the carrier you lease to the right to dictate where you take that truck and where you don’t. If you follow the lease to the letter (and you should be prepared to!) you will be parking that truck when it’s not out making you and the lease company money. Aside from fueling, washing, and other maintenance, the truck should be treated like it belongs to the company. I know, that’s a hard pill to swallow when you’re used to being your own boss, but that’s how leases work.

You are also restricted (it should go without saying, but some folks don’t know this) from hauling anything on that equipment that the company you are leased to doesn’t tell you to, or give you express permission to haul.

In other words, if you pick up a little “side load” and haul it without telling your company to avoid giving them their leased share of said load, you are in violation of the law because you just broke your lease agreement which gives you the ability to haul under the operating authority of the company you leased to.

Not a good idea, and generally an automatic lease breaker. Also not good for your reputation, as it’s considered bootlegging… and should you have even a fender-bender while bootlegging, your insurance will also toss you out on your own. And should that fender-bender require a police response, you may very well find yourself getting a complimentary ride in the back seat of a police cruiser to the local gray bar motel for a little enforced “vacay.” It’s a bad idea all the way around…

You may also be restricted in who or what you can put into that leased equipment.

In our leases, for example, unless you are leased as a passenger transporter, passengers and pets are not allowed. Our trucks deliver to sites that are unsafe for visitors and pets, nobody wants to see your pet pooch get run over by a piece of heavy equipment when you let him out to do his business on a drilling site, and your wife doesn’t need to be kicking around out there either in flip-flops and shorts when the BOP on the rig fails and everybody on site gets hit with a big rain of the goo they put down those holes… if you get my drift… so it’s a safety and liability issue. Not just the company being mean…

The other big no-no in a leased truck (or any commercial motor vehicle, by the way) is having alcohol in the truck. That’s not just a motor carrier rule, it’s the law. Alcohol is never allowed in any CMV with the one exception of the trucks that are hauling it commercially.

When you’re leased, the carrier is going to require you to turn in original fuel tickets. Some folks bristle at this one, but here’s the solution. If you are intent on hanging on to your own original fuel tickets, simply get two tickets every time you fuel. Personally, I make photocopies of my weekly fuel tickets anyway for my own tax files, as the originals tend to fade out over time and become useless anyway. Yes, I keep my originals, but if I get audited three years down the road nobody will be able to read what has already disappeared from the printed ticket, but my photocopies will still be going strong.

Now for your obligations under most leases…

The owner of the leased equipment is normally responsible for the upkeep and fueling, washing, etc. of the equipment. You are also responsible for having proper securement equipment on the truck in good working order. You have to have all of the required safety equipment and PPE (Personal Protective Equipment) on the truck, and be prepared to use it as required when picking up or delivering. And nowdays with cell phones being an integral part of doing business, you need one with hands-free functionality in order to be both accessible for loads, updates, and various required communications, and to be legal using it.

Remember, this is trucking, and trucking outfits learned a long time ago how to defray their daily operating costs onto the truck owners. When you lease, you better have enough cash on hand to fuel and run your truck, or you’ll find yourself using the company fuel card which has a $4 per useage fee that comes out of your pocket.

You will be required to carry insurance on your equipment, typically that would be non-truck liability and physical damage insurance. Some big companies offer these as part of the lease deal, with your premiums deducted from the truck settlement pay. Insurance is confusing to the newbie, so here’s the scoop. You pay per the terms of your lease XX amount to the company that covers you when your truck is under a load. When your truck is not loaded, the non-truck liability kicks in.

It’s pretty simple but sounds complicated. In a nutshell, the insurance you are paying for while under a load is the carrier’s liability and cargo coverage. The non-truck and physical damage cover your property.

You are also obliged to pick up and deliver the goods at the time arranged and agreed to. Being late is not an option.

While under lease you must keep your equipment in tip-top shape. If you break down and someone has to send out another truck to finish your haul, you only get paid for the miles you actually hauled it. The balance goes to the truck that completed it. And that’s only fair… but keep in mind that you also have to be ready to fork over the bucks to have your truck towed and repaired.

Tires, brakes, lights, you name it, anything that can or does break out on the road or back in the yard, all of that is the responsibility of the owner to fix in a timely manner. Most leases provide for a weekly fee just for being leased that is paid to the carrier. Down time is expensive so that fee is put there to encourage swift repairs. A truck that is sitting is not making anyone money, and carriers who run leased equipment don’t have much patience for owners who don’t make repairs ASAP. They count on having XX number of trucks running, and when trucks break down it messes with the program.

And last, but not least, if you are a non-driving owner, you need to find a good, reliable, honest driver who will adhere to the lease terms while out there running in your leased equipment. You need someone who treats the equipment well, and who understands how not to make a problem worse. What you don’t want is some yahoo who thinks the solution to a flat tire is driving on it to the repair shop and ends up ruining your wheel too… if you get my drift… or worse yet, someone who doesn’t recognize the beginning of a problem and who doesn’t do anything to prevent it from getting worse.

And finally, what the carrier who leases your equipment should do for you… (Read your lease!)

The carrier you lease to should do the following things to earn that XX% of every load you haul for them. First and foremost, they should put loads on your truck.

That’s pretty basic, but if they’re not working hard to load you, both outbound and coming home, they’re not going to keep you very long.

Now, there will be times when a load home just isn’t to be found. Fridays are notoriously bad days to get loads heading to wherever it is you want to go, as most truckers already know. And there are certain areas you will haul into where there is next to nothing coming back out. Some days you just have to bite the bullet and deadhead home, or deadhead to another spot where there is a load available.

The point here is, no, you won’t be loaded and reloaded every trip, but if the leasing carrier isn’t doing absolutely everything in their power to find you a load, and keeping you informed as to what they’re doing, then they’re not giving it their 100% in trying, and they’re probably not worth leasing to.

They should also have support systems in place to help you do your job. This includes having people who will do the heavy lifting when you need to hire a driver, do the required paperwork involved in hiring, all of the HR support. There should be a safety man available to get you any special training and/or equipment you need to do your job properly, and they should also provide you with folks who can help with fuel card issues, getting help out to you if you do break down, and folks to call in the middle of the night if you can’t find a motel or any other on-the-road issue you may have.

These people can be located in your local terminal or spread out in service centers all over the place, but the point is that if you’re out there hauling their loads, they need to give you the support system to keep you moving and keep you safe while doing it. You should be able to pick up the phone at 2 AM just like you can at 2 PM and get a friendly voice on the phone to sort out any issue that comes up. If you don’t get that, you probably leased to the wrong company.

As a nice bonus, some companies (mine included) work on a 2-check system. They cut one check to the driver and a separate check to the truck at the end of the pay period. This is great if you, like me, have been “sticker-shocked” by taxes after running independent all year. It’s also nice to be covered under Worker’s Comp while driving, and to have some benefits such as a 401K and ESOP, which not all big outfits provide. I don’t know about you, but I would rather pay my income taxes in a little at a time and not all in one big gob. It hurts a lot less this way…

And the bottom line is always the bottom line. If the company you are leased to doesn’t pay you promptly and consistently and correctly, then you’re definitely leased to the wrong outfit.

The trouble with leasing to little local carrier is often the lack of any of the above support, and worse yet, settlement checks that are weeks or months late, that bounce, or that are just plain wrong.

At least with the bigger outfits, you know for sure you will get your settlement checks weekly, without any pain, often direct deposited into your bank account, and 99.9% correctly. Since humans prepare payrolls, there can always be an error, but a good outfit will correct any problems ASAP and not make you sit around waiting for a resolution, or worse yet, make excuses and not fix the trouble.

The last thing you need to know is that a company that is operating on the level will not hide anything from you. You should see the rates they charge the customer, you should have that information on your paperwork when you take the load, and you should never have to ask them why your settlement check doesn’t add up…

So before you go signing on the dotted line with some little local outfit, ask yourself (and them!) what support they offer you, what they’re actually charging that XX% for in services to you, and how they do their settlements. They should also be able to show you the actual load prices they charge that they use to calculate that XX%, and if you think, or even get the tiniest feeling they’re hiding anything related to what those loads actually pay, run, don’t walk, run away.

Now, there is one more topic that I need to cover regarding leasing, then you’ll be out there ready to do your own detective work to find the company that’s right for you to lease on with…

The biggest complaint by far with newbies leased to carriers is the fact that they don’t understand why their first settlement checks are small or negative numbers.

This is all in the fine print of any lease, you need to hunt it down and study it, ask questions if you don’t understand it, and be prepared for how you will be paying the costs involved in start-up. As with any start-up in any business, everything needed to get going costs money. When you lease to a reputable carrier, they will explain these costs in excruciating detail.

Let’s say you lease on the first of June. It takes a month before you actually start getting loads, and it takes three months before you are consistently running. (Yes, that is typical… due to paperwork, load availability, and truck availability…)

Your first several weeks of settlement checks may be less than stellar, and maybe even downright disappointing. You need to know that all of the stuff you get to start with is going to cost you, and it all comes out of your settlement. Up to 10 weeks of settlements, actually, then you should be even and start having less taken out.

These costs can include escrow, (an amount of cash that can be between $500 and $1000 set aside to cover costs in the event you quit while owing the company money,) apportioned tags, truck signs, insurance premiums, your background check and medical card exam fees, pre-hire drug test fees, equipment you purchase from the carrier, lease fees, Worker’s Comp and accounting fee for your driver check, fuel card purchases and card fees, and the list goes on.

If you want to help yourself out during this time, and can do so (and you probably shouldn’t be leasing until you can afford to do this) don’t use their fuel card, and don’t spend anything you aren’t contractually obliged to spend! Everything optional costs you less if you bypass the carrier to pay it. And everything you pay out of your pocket reduces what is taken out of your settlement check.

So keep the “charged items” so to speak, to the bare allowable minimum and pay your own way where they allow it.

To keep your blood pressure down during the first ten or so weeks, you need to keep a tally of what you are paying for and how that is divvied up so you don’t get any nasty surprises! If you know you’ll be paying $75 per week for escrow, $45 per week for bobtail insurance, and $6 per week for a lease fee, it shouldn’t be any surprise when they actually deduct these from your check.

My first two weeks of settlements were in the -$$ range simply because I didn’t get loads on the truck, and my bobtail insurance and lease fees are taken out whether the truck moves or not. No, it’s not a pretty sight, but I wasn’t ticked off because I knew in advance that would be the case.

It’s all in what you know, how well you understand what you’re getting into, and being ready for what is going to happen to those first few settlement checks.

Nobody is “ripping you off” if you fail to educate yourself on how the game is played, and you didn’t plan on the deductions that will come out of your first checks. And using a fuel card adds to that total, often leaving fellows who lease but don’t understand the process feeling pretty blue come payday when they figure out they already spent their pay. You can control a lot of the deductions by simply being aware of what not to “charge on credit” and by planning for the first few weeks to be small checks by sitting down with a pencil and doing the math.

Now, on the other hand, if they don’t tell you all of the above up front, then you may have a reason to be upset. But if you read and understand your lease none of this should surprise you in the least.

Now go mull this over, and if I failed to cover anything you need to know, holler at me and I’ll do a recap later on.


2 thoughts on “Shiftin’ Gears… & Understanding Trucking Leases

  1. My grandfather was a trucker and after raising my kids and losing my husband, I decided to go for a license myself. I am still in the process and want to earn more so I can survive on my own and help the kids when necessary. I had no idea the leasing process was so complicated! This is really going to help me out.

  2. Thanks Tammy, I’m glad it’s helpful! Since you’re just getting started I need to point out that leasing your equipment to a carrier is a different creature from lease to own programs put on by some outfits. Those are usually considered “fleece” programs and are to be avoided at all cost. Good luck, hope things work out great for you!

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