Transport Firms Turn to Independent Drivers To Reduce Expenses

Transport Firms Turn to Independent Drivers To Reduce Expenses
USA Truck Inc. has raised pay for independent contractors, shifting emphasis from company drivers.

Tough times have some transportation companies turning to free-agent truckers.

The modern days of owner-operator drivers may be different from the good old days, when a driver bought his own truck and hired himself out to anyone who needed a load delivered. The expense of equipment, maintenance and fuel has made trucking a hard road for most pure independents.

Those same expenses have — with wages and benefits added — also affected trucking companies. With sluggish manufacturing tightening the market, some truckers faced with rate pressures are trimming company driver expenses.

USA Truck Inc. of Van Buren announced it had raised its pay for independent contractors at the beginning of October. It is a part of USA Truck’s continuing goal of shifting emphasis from company drivers to those not on the company’s permanent payroll.

In August, USA Truck reported its second consecutive quarterly loss as well as a drop in revenue compared with 2015. USA Truck officials declined to speak regarding this article, but CEO Randy Rogers and Martin Tewari, president of the trucking division, both addressed the use of independent drivers during a conference call after the company released its earnings report.

Rogers said the company trimmed its administrative staff by 10 percent in the first quarter of 2016 and would continue to shed company-owned tractors. In the second quarter, USA Truck increased its use of independent drivers by 17.6 percent.

The company also said it was working to outsource its maintenance costs and get rid of its older tractors by the end of 2016, all part of a strategy to reduce costs and move to a more asset-light model.

“Most trucking companies are trying to grow their owner-operators versus company trucks,” said Brad Delco, a transportation analyst with Stephens Inc. of Little Rock. “I think it always has been [a trend]. I think people are just putting more and more focus on it. No one really wants to do that. It’s a function of the freight market. If you were to ask them, ‘Hey, do you want to shrink your fleet by 17 percent?’ they would say, ‘No.’”

Small Pie, Many Forks
The shift is a sign of the financial times. Sluggish manufacturing means fewer goods to ship, which means increased competition from truckers to ship those goods.

It’s a small pie with a lot of forks trying to get a piece. For truckers, the competition means shippers can low-ball what they’ll pay Company A for a truckload because if that company declines, there are probably 10 others willing to do it a phone call away.

“We have bid on freight and held our rate,” said Dan Cushman, CEO of PAM Transportation Services of Tontitown. If a customer “says they’re looking at a 15-cent-per-mile reduction, but I can’t do it; I can’t make any money. All these costs are going up, but the market dictates whether you can get customer relief or not. This is not the year to get relief. That’s why everybody’s earnings are down.”

Butch Rice of Stallion Transportation in Beebe said he has a handful of independent contractors at his 70-driver shop. He didn’t want to comment on any other company’s operational strategy but said times are tough for independent drivers as well.

“Owner-operators kind of go up and down, the cycle does,” said Rice, the chairman of the Arkansas Trucking Association. “When times are bad — and when I say bad, I mean low rates like it is right now — people want to reach out to the owner-operator. When rates are high, you want to keep your company’s trucks.”

Most companies that use significant numbers of independent drivers generally offer discounts on fuel and maintenance costs, both necessities that USA Truck included with its pay increase announcement. Some companies give independent drivers loans or advances for the driver to then lease a company tractor to use.

Obviously, such an arrangement would limit the depth of independence a driver had from a company that owns his tractor.

“Every trucking company will use different ways to attract owner-operators to their platform versus somebody else,” Delco said. “Back in the day, it was even financing the truck for the owner-operator. Some have called into question how independent that owner-operator is. There’s really not much separation between them and company drivers.”

Going It Alone
Jeff Loggins knows all about the trials and tribulations of being an owner-operator. He runs Loggins Logistics of Jonesboro, which has a network of approximately 100 independent drivers.

Loggins acts as the broker for those drivers, arranging deliveries with companies and taking 20 percent of the load rate. The rate squeeze that trucking companies are experiencing is also being felt by Loggins and his drivers.

“We’re competitive with our rates as much as we can be,” Loggins said. “With us being all owner-operator, we’re typically not the cheapest or the easiest to do business with because of our business model. We have to really study — especially new customers — their lanes and how they load. There are a lot of things that go into it.”

Cushman said PAM doesn’t have a set strategy for using company or independent drivers. It’s catch as catch can, whatever makes the most financial sense for each specific lane, load and customer.

PAM reported last week a third-quarter profit of $3.45 million and profits of $10.4 million for the year to date. Both figures are down from the previous year.

PAM reported increases in miles and delivered loads from the same quarter of 2015 with a slight drop in revenue per mile. PAM reduced its company drivers from 1,410 to 1,315 while increasing independent drivers from 422 to 567, meaning total drivers increased by 50.

“We’re growing; it’s not so much where we want to grow, as where we can,” Cushman said. “We don’t have a goal set for either in terms of whether we want to grow one more than the other.”

Maverick Transportation of North Little Rock has a very small independent footprint. Dean Newell, the company’s vice president of safety and training, said approximately 90 of Maverick’s 1,600 drivers are independent, but most of those are former Maverick drivers who are on lease-purchase contracts with the company.

“We do it the old way: bring them in, train them, try to keep them,” Newell said.