Are You Making Enough Where You Are?

I had a client who received a pay statement a couple months ago. It had a handwritten note on it saying, “due to the current rate environment and costs, we have been forced to reduce the pay rate of your contract by nine cents per mile. We apologize for the inconvenience… blah, blah, blah”. Kind of sobering… it reminds me of 2009.

Excess capacity is the primary determinant of a near-zero turnover. Fewer carriers are hiring – many operators are just in survival mode. Even though they are not ‘looking’ to move, they are certainly evaluating if they are being treated financially well enough, and worthy of a long-term commitment. Are they being paid enough?

Answering that question was the reason I wrote my second book; “Making Your Miles Count: Choosing a Trucking Company”. There are numerous opinions by others on how to calculate pay etc. but most don’t have enough ‘true math’ in their calculations. The accounting industry approach for calculating and serving operators is so diverse, it is not able to provide useful information. I have seen way too many income statements showing “IFTA” as an account classification (outside fuel costs). Basically, this is useless information (it needs to be put into fuel costs). Too often the income statement is just a direct mirror of the pay statement.

To compare company contracts you must first arrange your DATA so you can compare ‘apples to apples’. Let’s look at two of the main issues: Revenue and Fuel Costs.

At first thought, revenue seems very straight forward. How could there be misleading information in gross revenue? Well, it has to do with how things are recorded on the income statement (Chart of Accounts). The rules are very simple: Owner Operators (those running percentage) must have all their revenue (including fuel surcharges) listed as revenue. Lease Operators (those running cents per mile) must have all their fuel subsidy displayed as a negative fuel expense; it should NOT be included as revenue. If this isn’t how your accountant is presenting your statements – it’s wrong!

There are very specific reasons why fuel surcharges (provided to Owner Operators) should be included in revenue. If 100% of all shippers/receivers/load brokers and carriers invoiced rates and fuel surcharges separately there may be use for the splitting of revenue and fuel surcharges (however small). But all it takes is ONE invoice/trip where the fuel surcharges are ‘LUMPED’ into the invoice and, the result on the income statement would be misleading (useless). Technically, someone could display ‘revenue without fuel subsidy’ into a separate revenue from one displaying both revenue and accompanying fuel subsidy… it would LOOK fancy, but the information wouldn’t garnish practical information that assists the operator. In other words, Owner Operators should only have one category of revenue called… Truck Revenue. Two minor exceptions may be: Waiting time (not driving revenue of any sort) and Reimbursements such as pilot cars, permits etc. These two exceptions may be listed separately but inconsistencies across the industry may also make them irrelevant. It may be helpful year over year at the same company but useless to compare carrier to carrier.

Secondly, fuel expenses must also be recorded properly. Lease Operators need to have their fuel subsidy shown as a negative fuel cost (as stated above) so that the operator can view the gross margin between Revenue and Fuel costs. In other words, what is the income AFTER fuel is taken off yet before other expenses? This gross margin is important to calculate a portion of how well your carrier contract is (specific to your truck).

As stated above, Lease Operators must display their fuel in two accounts (fuel cost and fuel surcharge as a negative) then total them. If two operators at the same company compare their net fuel costs, some useful information can be shown (who got the best fuel consumption and who purchased fuel at the best locations). However, two operators working at different carriers (different contracts) CANNOT responsibly compare net fuel costs. There are just too many discrepancies.

The proper comparison would be reviewing NET MARGIN (revenue less net fuel costs less other charges such as licence/Insurance/Administration). Maybe it’s easier to explain it in reverse. Excluding all: maintenance, wages, lease expense or depreciation/interest and home business expenses will show the NET MARGIN which must be divided by the miles traveled. This will get you the gross margin (cents per mile); the amount of income each mile will contribute given the carrier contract you drive under.

I have seen some operators gross $300k but have a lower net margin than operators grossing $235k. It’s not the gross that matters, it’s the net (before wages, maintenance & truck payments). I’ve seen carriers pay $1.05 plus a HUGE fuel subsidy and another carrier pay $1.45 plus a smaller fuel subsidy and charging Licence/Insurances/Administration etc. Contracts vary incredibly.

As an accountant in the independent operator industry for well over 25 years and given the thousands of hours of research, I have concluded that the first step in educating operators about the value of carrier contracts is proper presentation of the information. Having the correct income statement (Chart of Accounts) is key to answering the question “Are You Making Enough Money Where You Are?

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.