Lease Operators verses Owner Operators

I was talking the other day to a guy who used to be an independent operator. He sold his truck in 2022 (in the season of high truck values) after opening a small business from his shop at home. He now has six employees and does well in a very unrelated industry to trucking. We discussed his 30+ years of the independent operator industry. He was a driver back in the 1990’s and we talked about three recessions and a couple “booms”. He was wondering when owner operators would “vanish” completely. I said… never!

If we are to discuss the industry sectors, we must first define the sub sectors. Independent Operators have two classes: Lease Operators and Owner Operators. Lease Operators get paid cents per mile and Owner Operators get paid percentage. The two classes have two very different business models. Lease Operators focus on “Mile-Miles-Miles”. If you sit, you lose money as a Lease Operator. Deadhead miles usually mean lower fuel costs and therefore higher margins/returns. Success in this class has to do with how well the Operator can keep their costs down. It’s a low-cost producer business model. Being an Owner Operator is a very different business. They get paid a percentage and instead of “Miles-Miles-Miles”, they focus on rate per mile over time (usually days). They see the benefit of a layover, waiting for that higher paying freight. They have much more math in their success plan and are exposed to the customer base of the carrier they drive for. They are much more attuned to the freight market prices and fluctuation.

While discussing the industry with my friend, I responded to his comment on Owner Operators vanishing. I said, on average, Lease Operators will probably dissolve more/faster than Owner Operators. The assumption in my statement was that Owner Operators can usually survive hauling market freight longer than Lease Operators. When volumes drop (assuming they drop universally, which in some sectors they don’t) the first to suffer are those with a static revenue contract (cents per mile). This assumption is mostly true when hauling general freight.

Owner Operators have two variables in their business model: Rate and Volume. When rates drop, the Owner Operator may have the option to increase volume to support their bottom line (thus a tendency to pull low paying freight). Lease Operators have no flexibility, if volume drops their bottom line cannot be recovered. I understand that these statements are generalizations. But I write this article to raise a very clear point. Lease Operators and Owner Operators are two very different business models. Assuming they are the same and are affected the same is a flawed assumption.

I had a client who bought a truck. He drove at a Carrier that had Company Drivers, Lease Operators and Owner Operators. He decided to leap straight to an Owner Operator since he heard they made more money than Lease Operators do. He signed up, put the truck in gear and they sent him to BC, and he brought stick down the to USA. Then he circled back to BC or northern AB for more sticks for down south. A couple months after starting, he marched into the recruiter’s office and demanded he be changed to a Lease Operator. Bippity-Boppity Boo – he was a Lease Operator. He was never sent to Northern AB or BC for sticks again. Owner Operators need to be much more attuned to their financial environment and what’s presented to them from dispatch. A very different business model.

I have experienced three recessions: 2000-2001, 2009 and 2022-24+? Many people in each recession thought Operators were never going to survive. They were always wrong; I still believe them to be wrong again.

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.