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Is the Trucking Business Profitable? Challenges and Opportunities

By Roy Rasmussen Reviewed By Mike Lucas
By Roy Rasmussen
By Roy Rasmussen Reviewed By Mike Lucas

The truck driving business looks poised to rebound in 2021 after a year of disruption. But is the trucking business profitable? 

We’ll look at the industry’s short-term and long-term outlook. We also will review how trucking companies make money and what profit margins are like in the business. Moreover, we’ll share 10 tips on how to succeed in today’s trucking industry.

Is the Trucking Business Profitable in 2021? Trends Affecting the Trade

As with most industries, trucking struggled during the early phase of the pandemic, but things were looking up for trucking companies in the first quarter of 2021, according to the latest Trucking Conditions Index (TCI) data from transportation intelligence provider FTR. The TCI, which combines 5 major metrics representing trucking industry performance, dropped to a low of -28.66 in April 2020. 

Following the third-quarter bounce, however, the index had climbed to a record 16.17 by October 2020. After dropping slightly, it hit another record of 16.27 in March 2021, an increase of 5 points from the previous month. These rises reflected improvements in freight volumes, rates and capacity usage.

Avery Vise, FTR’s vice president of trucking, said he expects to see a full recovery of the trucking industry from the pandemic by the third quarter of 2021, leading to strong performance in 2022, according to an FTR virtual session reported on industry news provider American Trucker. Full recovery is being delayed partly by a shortage of drivers, which is limiting capacity. Social distancing has contributed to the driver shortage.

Outlook Uncertain But Optimistic

Meanwhile, increased consumer demand has made it difficult for companies to keep up with shipping schedules and to purchase enough equipment to handle shipping volume. Although this has placed a strain on trucking companies, if demand holds, it could mean a boom for the industry in 2022.

However, FTR Chief Executive Eric Starks said predictions at this point are risky given how the pandemic has transformed the market and introduced uncertainty. Industry watchers aren’t even sure what normal is anymore, he said.

Based on past trends, experts expect long-term growth for the trucking industry. After adjustments for the pandemic, market research company Research and Markets projects that the global freight trucking market will increase to $5.5 trillion in 2027 from $4.2 trillion in 2020, a compound annual growth rate of 4%.

How Trucking Companies Make Money

Profit margin in transport business operations centers around shipping velocity, explains logistics expert Damon Langley, co-owner and managing director of Velocity Transportation Solutions, speaking to trucking news site Commercial Carrier Journal. The more freight you can deliver per unit of time while keeping your costs down, the more money you can make.

You can express this idea mathematically by using key performance indicators (KPIs) which measure key velocities driving your revenue, such as:

  • Miles per driver per week
  • Pay per driver per week as a percentage of company revenue
  • Revenue per hour generated by customer service representatives soliciting freight
  • Revenue per total planned transit time organized by load planners, who are responsible for maximizing driver miles and minimizing time spent driving without freight (deadhead time) or stopped (dwell time)
  • Estimated arrival time and projected time available organized by driver managers, who link customers to drivers and provide information to load planners
  • Revenue per hour per customer

Planning how you will manage these types of key metrics to increase your revenue and lower your costs is key to maintaining a strong trucking company profit margin. To help you monitor and manage these KPIs, you can use software designed for the trucking industry, known as transportation management solutions (TMS), such as Trimble Reveal.

We see the back view of a cargo truck on a highway. A sign above reads “Profit.”

How Much Do Trucking Companies Make?

According to trucking company Cargo Transport Alliance, the average gross per truck is between $4,000 and $10,000 per week. An owner-operator who owns a company and manages operations can earn a take-home pay of $2,000 to $5,000 a week. An investor can earn a profit of $500 to $2,000 per truck per week.

These figures are subject to variables, such as:

  • Type of trucking operation, such as dry vans (which are enclosed and carry loose freight, pallets and boxes) versus flatbeds (which aren’t enclosed and can carry oversized or wide-load items) versus refrigerated vans (reefers)
  • Mileage
  • Frequency of days not delivering
  • Driver efficiency
  • Vehicle maintenance costs
  • Seasonal conditions
  • Market conditions

According to American Trucker, profit margins for trucking companies varied between 2.4% and 6% between 2011 and 2017, increasing to a high at the end of that period.

Is Trucking a Good Business to Start?

Never mind whether if trucking is a profitable business: It can be a difficult business to start. But it can be rewarding if you manage your operation well.

Even before the pandemic, trucking company failure rates tripled between 2018 and 2019, despite the economy thriving, according to numbers supplied by data firm Broughton Capital to Fox Business. Part of the problem in recent years has been that while prices have dropped, driver pay has remained high, cutting into profit margins. The shortage of drivers in the wake of the pandemic aggravates this issue.

On the other hand, if FTR’s anticipation of a third-quarter recovery in 2021 holds true, the shortage of drivers may become less of a barrier. For companies that can develop a solid financial plan, this may leave room to capitalize on the anticipated growth of the trucking industry. So, there is risk for trucking startups, but there may be opportunity.

10 Tips to Succeed in Trucking

If you take on the challenge of running a trucking company, you need a solid business plan to help you overcome the obstacles you will face. Financial planning plays a key role in creating a profitable business plan. Here are 10 tips to help you steer a course toward profitability.

1. Select a Profitable Market Niche

When you’re starting out as a small trucking business, you stand the best chance of turning a profit if you choose a specialized market niche where you’re not competing directly with large, established companies. Choosing your niche also forms a critical financial planning step because it will determine what services you offer, what equipment you buy and what rates you charge.

The dry van market can be more competitive because of the number of large companies and owner-operators who already have shares in this space. On the other hand, hauling fresh produce and meat can be a profitable niche because there is less competition, less seasonal fluctuation in demand and less risk of economic disruptions to the market, as people always need food.

2. Estimate Operating Costs Accurately

Before you can develop a profitable financial plan, you need to know what your expenses will be so that you know how much revenue you need to generate to turn a profit and how high you need to set your prices. Your expenses divide into fixed costs and variable costs. Fixed costs include items which don’t fluctuate significantly over time, such as:

  • Payments on vehicles
  • Vehicle registration fees
  • Trailer registration fees
  • Property payments
  • Vehicle insurance payments
  • Permit fees
  • Driver salaries
  • Health insurance

Variable fees can change based on your shipping volume and other factors. They include:

  • Driver wages for drivers who are paid by the mile
  • Fuel
  • Tolls
  • Vehicle maintenance and repairs
  • Lodging
  • Meals

As a rule of thumb, driver compensation and fuel will be your highest costs. A good financing strategy should seek to minimize fuel expenses while maximizing the amount of revenue drivers generate per mile and per week. This calls for a smart fueling strategy combined with operational efficiency and careful financial planning.

3. Cut Costs with a Smart Fueling Strategy

To cut your fueling costs, you need to consider the total cost of fuel after taxes are factored in. Taxes on fuel in the trucking industry in the lower 48 states and Canadian provinces is governed by the International Fuel Tax Agreement (IFTA), which Alaska and Canadian territories have also chosen to participate in without being legally required to do so.

IFTA simplifies fuel tax reporting for trucks that operate in multiple jurisdictions rather than requiring you to report separately for each jurisdiction. Each vehicle fleet must apply for an IFTA license with what is known as your base jurisdiction. Your base jurisdiction is where you have:

  • Your qualified vehicles registered
  • Some travel
  • Your operational control and records maintained (or where they can be made available)

As you buy fuel, your taxes go toward an account. Each quarter, you must file a report with your base jurisdiction totaling all the miles you traveled and all the fuel you purchased in all participating jurisdictions. This is used to calculate the tax you owe each jurisdiction. Any tax you owe or refunds you are owed are then paid to the base jurisdiction, which then handles distributing money to or collecting money from other jurisdictions.

What this means for fuel pricing is that your taxes aren’t determined by pump prices in the state where you bought fuel, but on your base fuel cost, which is the price of your fuel at the pump minus your per-gallon state tax. As often as possible, try to refuel in states and at pumps where prices are lowest. While prices may not vary much between states and pumps, over thousands of miles, little differences add up. 

Owner-operator trucking software provider Rigbooks offers a state-by-state guide to buying fuel.

Three trucks haul cargo trailers on a highway.

4. Develop Direct Relations with Shippers

Difficulty finding shipping loads can cause a trucking company to go out of business, so a good strategy for finding shippers needs to be part of your business plan. Trucking companies often find shippers indirectly by going through middlemen called freight brokers or by using online postings called load boards. While these services are useful, they also charge a fee, cutting into your profits.

To maximize your profit margin, develop your own direct relations with shippers. You can pocket the markup fee you would normally pay a broker, or use the difference to offer more competitive prices and promote repeat business.

5. Use an Efficient Dispatching System

Dispatching services offer another way to find loads. Dispatching services also can help you assign loads to drivers, manage drivers, manage issues with shippers and customers, handle billing and maintain compliance. If you don’t use a dispatching service for these tasks, you’ll need to develop a system for handling them through your own office.

An efficient dispatching system can allow you to handle more loads at a lower cost, while a poor one can kill your business quickly. If you decide to hire a dispatching service, do due diligence by asking for recommendations, studying reviews and reviewing details of contracts so that you understand all services and pricing involved. If you do your own dispatching, you can increase your efficiency by using TMS software with dispatching capability, such as ITS Dispatch.

6. Check Customer Credit

Whether you’re dealing with shippers or brokers, it’s prudent to select customers who have a good credit rating so that you reduce your risk of not getting paid. Use a credit check service to review prospective customer business credit scores before committing to a new client.

7. Automate Your Billing Procedures

Automating your billing process can save you time and money on labor while reducing the risk of your fees not getting collected on time. Some TMS systems such as TruckLogics include automated billing features. You can get standalone invoicing software or use accounting software that includes invoicing features or add-ons.

8. Use Automated Compliance Software

Compliance is another area where automation can increase your efficiency. Regulatory fines for truckers can be expensive, but keeping up with all the paperwork you need to file can be a chore. Use a TMS solution that includes compliance features, or invest in a compliance management solution such as Compliance Safety Manager.

9. Price Your Services Profitably

As to whether trucking is a profitable business, well, this part is key.

After you’ve considered expenses such as fuel, driver compensation, broker arrangements and software, you’re in a better position to estimate how high you need to price your services in order to turn a profit. To develop a competitive yet profitable price, you need to find out what other carriers are charging.

To do this, select a freight lane to use for comparing prices. Visit load boards and call brokers to find out average prices for shipping in one direction. Add a markup of 10% to 15% of what brokers charge. Use the same process to determine fees for the other direction.

10. Plan Your Cash Flow to Sustain Your Profits

Keeping your trucking operations running requires careful cash-flow planning. Payments from shippers and brokers are typically delayed for 15, 30 or 45 days. You need a cash-flow management strategy to ensure that you have enough financing available to keep operations running as you’re waiting for payments to come in.

One strategy you can employ is to use your unpaid invoices as collateral to obtain a loan or line of credit, a financing method known as invoice financing. Another useful financing method is equipment financing, which allows you to use equipment you purchase or lease as collateral. These and other methods of small business financing can help you sustain the cash flow you need to keep your trucking business running.

Is the Trucking Business Profitable? It Can Be.

So, is the trucking business profitable? After struggling through the pandemic downturn, the trucking industry rolled into 2021 with momentum. Data suggests it is setting a course for strong growth in the coming years. However, succeeding in the trucking business can still prove challenging. Issues such as driver shortages, fuel costs and high contract rates present potential obstacles to success.

Running a profitable trucking company requires careful planning centered around sound financial management. Niche selection, cost-cutting strategies, pricing and cash-flow planning all play an important role in maintaining a profitable trucking business. 

If you require financing to fuel your trucking business, take a few minutes to fill out our online application and see your loan options in minutes.

Roy Rasmussen Contributing Writer for Fast Capital 360
Roy is a respected, published author on topics including business coaching, small business management and business automation as well as an expert business plan writer and strategist.
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