As owner-operators are bombarded with recruiting ads and posters promising more revenue and better opportunities at other carriers, they are switching carriers and industry segments at an alarming rate. Not all turnover is preventable or undesirable. But according to recent statistics from the American Trucking Association, the long-haul, heavy-duty truck transportation industry is experiencing a national shortage of 20,000 truck drivers. Add to that average turnover rates of 90% and any value that could be associated with turnover is completely obscured by the costs.

The costs of owner-operator turnover are difficult to pin down. Every trucking company looks at turnover costs differently, measuring different variables and assigning different values. When you take into account departure costs, replacement costs and training costs, the total cost of losing a single owner-operator can range from a low of $3,500 up to $15,000 or more.

Departure Costs

Attitude. Owner-operators usually don’t leave at the first sign of dissatisfaction yet the typical response to dissatisfaction is a decrease in job motivation. They become less productive and less reliable. The carrier has a greater risk of damage to their equipment and must often deal with an increased level of stress and conflict among those with whom the operator interacts. An owner-operator whose head isn't in the game can also affect profits and service.

Experience. You lose value when an experienced owner-operator leaves. The contractor who knows your company best is going to be easier to work with because he knows the game. He knows how things work and how things get done. The experienced driver is going to use fewer carrier resources. Over time, a carrier makes a big investment in an experienced contactor. When that contractor leaves, the investment is lost.

Overhead. Overhead costs are supported with the revenue generated by owner-operators. When you lose an owner-operator, overhead costs are then supported by fewer operators. The typical overhead costs such as rent, salaries, benefits, and utilities don’t go down because a contractor leaves. If the remaining operators or replacement operators can’t generate enough additional revenue to compensate for the one that left, margins are squeezed and your turnover costs are higher. In addition, when the trailer to tractor ratio is higher, for example 3:1, then the turnover cost is higher than for a carrier with a 1.5:1 ratio.

Opportunity. When the contractor leaves, the customers aren't served, the revenue is not generated and the contractor’s contribution to profit is lost. For example:

If the operator who left grossed $15,000 a month for his carrier, and the carrier has a 7% pretax margin, then that's $1,050 profit for the month lost to the company for just one owner-operator.

When that operator leaves, how much freight will be refused due to lack of drivers or trucks? How much business will your competitor get because you couldn't handle it? How will your reputation for customer service be affected? Saying “NO” to a customer when you can’t handle their business is usually considered poor service, affecting your customer relationship today and your opportunities for business in the future.

Replacement and Training Costs

Replacement costs can include recruitment, advertising, medical and drug examinations and other administrative functions such as processing applications, checking references and interviewing. Training involves costs for literature, trainer’s salaries and production time lost during orientation. In addition to maintaining recruiting and training departments there is also a learning curve cost.

Productivity is lower during the learning period. New operators have higher costs from safety, cargo claims, and customer service issues. New contractors aren’t trusted with the best customers right away. Miles are less until the operator proves himself so the contribution to overhead is lower. There are company policies and procedures to be learned as well as the real costs of learning through trial and error. The new operator makes more demands on company resources and will have the highest administrative cost.

Industry Cost for 100% Turnover

So what is the potential owner-operator turnover cost to the trucking industry as a whole? Not only is there a cost to the carriers but owner-operators who switch carriers incur costs that are often difficult, if not impossible, to overcome. The numbers often look like this:

Cost to Carriers

Estimated Number of Leased OO’s           100,000
Estimated Average Turnover 2013            80%
Estimated Cost of a new OO                     $10,000
Estimated Total Cost of OO Turnover        $800 Million

Cost to Owner-Operators

3 weeks of tractor and insurance payments (average $107 per day)      $2,250
3 weeks of revenue NOT made while switching      $8,500
(Minus expense for the above that didn’t happen for fuel, maintenance)      -$3,650
3 weeks of family income needed      $2,100
Subtotal of above costs:      $9,200

Increased pay after 110,000 miles/One Year ($0.02 cpm)      -$2,200

Net cost to change after 1 year       $7,000

Cost to get up to speed at the new carrier       $5,000

Total out of pocket cost to switch after one year      $12,000

Multiply $12,000 by 80,000 owner-operators turned over and add it to the $800 million carrier costs above. What you see is that owner-operator turnover is a combined $2 Billion annual problem for operators and carriers.

The numbers speak for themselves. This is a problem we all need to work to solve!


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