Owner-operator State of the Union
Regardless of whether we are talking about Freight Rates, Miles, Fuel, Maintenance, or Profit, 2022 is best summed up as a year of change for owner-operators.
Interested in learning more? Check out our full Independent Contractor Benchmarks and Trends Webinar, where we give a more in-depth recap of how owner-operators performed in 2022!
From May 2020 through April 2022, we saw one of the biggest increases in spot market load volumes and rates in the history of trucking. But in April of 2022, while contract rates remained somewhat stable, spot market rates and load volumes began falling dramatically. Here are some numbers to illustrate this shift in the market:
Peak - November 2021
Loads: 240 loads per 1 truck looking for a load.
Rates: $2.49 per mile (without fuel surcharge).
Today - February 2023
Loads: 55 loads per 1 truck looking for a load.
Rates: $1.80 per mile (without fuel surcharge).
That is a 77% drop in the number of loads available and a 28% drop in rate per mile (net of fuel surcharge). These major declines have caused a significant number of owner-operators that were running on their own authority to leave the spot market and lease on to carriers where load volumes and rates are currently more stable.
The miles that owner-operators run continue to decline year after year. Here is a look at the annualized miles for owner-operators over the past couple of years:
2nd Quarter 2021: 100,000 miles
4th Quarter 2021: 95,000 miles
2nd Quarter 2022: 90,000 miles
4th Quarter 2022: 85,000 miles
As you can see, this equates to a shocking 15% drop in owner-operator capacity (miles) in the trucking industry over the past two years. There are many things contributing to this decline in miles.
Somewhat counterintuitive, the majority of owner-operators choose to run less during boom times like 2020, 2021, and early 2022. Then, during challenging times, owner-operators typically run much higher miles. However, that scenario hasn’t played out this time. Miles continue to decline and there are many things contributing to it: labor shortages and resulting downtime at shippers and receivers; owner-operators parking trucks over fear of high fuel prices; excessive downtime for repairs; traffic congestion; lack of truck parking; and lifestyle changes with owner-operators going home more often than ever before.
Fuel is a topic in and of itself. The big picture is that fuel costs in 2022 were up a glaring $.24 per mile vs 2021. That is an increase of 51.5%! In this fuel environment, it’s imperative for owner-operators to do everything possible to maximize fuel economy.
Maintenance Costs and Downtime
On the surface, maintenance for owner-operators seems like it’s in pretty good shape
considering that average annual maintenance costs in 2022 were only $278 higher than in 2021. But as we know, maintenance is a variable cost, and thus to understand it, we have to look at cost per mile. Parts prices are up, labor rates are up, parts aren’t available, huge delays trying to get into a shop, and maintenance and repairs that used to take a day or two are now taking a week or two (or more). Here’s the impact of all this:
Maintenance Cost per Mile
2021: $.12 per mile
2022: $.14 per mile
That equates to a 17% increase in maintenance costs, and that 17% does not include the
significant increase in downtime that owner-operators are experiencing for maintenance and repairs.
As we’ve discussed, for the average owner-operator rates are down, miles are down, and costs are up. The resulting impact on profitability is pretty obvious. In 2021, the average owner-operator had net income of $71,000, and in 2022 the average net income was $64,000. That is a 10% decrease in profit. But here’s the thing…the best owner-operators haven’t missed a beat; they are still doing well in this down market. Why is that?
The best owner-operators have changed their mindset on load selection and what lanes they will run. They are taking an extra load every week or two to compensate for the lower rates per mile.
Know the contribution margin of your business; know both your business and your personal fixed costs; and know your breakeven point in both miles and revenue. It’s critical to weigh all these factors when you consider load selection, traffic lanes, repositioning loads, layovers, home time, etc. Focus on maximizing revenue per day, not revenue per mile.
With today’s fuel prices, improving your fuel economy by just 1mpg can put an extra $10,000 profit or more in your pocket. There are many things you can do to improve fuel economy with the most important being…slow down.
It’s important that you are doing preventative maintenance so that work is being planned and completed at the lowest price and on your schedule as opposed to price-gauging emergency breakdown repairs with catastrophic downtime. And make sure you are saving enough money for extended downtime in addition to the cost of repairs.
Here’s the bottom line. Successful owner-operators continually adjust their
business practices to maximize their profits. If you are unsure what changes you need to make to your business, call ATBS for help.