Owner-Operator Prospectus

Created for Vertex Solutions

Table of Contents
OWNER-OPERATOR PROSPECTUS ....................................................................................................................3 DEFINITIONS .............................................................................................................................................................3 CURRENT AVERAGE COMPENSATION .............................................................................................................3 SECURITY DEPOSITS AND MAINTENANCE FUNDS .....................................................................................................5 TRAILERS ..................................................................................................................................................................5 SUMMARY.................................................................................................................................................................6 RECRUITMENT AND RETENTION ......................................................................................................................6 ATTRACTING THE BEST O/OS ...................................................................................................................................6 HONESTY IS THE BEST POLICY ..................................................................................................................................6 DISPATCHING O/OS ..................................................................................................................................................7 Forced vs. Option Dispatch ................................................................................................................................7 EQUIPMENT REQUIREMENTS .............................................................................................................................8 TRUCK AGE (POWER UNIT) ......................................................................................................................................8 SPECIALIZED EQUIPMENT NEEDS..............................................................................................................................8 SETTLEMENT ............................................................................................................................................................9 BENEFITS OF CONTRACTING AN O/O ...............................................................................................................9 DISADVANTAGES OF CONTRACTING AN O/O .............................................................................................. 10 ALTERNATIVES ...................................................................................................................................................... 10 CONCLUSION .......................................................................................................................................................... 10

Owner-Operator Prospectus
Owner-Operators (O/O) are the lifeblood of many trucking companies. Reducing the need for additional power units, O/Os offer an excellent return on investment (ROI).

Definitions
O/O with own authority These are totally independent O/O with their own DOT number. They run off load boards or load by load. Rarely do they sign-on to a company. They generally have their own complete rig and recoup a higher percentage or mileage pay due to these facts. O/O running under company authority This is your normal O/O. An owner owns a power unit, which he/she leases to a company, generally under contract, to pull that companys trailer. They run under the companys authority (DOT #. The calculated normal average compensation as discussed below refers to this O/O type. The driver may be the owner, hence O/O or the owner may hire a driver especially is he/she owns more than one truck. Trip Leasing - This is an O/O who generally owns a complete rig but does not have their own authority. They lease, by the trip, to a company and use the companys DOT # for the length of that run only. This use to be a very common practice but not any longer. Compensation is higher than the category above but less than an O/O with own authority.

Current Average Compensation

According to my contacts and research, the current average compensation is $.90.95 + FSC (fuel service charge) or 70-75% of the gross of the load. Contractors with their own trailers are generally compensated with 10-15% more. The government calculates the FSC and it changes each Tuesday. It fluctuates by the cost of fuel for the previous week. It is calculated by the US overall and by areas. If a truck is running in one area, that areas FSC is generally used. If the truck is running OTR (over the road) then the general US FSC is offered. 3

FSC is calculated by beginning with a base fuel cost of $1/gallon. Trucks are considered to average 5mpg. When fuel is over $1/gallon, the difference is divided by 5 and the result is calculated for that week FSC.
Calculation Example: $2.50/gallon 1.50 is the adjusted cost 1.50/5 = .30 so FSC is $.30/mile for this period as posted by the government

This amount is then charged to the customer as an FSC and paid to the O/O. Legally, all FSC recouped must be passed to the party who is responsible for the fuel cost. FSC is charged/paid on loaded miles only. It is often paid only after being recovered from the customer. It is paid in addition to the mileage or percentage rate. It may be paid weeks or even month after the initial settlement is calculated and paid on the trip. Demerge pay is spelled out in the contract along with number of free hours required. Demerge is sometimes paid on a sliding scale or set across the board. Average compensation was generally $50-100/hour. Could not confirm the standard demerge pay offered to an O/O at present. It was highly varied from those who would provide the information. Sign-on bonuses are still averaging about $1000. The sign-on bonus can be paid up front to offset the cost of equipment (e.g. pump) or base plates, paid out in increments over the 1st 90 days 1 year or paid in a lump sum after a designated time (e.g. 90 days). Many companies cover the cost of the base plates, generally after one year of service. Those that do not, generally deduct $50 week to cover the cost of the annual fees of $550 for the 2290 (due before June 30th) and the cost of the plate/plate renewal (cost varies by state). IFTA is covered by the company more than not. This is especially true when a company credit card for fuel is provided. This is generally a very minimal cost but a very effective recruiting tool. The O/Os fuel often helps to balance out the fleets IFTA standings since O/Os are more prone to buy fuel by state to balance out mileage whereas company drivers buy as convenient. Taking the time to separate each trucks IFTA cost, which is usually less than $20 if anything, requires more effort and cost than it is recouped. 4

The company provides liability and cargo insurance. Physical damage and bobtail insurance are usually the Contractors responsibility and expense. Companys generally offer bobtail insurance coverage through their carrier to help reduce the cost for the O/O as well as guarantee and monitor coverage. The cost is then deducted from the settlement. Drug testing, physicals, and alcohol testing are usually the Contractors expense. Random drug test costs are spelled out in the contract as to who is responsible for the cost. Often the pre-employment tests are covered upfront by the company then reimbursed through settlement deduction.

Security Deposits and Maintenance Funds

Maintenance funds, (MRA) or Maintenance Reserve Account are generally required. Companies deduct a set amount, $.05-.15/loaded mile and set it aside to help the O/O when there is a breakdown. This can be a bit technical, as each fund has to be handled separately including the compound interest. The reason behind this fund is to keep from having to finance repairs for the O/O when they break down under a load. Established O/Os generally have their own account established but newer O/Os do not. There is generally a cap put on the account where you deduct money until $5,000 (or whatever amount is established) is met. Once met the deductions stop until money is used. Then deductions begin again until the cap is again met. This can also be handled as a security deposit that is paid out over time but it is difficult to replenish that type of account. Security deposits are often required to cover the cost of abandoned trailers or broken equipment. Amount vary based on what the O/O is deemed responsible for and the terms of the contact.

Trailers
If a trailer is assigned that is that O/Os to use exclusively, they are often liable for tires damaged due to misusage. Non-exclusive trailer usage cannot fall into this category. If you issue new hoses and/or fitting, they can fall into this category as well. Normal wear and tear cannot count against the O/O.

Summary
The company needs to protect their investment but not at the cost of the O/O. Nickel and diming an O/O will keep them from signing with you or will force them to move on quickly due to zero profit margins.

Recruitment and Retention

Attracting the Best O/Os
In order to attract and retain the better/best O/Os, you have to offer an attractive package. The O/Os profit margin is very low. Right now, the industry, as a whole, is reporting O/Os to make $100K/annual but after expenses and before paying themselves a salary they net -$20K. It is an awful time to be an O/O. You have to present them a package where they can make some money. In general, an O/O keeps less than 30% of their gross in a good year. Most make less than a company driver when you compare net-to-net income. O/Os do this for the freedom of choosing their own running areas and driving a vehicle they want. It is not about the money as much as it is about freedom. O/Os rarely are offered health/life, etc.. insurances from a company due to being a contractor not an employee. If they are offered health insurance, it is in a different category from the company driver and generally very expensive. An annual bonus may be offered to compensate for no paid vacation. Safety bonuses and other bonuses such as a good DOT inspection bonus, maintenance bonus, mileage bonus and so forth are very attractive to the O/O. They offset many costs and help to provide for some of the amenities that are covered as a company employee/driver.

Honesty is the Best Policy

When recruiting an O/O, honesty is the best policy. Drivers, company and O/O, are use to being feed a load of lies. The honeymoon period (recruiting time) is when the impression made on the new driver is very important. If this time is not very accommodating, the driver knows things will only get worse. This is the time to make the driver/O/O happy as he/she is introduced to the company. If this is 6

rocky, it lays little hope for a good future. You are building a relationship here and it has to begin on a high note. Do not recruit an O/O or driver with the promise of home nightly and off weekends if that is not something that is do-able for the future. Tell the O/O that at current you have X, next week things may be Y and the other jobs are ABC. Do not make any promises you cannot keep just to fill seats. The door will revolve so quickly it is not worth the effort to anyone. Taking a little extra to get the right driver and fit is worthwhile in the end. Some O/Os want steady, heavy work while others are looking for a few runs a couple times a week. Listen to what they need and see if it fits your needs. Trying to force an O/O into a situation they do not want is a lose-lose situation for everyone.

Dispatching O/Os
O/Os are seeking their own dispatch board and a dispatcher to build a relationship. They want someone who learns their likes and dislikes as well as their needs, and works to fulfill them. In turn, most will provide you with good service.

Forced vs. Option Dispatch

Company driver, i.e. company employees, can be forced dispatched. O/Os are contractors and as such, business partners. They are offered runs or contracted for a specific run. Telling an O/O, You will run this is the end of a beautiful relationship very quickly. Remember, they are not making any real money. This is done to be in control of where they run, when they run and how they run. The O/O dispatcher has to know how to give this to them while still getting done what the company needs. It is a matter of knowing how to communicate with them in a method that shows respect instead of force. Most O/Os do not wish to be on a company board for they feel they are forgotten. They feel they will be loaded last and with whatever is left over. Providing the O/O their own board, gives them a sense of pride and a feeling of control. It is a high selling point in the recruiting stage.

You may specify how many miles or trips you expect during a set time period and your expectations of time off (e.g. home/off every other weekend, time off as you can afford, 1 day off for every 7 out, etc)

Equipment Requirements
Truck Age (Power Unit)
Many companies only wish to contract with O/Os that own newer equipment (e.g. 3-5 years old max). While this is their way of ensuring proper maintenance and delivery, it is not always the best policy. In todays tight economy, owners and trucking companies are holding onto their equipment longer and beefing up maintenance plans to accommodate older equipment. With our industry being one of flexible need, contracting an O/O requiring a lower income stream to maintain his/her equipment could be of value. Semi-retired O/Os often operate equipment that is paid for, hence older, and desire flexible scheduling. Most are not seeking a 70-hr week but rather a supplemental income. In my experience, these contractors are very useful to fill JIT/last minute needs, local/specialized runs and/or as that extra truck on a job.

Specialized Equipment Needs

Bulk hauling generally requires more specialized equipment and training than dry van or flatbed hauling. This generally comes in the form of pumps designed for a specific job. O/Os moving within the industry may come with this equipment however; it is generally an upfront expense that has to be discussed along with training to operate said equipment properly. Obtaining this equipment (e.g. pump) is generally offered in one of the following formats. Financing options may be offered for the equipment that range from 100% financing to upfront deposits and scheduled payments from settlements Companies may require an outright purchase that is often difficult for a transitioning O/O to handle Lease options where equipment ownership is maintained by the company by a weekly fee that is charged for its usage 8

o This option is common for satellite communication equipment such as QUALCOMM or for the few remaining companies that still require a trailer lease

Settlement
Settlements are generally weekly with many companies now offering settlements multiple times a week to avoid advances. Advances are generally offered on weekly settlements of a set amount and may be accompanied by a small charge to offset the cost of Comdata. Alternative option is 50% of expected gross at time of dispatch loaded onto Comdata card. This is to cover fuel and expenses. Additional monies and help may be given if deemed necessary/appropriate. The other 50% is paid after delivery, which all fees are deducted from prior to payment. If the 50% option is not used, then the mileage or percentage rate is calculated in full. All related expenses for that trip is then deducted from the settlement (e.g. fuel, maintenance fund, security deposit, $50 tag fee, etc). The balance is then paid to the O/O. Owners who hire operators (drivers) may request the company pay their driver directly out of the settlements or pay them in full and they then pay their drivers. This is all established during the contract period.

Benefits of Contracting an O/O

O/Os provide their services for less cost to a company than that of a company driver. There is lower to no equipment cost, no health insurance premiums, no vacation pay and often no plate costs (e.g. savings of $3500/annual). Their maintenance costs are their own, which reduces the need for mechanics, parts and services. O/Os are generally more stable then company hopping drivers. This is due to the headaches associated with switching over bobtail insurance, base plate fees and other company contractor entanglements. O/Os help to boost the number of truck count on our DOT #, which is beneficial in the new CSA 2010 calculations. They are generally more conscientious drivers 9

and help raise company scores. This is especially true when you require monthly or at least periodic equipment inspections.

Disadvantages of Contracting an O/O

O/Os generally need some upfront funds to get started. That is provided by the company and paid out over time. They require their own O/O board and dispatchers that understand their unique needs. The more funds you require them to establish, the more paperwork you create as well as legalities for handling these funds. This can be minimized by requiring fewer funds.

Alternatives
O/Os can be signed on for a specific job only. In this case, the $50 licensing/plate fund and so forth would probably not be established. They would be informed up front that it is for this job only and anything after this job is completed with be considered at that time. Security deposits may be required up front or no security at all if kept local. Generally, job specific hiring is handled differently from long term, multiple job prospects.

Conclusion
In my experience, O/O made the company more money per unit than a company driver did. They ran harder and were conscientious with the equipment.

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