How to Start a Trucking Company
In the U.S., trucks move roughly 72.5% of the nation’s freight (by weight) and travel well over 300 billion miles annually, according to statistics published by the American Trucking Association (ATA). Not surprisingly, driving large tractor-trailers or delivery trucks is one of the largest occupations in the United States, as stated by the United States Census Bureau. It is, for many, a lifestyle choice.
Do you already hold a Commercial Driving Licence? Do you love being on the open road and know a thing or two about truck maintenance? Do you know your LTL from your T.L., and are you good at scheduling, costing, and managing transport operations and workloads? Then you should definitely read on.
A trucking business provides freight transportation services over long or short distances. Truckers can work in a broad range of industries.
Whether it’s heavy or tractor-trailer, flatbed, 18-wheeler, full-load, tanker, long-haul, HAZMAT, or short-haul, trucking is in many ways the backbone of the U.S. economy. Truck drivers provide the critical infrastructure for economic activity (U.S. Census Bureau).
Typically, a truck driver has at least a high school diploma, has completed a truck driving training course, and must hold a commercial driver’s license (CDL) for long-haul trucks. In addition to that, drivers must attain a HAZMAT endorsement if they intend to transport hazardous materials.
This is a highly regulated industry with laws and regulations likely to differ from state to state. To run a trucking business successfully and safely, it is vital that you understand and adhere to all of the relevant requirements.
Trucking really is a lifestyle choice; it’s also the glue that holds the U.S. supply chain together. Loving the mechanics of an engine, being on the open road, and taking pride in delivering freight to its next destination is a fantastic and essential start to your business ownership journey.
In a nutshell, the trucking industry takes care of all freight that can be transported on the road and is also a substitute for air or rail transport.
A recent report by VerticalIQ states that the U.S. trucking industry is made up of well over 110,000 companies. Almost 90% of trucking businesses are small carriers operating out of a single location. 79% of them employ fewer than ten workers. In fact, 1 in 4 truck drivers identifies as an independent owner-operator trucker, meaning they own their truck and contract their services out to trucking companies.
Now is a good time to start your own trucking company!
The truck driver shortage is ongoing, and freight demand continues to rise. This severe shortage has been highlighted by a recent Bloomberg article and is supported by U.S. census statistics. These show that truck drivers are less likely (4.1%) to be unemployed than all workers (5.3%). For a trucking business, it is, therefore, crucial to be able to attract and retain well-qualified staff.
According to the U.S. Bureau of Labor Statistics, employment of heavy and tractor-trailer truck drivers is expected to grow at a similar pace to the average of all occupations from now to 2030, about 6%.
Although t the number of female truck drivers is on the rise, the trucking industry is male-dominated. According to Statista, only 6.6% of all truck drivers in the USA were female in 2018.
Truck drivers are needed across pretty much all industries and sectors: supermarkets, food chains, courier services, moving companies, farming, the building industry, to name a few.
Determining your target market is an important process. It will be influenced by or influence the size of your workforce, the size and number of trucks, what certifications you will need, and whether you will work locally or long-haul and cross-state. Importantly also, it will depend on your own trucking experience and network, and supply and demand.
Skills, experience, and education useful in running a trucking business
Business management experience
Operations management skills are definitely an advantage when starting a trucking business. Business and management experience will also help with managing staff, correctly pricing your services, scheduling, and implementing all necessary health and safety regulations. Taking specific business classes may be a great way to help you with these skills.
Technical and repair skills
Especially if you decide to run an owner-operated trucking business, being able to take on minor repairs and keeping your truck in good shape will go a long way to avoid hefty maintenance bills.
Self-motivation and organizational skills
A positive can-do attitude and discipline are essential to running your trucking business successfully. Not only will you have to schedule trucking services to deliver freight on time and have enough trucks and potentially staff to do that, but you will also need to keep up with rigorous maintenance schedules for your truck(s) and stay within health and safety regulations.
Don’t forget to set aside time to look after your own business administration, take time for quotes, and keep on top of invoicing.
Stay up to date and on top of trends
Stay connected with your networks and professional associations. It’ll give you the advantage of being informed about supply chain trends, new technologies, and innovations, but also changes in regulations and laws that might affect your business.
Checklist for Starting a Trucking Company
If you’re thinking about starting a trucking company, it’s important to do your research first. Here is a checklist of the most important things to think about before you get rolling.
Step 1: Write your Business Plan
You’ve decided to be your boss. You might have discussed your ideas with family and friends, ideally with a business mentor or a relevant professional body. The next step should be to write a business plan. Even if you decide to run an owner-operated trucking company, the initial outlay can be eye-watering. That means your planning needs to be sound so that you can base your business decisions on solid research and data. The business plan will make you focus on some critical aspects of your business, such as who your customers are, how you plan to reach them, projecting income and expenses, what certifications and insurance you will need, and much more.
Multiple studies have shown that a business plan helps increase the odds of starting a successful business and sustain it longer-term. And having a detailed business plan is a must, should you need a loan from the bank.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect name for your trucking business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a trucking company, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Step 4: Select your Location
Many trucking businesses are owner-operated and run from a single location. Costs will therefore vary greatly depending on what the size and volume of your operations and services will be. When selecting your location, consider factors such as the size of trucks and/or the fleet, whether you need additional storage (and, in that case, loading docks), and how you will maintain your trucks. Your trucking company does not necessarily need to attract walk-in business but should ideally be located somewhere with good and easy access to major roads and networks.
If you decide to run an owner-operated trucking business from home, make sure you understand the relevant regulations; they might differ from state to state.
Step 5: Get Business Insurance
Compared to other businesses, a trucking company’s insurance costs are pretty substantial. There is, of course, the insurance of your truck or your fleet of trucks and equipment. Insurance costs will be determined by the size, use, and age of these assets and their location.
A few types of trucking insurance to explore includes:
– General liability insurance to protect your business
– Freight/ cargo insurance may be important depending on what is being transported.
– Professional liability insurance helps cover any damages owed if your professional services or advice result in a financial loss for your clients.
– Physical damage insurance – to cover damage to the tractor and trailer in the case of a no-fault accident.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
In addition to state requirements, many shippers and brokers may require more coverage than required minimums in order to provide adequate primary liability and cargo coverage.
The cost of insurance policies will vary based on a number of factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Related: Trucking Insurance Requirements – https://www.fmcsa.dot.gov/registration/insurance-filing-requirements
Step 6: Apply for Business Licenses and Permits
A business owner will need to obtain specific business licenses and permits. These permits and licenses can vary based on the state and town where the business is located, the types of goods being transported, and the location of deliveries.
Some common local, state, and federal registrations a trucking business may need include a sales tax permit and Employer Identification Number (EIN).
Your trucking company will likely also need additional, industry-specific licenses, such as:
– USDOT Number – Companies that operate commercial trucking companies must be registered with the Federal Motor Carrier Safety Administration (FMCSA). The DOT number is used to monitor safety information, inspections, crash investigations, etc.
– BOC-3 Registration – The FMCSA requires carriers to designate a process agent who would receive court papers in the event of a legal proceeding.
– Motor Carrier Operating Authority Number (MC number) – Required when moving goods across state lines.
– Unified Carrier Registration (UCR) and International Registration Plan (IRP) – Companies that operate commercial motor vehicles in interstate or international commerce must register with a participating state and pay an annual fee based on the fleet size.
– International Fuel Tax Agreement (IFTA) is a tax collection agreement between the U.S. states and Canadian provinces to simplify the reporting and collecting of motor fuel taxes.
Step 7: Find Financing
Getting bank financing for a trucking company is very difficult. According to the National Association of Small Trucking Companies, trucking start-ups have an estimated 85% failure rate within their first two years of operation, which is why banks are hesitant to loan money.
Should you need a loan, it is important to understand that the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 8: Open a Business Bank Account
Keeping your business and personal finances in separate business-banking and credit card accounts is vital and makes good business sense. It will also make it easier to track the income and expenses of your business, understand profit margins and identify trends.
Step 9: Hire Employees
Many trucking businesses are owner-operated, but hiring additional staff will allow you to expand the range of industry-specific expertise you offer and the volume of work you can manage. Keep in mind that even with driver shortages, driver turnover is extremely high in the trucking industry, so having access to backup drivers is important to keep trucks on the road.
The average annual salary of a truck driver in the U.S. is just over $71,000, according to Statista, Salaries will vary though from state to state and will also depend on the experience of the driver as well.
In addition to salary costs, make sure to include other employee-related expenses in your budget. For example, workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff. It will also be useful to set aside both time and budget for training and development.
Related: Hiring your first employee
Step 10: Set up an Accounting System
Setting up an accounting system for a trucking business is critical to its long-term success. Using accounting software like Quickbooks, Xero, or Wave, will allow you to stay on top of your billing and track income and expenses. It will help you maximize profits, identify trends, and make tax filings easier.
How much does it cost to start a trucking company?
Budgeting for starting a trucking business is not for the faint-hearted! There are so many variables, giving you a final budget is impossible. Instead, we’ve given you budget points relating to variable and fixed start-up costs.
A few costs to consider when starting a trucking business:
– Purchase tractor, trailer, and equipment – It might make sense to look at second-hand or even leasing options to lower initial start-up costs.
– Truck maintenance – some of that you might be able to take on yourself, but make sure you are aware and meet all regulatory requirements as well.
– Fuel costs – variable costs
– Registration fees, permits, and certifications – start-up and ongoing costs
– Paying insurance on trucks and drivers – heavily dependent on the size of your company, the nature of your trucking services, and your location.
– Hiring drivers – ongoing. There is a continued shortage of qualified truckers, and creating safe and positive work conditions, offering health benefits, for example, can help reduce costly staff turnover.
– Non-trucking specific business expenses
How profitable is a trucking company?
Although the initial costs of starting a trucking business are high, it is a solid industry to be in, with an overall positive outlook due to the shortage of qualified drivers. Of note is that almost half of all truckers work longer hours than the regular 40 workweek. This is especially true for long-haul drivers.
How much you ultimately make running your trucking business depends on the services you offer and your location. Most of all, though, it comes down to good budgeting, planning, and pricing, i.e., correctly calculating costs. Another factor in profitability is whether you are able to source loads direct or go through a freight broker who will take a commission for arranging the job.
For your trucking company to be successful, it is essential that you master the cost per mile (CPM) calculation as fuel is the largest operational expense after labor. CPM is the cost of operating for every mile driven. With that figure, you can then develop quotes for your clients, including your CPM and a profit margin.
Are there grants to start a trucking company?
It’s extremely rare to find a grant to start a trucking company. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a trucking company?
The NAICS code for a trucking company is 484. More specifically:
– General freight trucking – 4841
– Local general freight trucking – 484110
– Long-distance general freight trucking – 484121
– Specialized freight trucking – 4842
– Local specialized freight trucking – 484220
– Long-distance specialized freight trucking – 484230
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.