owner-operator usage by truckload carriers advantages of using owner-operators limited investment in...

Owner-Operator Usage by Truckload Carriers

Advantages of Using Owner-Operators

Limited investment in equipment.

The ability to meet peak demands without surplus capacity at off-peak times of the year.

An almost unlimited source of capacity.

A way of coping with the driver shortage.

Permits carriers to test alternative markets with out a significant resource commitment.

Avoidance of certain fixed expenses

Owner-Operator Usage by Truckload Carriers

Disadvantages of Using Owner-Operators

Lower level of company-owned asset utilization (from employing driver teams and related dispatching techniques)

Reduced load matching capabilities and more empty mileage of company-owned vehicles

Drivers typically are less productive, less reliable, and less safe than company drivers

Higher insurance rates

Lower levels of service provided to customers

Firms with company drivers typically are more profitable

Owner-Operator Usage by Truckload Carriers

• Introduction

• Background Literature

• Methodology

• Results

• Conclusions

Overview

Owner-Operator Usage by Truckload Carriers

• Past Predictions About Owner-Operators

• Continued Presence of O-O’s in the Industry

• Purpose of Study – Examine the role that owner-operators play in today’s

trucking industry,

– Assess whether or not firms can expect to prosper by incorporating owner-operators into their operations

Introduction

Owner-Operator Usage by Truckload Carriers

Congressional Support of Owner-Operators

Previous Research

Counter Trends

Background Literature

Owner-Operator Usage by Truckload Carriers

• 1980 Motor Carrier Act

• The Motor Carrier Fuel Cost Equity Act of 2002

• NAFTA Issues

Congressional Support

Owner-Operator Usage by Truckload Carriers

Corsi and Grimm (1987, 1989)Lane (1987)Legg and Larkin (1988)Rakowski (1989)Rakowski, Southern, and Jarrell (1993)Rakowski (1994)Harmatuk (1992)Allen and Liu (1994)McGinnis (1990)Murphy and Hall (1995)

Previous Research

Owner-Operator Usage by Truckload Carriers

• Driver Shortage

• Landstar

• Johnson and Schneider (1990)

Counter Trends

Owner-Operator Usage by Truckload Carriers

Hypotheses

Data Set

Analytical Procedure

Methodology

Owner-Operator Usage by Truckload Carriers

• H1: Use of owner-operators by truckload general freight carriers has not significantly decreased since 1989 (Corsi and Grimm)

• H2: Operating expenses of truckload carriers is not significantly different for firms that use owner-operators than for those that do not (Corsi and Grimm)

• H3: Profitability of truckload carriers is not significantly different for firms that use owner-operators than for those that do not (Corsi and Grimm)

• H4: Revenue per unit of truckload carriers is not significantly different for firms that use owner-operators than for

those that do not (Harmatuck 1992; Allen and Liu 1994)

Methodology

Owner-Operator Usage by Truckload Carriers

TTS Blue Book Data

Class I Carriers

O-O Dependence

Sample Size

T-Tests in Excel

Data Set

Owner-Operator Usage by Truckload Carriers

Table 1Average Percentage of Owner-Operator Use:

1989-1997

Year Use of OO Observations

1989 26.1 1721990 24.7 2161991 20.9 2301992 20.9 2211993 16.9 2681994 15.9 2911995 17.7 3051996 13.5 2831997 17.5 316

Owner-Operator Usage by Truckload Carriers

Perc

enta

ge

Year

1988

35

30

25

20

15

10

5

1992 1994 1996 1998 20001990

Percentage Use of O-O: 1989-1997

Owner-Operator Usage by Truckload Carriers

Owner-Operator Usage

Less than 10% More than 90%

Measure # of Obs Mean   # of Obs Mean p-value

Gross Rev 1571 38,700.60 223 50,494.80 0.0320

Total Op Exp 1571 36,749.66 223 48,659.97 0.0237

Net Op Inc 1571 1,948.76 223 1,834.86 0.6740

Net Profit 1571 843.66 223 1,172.57 0.0599

Op Ratio 1571 95.43 223 97.45 0.0000

Net Prft Mgn 1571 2.45 223 1.68 0.0006

Rtn on Eqty 1571 25.13 223 16.26 0.0431

Owner-Operator Usage by Truckload Carriers

Owner-Operator Usage

Less than 10% More than 90%

Measure # of Obs Mean   # of Obs Mean p-value

Rev/Mile 1379 1.69 212 2.32 0.4111

Rev/Ton 1248 68.33 199 59.38 0.0544

Rev/Ton-Mile 1234 0.16 200 0.2 0.5379

Exp/Mile 1379 1.62 212 2.27 0.3912

Exp/Ton 1251 69.31 200 88.81 0.5434

Exp/Ton-Mile 1234 0.15 200 0.2 0.5268

Owner-Operator Usage by Truckload Carriers

Owner-Operator Usage

Less than 10% More than 90%

Measure # of Obs Mean   # of Obs Mean p-value

Profit/Mile 1379 0.07 212 0.06 0.1363

Profit/Ton 1251 3.47 200 2.64 0.1860

Profit/Ton-Mile 1234 0.01 200 0.01 0.6131

Owner-Operator Usage by Truckload Carriers

• H1 Use of owner-operators by truckload general freight carriers has not significantly decreased since 1989. REJECT

• H2: Operating expenses of truckload carriers is not significantly different for firms that use owner-operators than for those that do not. REJECT

• H3: Profitability of truckload carriers is not significantly different for firms that use owner-operators than for those that do not. REJECT

• H4: Revenue per unit of truckload carriers is not significantly different for firms that use owner-operators than for

those that do not. Possibly Reject

Results vs Hypotheses

Owner-Operator Usage by Truckload Carriers

Supports prediction of Corsi and Grimm

Firms using a high percentage of O-O’s appear to be at a competitive disadvantage

Some Support of Harmatuck (1992) and Allen and Liu (1994)

Conclusions