Is Hot Shot Trucking Profitable?
You bet - if you do it right!
You're in the right place to find out how!
Any business venture starts with knowing the marketplace, so you can determine your share of it. Let's start with business intel.
The demand for hotshot continues to grow
As an industry, transportation of freight not only is a backbone of the USA economy, but the volume of freight is increasing. Go ahead and google trucking industry outlook and/or truck driver outlook. You'll see freight volume continues to rise, and the shortage of drivers continues to widen.
What's the demand in YOUR area?
You can look at a few places to get load ratio/density information for your area. You can also find out the rates. Let's go spy, shall we? Take a look at the DAT stats. You really want to be in an area that the loads are 18+ for every truck. This will give you the best negotiating power, in other words, higher rates. Don't get lost on that site's rates - they're giving you TL (truck load) rates, not LTL (hotshot). We'll talk about rates next.
Ah, the smell of opportunity. Are you getting pumped?!
Ok, so we clearly know there's a need & opportunity. So, let's move into the marketplace revenues, specifically for hotshot.
How much do hotshot loads pay?
Hotshots are moving what is called LTL, or "Less than a Truckload". And most of y'all have an open deck trailer, a flatbed. So we're going to talk specifically to that equipment type here. If you're interested in hauling cars, dogs, rvs, or whatnot, you'll have to go down the road for that information.
In terms of ballpark rates, the average LTL load is posted for $1.47 per mile.
RPM (rates per mile) vary with freight season. Peak season, oh you're gonna be baning it! Low season, that's when you take vacation time. Throughout the year rates will vary from $1.50 - $2.50 on average.
We're making an estimate here, so let's bank low and earn high. Estimate your revenue on $1.50 per mile to calculate your profs. (profits!)
How many miles do you want to be paid for?
Assuming you want to actually work, not day dream about working, you can estimate your weekly miles at 2,500. Per the HOS (hours of service) regulations, you could drive 55 hours per week and, at an average speed of 60 MPH, you'd drive 3,300 a week. But let's give some cushion to this equation. Don't be counting chickens before they hatch. Budget 2,500 miles. Anything more is cake.
Rate per miles x Miles driven per week
At a rate of $1.50 per mile, driving 2,500 miles per week, you're looking at a gross revenue of $3,750. I've shared this before, our carriers average $4,000 - 6,500 a week. For purposes here though, you're making an estimate for a business. Never make a budget for the high end.
What are the Operating Costs?
You need to know your fuel consumption. Most of our carriers are driving Ram 3500's with a gooseneck that's 40ft long. They can take a load capacity of up to 16,000lbs. They report that in areas where there are no mountains, they're getting about 10 miles per gallon, loaded. If you're in the mountain regions, it's gonna drop to 8MPG.
You're MPG depends on your truck and the way you drive.
Estimating that you're going to run 9MPG, let's look at the average price of diesel in your freight lane. Yes, we're going to factor in fuel surcharges, but let's really dial down the costs here. If it's $2.75 a gallon, you get 9MPG and you're running 2,500 miles a week, we're talking in the neighborhood of $750 a week in fuel.
Other Operating Costs
Ok, so you've got the fuel costs estimated. Now you need to add up your other costs. Do you have a truck payment? Trailer payment? Insurance costs are no joke. (Keep reading below) Are you going to stay in a hotel, if so, how often? Are you going to pack some food or eat at the truck stops three squares a day? C'mon be honest.
How many days are you going to live in your truck?
Let's be brutal here, because the lifestyle is not for everyone. Unlike semi tractors, there is no standing room, sleeping room or place to cook or pee. You're in a pick-up truck. You're going to park in the truck stops, right next to those big-brother semi trucks. You're going to shower in the truck stop. Brush your teeth (at least I hope you do!) and relieve yourself, at the truck stops.
Test out your endurance if you can. I'm not trying to talk you out of this. I want you to be real with yourself. There's a turnover of truck drivers, a shortage of truck drivers...for a reason. I don't care if you make $16,000 a month, you're going feel this.
This is fairly easy to figure out, right down to the penny...if you're smart. Assuming you're going to finance the truck and trailer, the biggest out-of-pocket expense you'll face is the insurance. It can be a pretty penny, with high down payments. So, let's do this smart.
The first thing you want to do is go browsing for the truck and trailer that you want. You're goal here is to determine what the total cost of the truck is, the total cost of the trailer. Look at the year, make, model...look at the load capacity, tow capacity, etc.
Once you have selected a truck and trailer, you want to note the VIN number of each. Snap a photo with your phone, or get a written quote from the dealer - just make sure it includes the VIN number!
You're going to use the VIN numbers to get insurance cost information!
Now, you're going to want to do two things at this point. First, ensure you can get financing for the equipment. You're not going to purchase just yet, but you want to know that you can secure financing. So check with the dealer, your bank, your credit union, etc.
Determine you can secure financing for truck and trailer.
Next, you're going to call around for commercial insurance. Give the agent(s) the VIN numbers you collected. You want to get 1,000,000 liability, 100,000 cargo, and you'll no doubt need to have the equipment fully covered if it's financed. You may want to push your deductible up, to save on costs; most finance contracts will not allow you to go above $1,000 deductible.
In about a week or so, you're going to know if you can finance the truck & trailer. You'll know what your down payment requirements are. You'll also know what your monthly payments are, for each. Jot that down.
You'll also hear from your insurance agent(s). The first quote is usually ugly; they'll come back and say they're shopping for more. Let them. This is the most expensive part of getting your authority.
Finally, we have some hard numbers to work with.
Super! Now you have some hard numbers to work with. You know what your down payment requirements are for the truck, trailer and insurance.
At this point there are two possible pathways. Either you can afford the insurance down payment, or you can't. Here's your choices.
If you can afford it, you're going to start the process to get your MC. It takes about 25 business days. So, about half way into that time period, you're going to go buy the equipment and initiate insurance. This will reduce the time the truck is sitting, while you're waiting for authority..and those payments are going to come due.
Timing it this way will reduce the time the truck is sitting, waiting for authority.
Getting authority is not a difficult process. Loads of services out there will charge you, but I'm telling you, it's not hard at all. And if you're going to run a business, you should put yourself up for the task of logging in and filling out government forms. The requirements for MC authority, other than the insurance, will run you under $500.
Listen up folks, most states will allow you to then purchase your truck & trailer with apportioned & token plate. What does this mean? Well, baby, you just saved every dime of the sales tax. Apportioned plates and token plates...google that, cause I haven't written a post for that, yet.
What if you can NOT afford the insurance down payment?
You're next option is to "lease on" with a carrier, as they will have the commercial liability & cargo insurance in place. You still need to carry your own insurance, as required by your financing company; but that does not usually have the hefty down payments that the commercial insurance does.
Leasing on means you contract with someone that does have authority, will contract you do run under their authority. Choosing a carrier to lease on to and reviewing the contract terms...well, that's another episode.
What I can tell you is, you want to review the fees they charge, the percentage you will be earning, and the load sourcing/dispatching. Many carriers that lease on will contract you for 65-80% of the GL (gross-line); so that's a fairly wide gap. Check around.
They will also, usually, charge you for any fees that they incur for having you. This will include the increase insurance. Adding you to their policy is a lot cheaper than you starting your own, nonetheless, they are likely going to want to re-coup that. So they may charge you a monthly or weekly fee. In addition, they'll often charge for "other fees". So, read carefully!
Start up costs.
Read more about the actual costs you're looking at here
Once you have authority, you're ready to drive freight. And we're here to drive your business!
In the meantime, we'd be happy to help you along the way.