Owner-operators enjoy the freedom of being able to choose the loads they haul and how they schedule their time. Being your own boss certainly has its perks, even if you decide you want to lease your driving service and equipment to a company.
However, it can be tricky to navigate the regulations when signing on with a new company. Owner operators must be aware of the fine print or else it’s easy to overlook small details that can greatly impact your experience.
In our post, we share how leasing to a carrier works and what to consider when choosing the best company for your lifestyle. Let’s hit the road!
What is the Difference Between an Owner Operator and a Carrier?
Before we get into the nitty-gritty of leasing to a carrier, it’s important to understand what each one is exactly.
According to FMCSA, a truck owner-operator is an independent driver who owns their semi-truck and may lease out their truck to companies, not as an employer, but as a contract driver. They may also haul as freelance without a commitment to one set product or firm.
Owner-operators are typically experienced drivers who know their preferences, how to plan their routes, and how to set a schedule that works for them. They enjoy increased freedom with the ability to choose the loads they want to haul and how much they desire to be paid for their services.
A carrier, on the other hand, is something completely different.
A logistics carrier, also called a freight carrier, is a company that provides multiple transportation services to move goods for businesses.
So when a shipper needs a flatbed truck and driver to transport oversized items in a pinch, they contact a carrier to help them get set up, from securing equipment to managing the supply chain, all in one place.
That brings us to our next question: how do an owner operator and carrier collaborate? We explore the answer in the next section!
How Does Leasing to a Carrier Work?
Before an owner operator can shake hands with the carrier and hop on the highway, a lease agreement must be drawn up and signed by both parties.
The process of signing a lease with a carrier is a bit complex, which is why owner operators should always take time to read the fine print of a lease agreement and have a clear understanding of what is expected of them, along with what they expect from the carrier.
Not only does this set the terms of the contract in stone, but it helps prevent confusion down the road.
Remember, the owner operator is not an employee of the carrier, so the leasing agreement varies from driver to driver. In fact, there are three common types of agreement formats: the lease-purchase agreement, lease program agreement, and lease-on agreement. Let’s see what they’re all about!
1. Lease-Purchase Agreement
This type of contract is best suited for owner-operators who are just getting started, have poor credit, or can’t afford to purchase their own truck.
They agree to pay the carrier a set monthly fee to drive one of their trucks. This agreement lasts throughout the duration of the contract with the driver having the option to purchase the truck at the end.
It’s also ideal for new drivers who want to make money, network, and build their reputation within the industry.
If you’re considering a lease-purchase agreement, pay close attention to terms surrounding maintenance, as some carriers expect the driver to be responsible for the cost of repairs. Inquire about the age of the truck you’ll be driving, since an older rig typically means more repairs.
Also, be aware that the typical duration of this type of contract is between one and three years.
2. Lease Program
This is also a solid choice for rookie owner operators who don’t have their own vehicle and need the carrier to “lease” a truck for the duration of the agreement.
However, at the end of the contract, the driver doesn’t have the option to purchase the truck. They can either renew the agreement and lease the same/different truck or they can move on to a new carrier.
There are a few more factors to consider before deciding if this is the right fit for you. While the monthly payments tend to be lower than the lease-purchase agreement, you might be required to put a down payment on the truck.
And unlike lease-purchase where credit isn’t a huge deal, some carriers may have credit requirements with lease programs.
3. Lease-On Agreement
This is the opposite of the first two agreement types we discussed. With the Lease-On, the owner operator has their own truck ready to go, and are therefore leasing their service and equipment to a carrier who may not have trucks.
A Lease-On agreement is ideal for drivers who want assistance with finding jobs, fuel tax, or filling out paperwork. Generally, the carrier will handle these responsibilities and dispatching services.
Receipt of Equipment Statement
Once all of the terms have been discussed and agreed upon, the carrier and owner-operator then complete the “receipt of equipment” statement.
Under this the carrier is responsible for the owner-operator’s compliance and has the right to inspect the driver’s rig to confirm that it meets certain criteria.
The proof of lease must be kept in the truck at all times, along with the carrier’s name and Department of Transportation contact.
For more information regarding guidelines for developing lease agreements, consult the Federal Motor Carrier Safety Administration (FMCSA) “truth in leasing” regulations, Part 36, sections 376.1, and 376.12.
Key Elements Every Owner Operator Needs to Know Before Leasing
Now that you have a full understanding of the process of signing a lease agreement, let’s look at some of the key considerations every owner operator should make before choosing the best carrier company for their career
First of all, it doesn’t matter what type of agreement is used, there should be the following terms included:
- Names of both parties, plus signatures
- Duration of the agreement (start date, end date, and potential extensions)
- The equipment to be used during transport (truck, trailers, tie-downs, converter dollys, liftgates, etc.)
- Possession and Control state the carrier has control of the owner-operator and equipment through the duration of the contract. This includes any specific company rules the owner-operator should abide by.
- Liability and cargo insurance.
- The party responsible for handling paperwork, license plates, and permits.
- The party covers fuel costs, toll costs, and empty miles.
- The party responsible for loading and unloading the cargo.
Owner Operator Compensation
Compensation and pay rate is a priority for most, so naturally, it gets its own section in our post. Basically, there are a variety of ways for a company to pay the owner-operator, so you’ll want to be especially clear about what you want in this section of the lease.
- Be as specific as possible, using details in your wording such as “per mile” or percentage of revenue.
- If the payments follow a revenue percentage, there should be an inclusion of the right to inspect the carrier billing.
- Check that the payment period is fair.
- If the company pays charge-backs to cover drivers, it’s typical that those charge-backs will be charged back to the owner operator at a later date.
What About Termination Policies?
Another integral part of an owner-operator lease agreement is the termination procedures and violations.
The process needs to be elaborated in step-by-step detail, including information such as what happens if one party needs to remove their name from the lease.
Also make note of what’s to happen if cargo is damaged, who is liable, and what provisions need to be supplied by the owner-operator.
Finally, violations must be listed. This could include whether the carrier is responsible for covering overweight fines, and fines for oversized loads lacking permits.
The carrier is typically responsible for reimbursing the owner-operator for fines they covered in certain situations, however, it should be made clear whether there are any specific incidents where the owner-operator is responsible.
What to Know Before Leasing to a Carrier Conclusion
Being an owner-operator opens doors to networking and opportunities where they are in control of their freedom. However, it can be difficult to navigate the fine print when cementing the details of a lease agreement with a carrier.
It’s important to understand what your duties are and vice versa, especially when it comes to payment procedures, violations, and the best type of agreement for your experience. That way, if there is any confusion or questions during the work duration, it can quickly be resolved.
Resources & References:
Lease and Interchange of Vehicles, FMCSA.com
America 1 Logistics