Sub-Haulers – Alternatives for Growing Fleet Capacity
August 26, 2021
Author: Aaron Wulfekuhle
The practice of contracting drivers has been standard since the mid-1990s and has helped trucking companies shift risk while providing drivers the freedom to operate a business of their own. In recent years, this model has been under attack, the most notable litigation being California’s Assembly Bill 5; which essentially would eliminate the traditional leased owner-operator model by stating independent contractors must do work “outside the usual course of the hiring entity’s business”. For more information on AB5 and its current litigation, click here.
The next great challenge for the transportation industry relies on addressing these complexities to meet demand. With labor laws changing and evolving, navigating who to employ– and how– remains a critical point of the hiring process. According to American Trucking Association this past May, we are short 60,800 drivers. If trends continue with freight forecasts, we could have a shortage of 160,000 drivers by 2028.
So what options are available? One answer is other trucking companies.
Freight brokers have long enjoyed the virtually unlimited capacity of their model. The downfall has always been the consistency of freight for the trucker. What if you could combine the benefits of freight brokers, and keep a consistent partner and stream of freight for the trucking company? Enter the Sub-Hauler model.
The trucking company with the shipping contract turns itself into a third-party logistics company (3PL) or freight broker. A dedicated cartage agreement or brokerage agreement is used to contract the sub-hauler’s trucks to the 3PL or freight broker. The sub-hauler maintains their own authority, trucks, drivers, insurance, DOT compliance, and safety responsibilities.
What makes this any different than any other brokerage/carrier arrangement? The main difference is consistent capacity and sub-hauler access to cost-saving products and services not available through common broker/carrier relationships. The 3PL or brokerage must promise to keep the sub-haulers trucks filled with freight and in turn, the sub-hauler must agree that at least 75% of his revenue will be generated through the 3PL or broker. The sub-hauler can then access fuel discounts, safety resources, insurance, and equipment financing using the buying power of the 3PL or broker.
Before you jump headfirst into the sub-hauler model, consider these items:
- Will you have enough freight to keep your sub-haulers at capacity?
- Do your shipper contracts allow you to broker freight? If not, you may still use sub-haulers; however, a different type of authority will be required.
- What type of operating authority will you need, freight broker or freight forwarder?
- What type of sub-hauler vetting process should you put into place?
- Will you use a registry monitoring service for authority and insurance compliance?
- Will sub-haulers use your trailers and need trailer interchange?
- What services, programs, and discounts should you create to attract sub-haulers?
- If converting leased owner-operators to sub-haulers, how much increased revenue is needed to offset costs of sub-hauler operating under their own authority (IFTA, IRP, permits, insurance, etc).