How Much Does it Cost to Start a Trucking Company?
The trucking industry is growing. People need things, and many of those things are carried by trucks. The growth of e-commerce contributes to the demand. According to Grand View Research, the global freight transport market is predicted to grow at a compound annual growth rate of 11.3% until 2030.
While the industry has challenges, chief among them a shortage of drivers, at least in the U.S., it’s not a bad time to start a trucking company. But how much does it cost? What kind of initial capital should you be looking at?
Unfortunately, the short answer is “it depends.” While you will see the figures quoted, the costs vary drastically, depending on your exact strategy for starting the company. Trucker Daily gives a figure of $6,000 to $15,000 for a small company, excluding equipment, but that figure is specifically for owner-operators making the switch.
Let’s start with the equipment itself. Some trucking companies essentially run a dispatch service, subcontracting to owner-operators. This approach allows you to avoid equipment costs but increases personnel costs (as you are basically paying the ongoing equipment costs of your drivers).
A new truck will generally cost you between $100,000 and $200,000. Electric semi-trucks now exist, but are very expensive. However, large incentives in New York and California can make them more affordable and some states are also offering grants. Electric semis cost between $300,000 and $500,000. Used trucks can go for as little as $40,000, but older equipment may have fewer safety features and cost more to insure. It is also likely to fail sooner and may have a higher cost over lifespan.
Your routes may affect the features you need your trucks to have. If you routinely run freight through mountainous areas, for example, your trucks need high-quality downhill control. You also need to consider what kind of loads you are transporting.
If you plan on specializing in liquid or perishable materials, then you will be looking at paying more for those trailers. If, on the other hand, the trailers are typically owned by your customers, then you only need to buy the tractor section.
Leasing is an option for some companies and financing is typically available on equipment.
You should form an LLC for your trucking business. This protects your personal assets from business liability, such as if your company gets involved in a lawsuit after an accident involving you or one of your drivers. This costs between $100 and $150 depending on the state.
You will also need to file whatever paperwork your state requires, typically a business license and a doing business as (DBA) to register your company’s name. The cost varies from state to state. If you are contracting owner-operators then they also need to have business licenses in most states.
If you are going to engage in interstate commerce, you will need a USDOT number, which is basically your account with the U.S. Department of Transportation to store your reviews and inspections. Most states require you to have one for intrastate work. You should apply through the Unified Registration System which also allows you to apply for your operating authority, which you need unless you are only hauling your own cargo. There is no fee for a USDOT number, but the operating authority, also called an MC number, costs $300.
One complicated issue is BOC-3s. You need one of these for every state you operate in or travel through. That can easily mean needing one in every state in the lower 48! Thankfully, they are only about $20 per state, but they need to be filed on your behalf by a process agent.
You will need to obtain insurance before applying for operating authority. If you don’t provide proper proof of insurance, it will be dismissed. As a minimum, the Federal Motor Safety Administration requires public liability insurance of between $750,000 and $5,000,000, depending on what you transport. If you are specializing in hazardous materials, you will need more. Brokers often require a minimum of $1,000,000 in coverage.
If you have drivers as employees, you will need to acquire workers’ compensation insurance. This is required in all states and the amount of money you can end up owing if a driver gets into a crash on the freeway is substantial.
Obviously, you will also need insurance on the vehicles and general liability insurance to cover the company against other lawsuits. Most brokers will not do business with you without cargo insurance, which is often included in public liability.
Insurance for trucks costs between $8,000 and $12,500 a year. General liability can be anywhere from $500 to a few thousand.
The required public liability insurance varies dramatically in cost, and rates generally go up a lot if you have an accident. It’s affected by things like the age of your equipment as well as what you are hauling.
The last major cost is hiring and onboarding drivers. This generally costs less if you work with owner-operators, but you also have less control over them. As owner-operators are contractors, you have to work with them rather than them working for you.
There are also costs associated with advertising for positions, doing background checks, and making sure your drivers have valid commercial driver’s licenses. Drivers are typically paid per mile plus a per diem to cover their expenses. The median salary ends up being about $40,000 a year.
However, there is a shortage of truck drivers. You may have to offer a higher salary or other perks and bonuses to attract drivers to your company. You want to attract the best (and thus the safest) drivers to your business.
It costs about $4,000 to hire an employee. Budget this not just for drivers but for any non-driver employees, such as somebody to answer the phones.
The cost of starting a trucking company varies a lot. The largest cost is the equipment itself, especially if you choose to buy new trucks, with each truck and trailer costing you between $100,000 and $200,000. However, there are other costs, such as insurance, licensing, and onboarding your drivers.
Trucking has a high capital outlay and high ongoing costs, but with increased demand, it’s still a profitable industry. There are various financing options available to handle these initial costs, but before starting a trucking company make sure you have a plan to cover them.
With Credit Suite, we can help take your trucking business dreams and get you on the road to success. Reach out today to see how!