To make good and substantial money in the trucking business, it is advisable you get your own authority. Yes, you can offer your services to a leasing firm, and doing so is a wonderful and easier way for those with challenged credit to get their own rig.
But getting an authority can help you to consistently earn $2-$3 per mile—and it is imperative if you ever want to hire other drivers and build a multi-truck enterprise. In the trucking world, authority is more or less the permission granted by the Federal Motor Carriers Safety Administration (FMCSA) to transport goods for profit. There are two types of authority you can apply for: contract and common.
Note that a contract carrier hauls freight only for firms that it has a contractual agreement with. While common carrier on the other hand can hire itself out to any entity wishing to pay to have (legal) good transported, whether or not a formal contractual relationship exists.
In both cases, the carrier is expected to hold a minimum of $750,000 liability insurance, but only common carriers need to have cargo insurance. However, getting your own authority enables you to remove the middleman and go directly to receivers, shippers, and load matching services to obtain freight. It is more work and responsibility, but with bigger payoffs in return.
Indeed, acquiring an authority is a crucial step if you intend to maximize your profits as an owner-operator. Without it, you are limited to working for a leasing service. To help you make the best decision for your specific situation, below are the pros and the cons of working for yourself or for a company. Afterward, choose which would be the best fit for you.
Pros and Cons of Getting Your Own Authority
Note that having your own authority in the hotshot industry is the goal of most if not all hotshot truckers. But just like any other business, being your own boss has its pros and cons.
- 100% Control: As the CEO-owner-operator of your hotshotting venture, you don’t have anyone telling you what to do. Have it in mind that your results will depend on the very efforts you put into your own business. If you work, you will get paid. If you don’t, you won’t. It is that simple.
- 100% Profit: Note that whatever you make in your hotshotting for the week minus expenses is your profit for the whole week. You don’t have to share your earnings with anyone as the entire business is yours.
- Start-Up Processing: What many would-be hotshotters don’t know is that you have to form an LLC if you want to get your own authority. LLC stands for Limited Liability Company. It protects your hotshotting business from lawsuits and from being taxed twice.
After getting an LLC, the next step is to get your EIN. Once you have your EIN, head on to the FMSCA website to file for your authority. The FMSCA will give you your MC and USDOT numbers after paying a $300 fee. Then you are expected to have to have insurance on file within 21 days to activate the process.
If, after 21 days, you still haven’t completed your insurance filings, you may have to start all over again. You may have to repeat the progress you’ve made with the FMSCA. You may have to pay the $300 fee again to get new USDOT and MC numbers.
- Insurance: Getting commercial insurance can be quite costly. It costs more, especially if you are starting your hotshot business outside of the Midwest. Insurance costs are high in places around the coast because there’s a greater risk of hurricanes. While waiting for your authority to be activated, filing your insurance is the next step. You’ll pay $30 for a BOC3 form. This form would then be submitted to FMSCA to activate your authority.
- The 90-Day Wait: Have it in mind that once your authority is active, you’ll have to wait 90 days. Most brokers don’t want to work with you until your authority has been active for 90 days. Other brokers want to wait for a year. During those 90 days, you are not able to work and make money. So it is wise to have operating capital during these times.
- Safety Audit, Drug Consortium, and DOT Compliance: Also note that you are tasked with keeping your hotshot business away from penalties and fines. Being compliant with the rules and requirements is a must for any owner-operator. Since you are your own authority, it is your responsibility to keep up with the paperwork.
Pros and Cons of Leasing On to a Company
For individuals who want to start a hotshot by working for another, here are the pros and cons:
- You can start ASAP: One of the benefits of working for a company is that you can start hotshotting once qualified.
- No stress on paperwork: Instead of having to file all the paperwork yourself, the company would do that for you. Most companies have a back office that works with the FMSCA and other compliance agencies. Truckers can just use or ride on the DOT number that their company has.
- Company dispatch: Another great advantage you can have is getting a dispatcher to book loads for you. As a company, you pay them a percentage of your earnings. So it is a wise idea to maximize this percentage and let them dispatch for you. Even if they do the dispatching for you, you still have control over where you want to go. It is as easy as letting the dispatcher know you have places you prefer to work.
- Minimum control: Note that since you are working for another, most likely you are expected to stay under their chain of command. You have to carry out the tasks you are required to do. The things truckers can control are where and how you are going to deliver the load. You are also in control of your equipment and how much home time you’d like to have.
- You pay a percentage: In this route, you will not get the full portion of your earnings, since a part of it goes to the company.
Steps to Get Your Trucking Authority in the United States
Whether you are a seasoned driver or a rookie, here are the steps that you will need to take to get on the road with your own operating authority
Register Your Business with the appropriate State or County
Have it in mind that this registration will need to be done based on where you plan to operate. You will be expected to choose a business structure for your trucking business and plan for taxes. If you are going to operate as a sole-proprietorship with a DBA, you will need to determine if your state requires you to file your DBA at the county or state level.
If you are choosing to limit your personal liability by forming an LLC or Corporation you will need to fill out and submit the correct forms at the Secretary of State’s office. Some states in the US will allow you to file your LLC or Corporation online. Once your business has been filed, keep copies of all the paperwork and certificates. You will need this information for much of the other paperwork you will need to file to get on the road.
Obtain an Employer Identification Number (EIN)
If you are an LLC or Corporation, you are then expected to have an EIN number issued by the IRS. It is advisable that an individual operating as a sole proprietor also obtain an EIN to protect their privacy. In the absence of an EIN, the sole proprietor must use their social security number which can open them up to identity theft.
Register Your Business with the US Department of Transportation (USDOT)
Have it in mind that all Trucking companies are expected to register with the USDOT. Think of this as your company’s ID or File number. Your USDOT number is what is used to access all of your company vehicle, cargo, safety, and compliance information. It does not give you the authority to participate in interstate commerce.
You will be issued a PIN number along with your USDOT number. Your PIN will be needed for any changes you make with the USDOT or FMCSA in the future. Your USDOT number will need to be renewed every two years or anytime any changes are made to your fleet size, name, phone number, address, or cargo type.
Apply for a Motor Carrier Number (MC#) with the FMCSA
Your MC# is what will give you the authority to participate in Interstate Commerce. You will need all of the information you gathered for the USDOT registration to complete your application. Note that your MC# will be offered immediately, but don’t start the truck just yet! Once your MC# is issued, you will have 20 days to complete the next 2 steps.
After those 2 items are on file with the FMCSA your Authority will become active within approximately 2-3 weeks. It will take another 2 weeks or so for you to receive your Authority certificate in the mail. You are not authorized to participate in Interstate Commerce until that MC# is active and your BOC-3 and Insurance is on record with the FMCSA.
File a BOC-3
Note that the FMCSA requires that you have a designated process agent in each state that can be served legal paperwork on behalf of your company if the need arises. However, there will be no need to pull out the yellow pages and start searching state by state for process agents, though.
There are “blanket” companies that keep up to date lists of process agents in state and will let you use their list for a one-time fee. Always remember that if you ever make any changes to your MC# such as address, name, phone number, you will need to file a new BOC-3 or your MC# will be put on the inactive list 30 days later.
Have it in mind that a carrier is expected to obtain Liability and Cargo insurance. The FMCSA requires a carrier to have $750,000 primary liability and $100,000 in Cargo. It is imperative that you obtain a $1,000,000-liability policy. Additional coverage is required if you are hauling Hazardous Materials.
Your Insurance provider is expected to report your coverage to the FMCSA in order for your authority to go active. As with the BOC-3 filing, if you make any changes to your MC# information, you will also have to report that to your insurance company and have them re-submit the information to the FMCSA or your risk having your authority go inactive.
Get your apportioned plates and set up your International Registration Plan (IRP)
IRP is a process of registering fleets of vehicles travelling in two or more member jurisdictions. If you are operating a truck in multiple jurisdictions, you are expected to annually report mileage driven in each state and pay taxes on the mileage driven.
For this registration, note that you will need all the details about your trucks including VIN, title information, purchase cost and date, as well as make, model, etc. You will also need an idea of what states you are planning to haul in. If your truck has already been on the road, you can report the mileage from the previous year. If not, you can use the averages provided by the state.
Have it in mind that your registration fee will be determined by which states you are hauling in and how many miles are drive in each state. After you must have submitted the registration, the DMV will let you know the fee. Once you pay the fee, you will be given your apportioned tags.
Set up an IFTA Account
The International Fuel Tax Agreement (IFTA) is an agreement among the lower 48 states of the United States and the Canadian provinces, simplifying the reporting of fuel use by motor carriers that operate in more than one jurisdiction. Have it in mind that Carriers with IFTA receive an IFTA license and two decals for each qualifying vehicle it operates.
At the end of the fiscal quarter, you are expected to complete your fuel tax report, listing all miles travelled in all participating jurisdictions and fuel purchases. This form is very similar to the IRP form in that you must list the states you plan to haul in and the estimated mileage.
Unified Carrier Registration (UCR)
The Unified Carrier Registration (UCR) Program mandates individuals and companies operating commercial motor vehicles in interstate or international commerce to register their business within their base state and pay an annual fee based on the size of their fleet.
Note that this includes any commercial motor vehicle carrier carrying their own goods and products across state lines. It also includes carriers transporting interstate goods even if the vehicles do not leave the state. This is a registration that will need to be renewed each year, mark it on your calendar!
Your choice would more or less depend on what you want to do — the desires you want to achieve in your life. It would also depend on your personal drive and determination. However, having your own authority may be suitable if you are business savvy. But you must understand that starting this way may be difficult and expensive. But this understanding must not discourage you from your desire to become your own boss.