Contracts You’ll Need As an Owner Operator

December 29th, 2016 by

The trucking industry is rife with contracts because it constantly deals with freight and people. However, as the owner and operator of a freight company, your contracts are different from those of your drivers, shippers, and consignees. As you start your own freight company, familiarize yourself with the unique contracts needed to protect the people and vehicles around you.

Authority Contracts

Some people in the trucking industry believe you need your own authority to make decent wages. Whether or not this is true, you do have the option to get your own authority rather than registering with the Federal Motor Carrier Safety Administration (FMCSA). However, obtaining your own authority is more expensive than registering with the FMCSA. For instance, minimum insurance coverage is much higher because owners and operators under their own authority have to carry at least $1 million.

 

However, there are distinct advantages to obtaining your own authority contracts. One of the biggest is the ability to work directly with receivers, shippers, and load-matching services, rather than going through federal organizations and other trucking companies. Over time, this will maximize your wages. It may also help you build and maintain rapport with shippers and receivers. Additionally, you may have more say over the type and amount of freight you transport, and to where.

 

To obtain your own authority contract, you must be set up as a business with a limited liability corporation (LLC) and have an employer identification number (EIN) from the IRS. You will need at least minimum cargo and liability insurance, although it’s recommended owners under their own authority get much more coverage. You’ll need to submit certain forms that apply to your business, and should receive an authority permit within 10 days.

 

If you are a new freight company owner, however, you may find it easier and less expensive to get your authority via FMCSA and the Department of Transportation (DOT). There are still application fees, and the waiting period is much longer – about 4-6 weeks. However, you will be covered under federal and state regulations, whereas getting your own authority requires a separate process for state coverage. You also may find it easier to access and communicate with DOT representatives if you’re covered under FMCSA.

 

Surety Bonds and Trust Funds

As an owner and operator, you are required to outfit your trucking company with surety bonds, which are sometimes presented as trust funds. You must carry $75,000 at minimum. Surety bonds protect you, your customers, shippers, and receivers. They guarantee you will deliver freight on time with no damage to cargo or personnel. If you cannot meet contract requirements, surety bonds also ensure you have the cash or assets to cover the cost of whatever you fell short on. This protects you from legal entanglements and preserves your trustworthiness with customers, shippers, and receivers.

Lease Agreements

As an owner and operator, you will need lease agreements for your vehicles. All lease agreements are different, so it’s crucial to know basic terms. For example, your lease may include addendums that are not effective until you and the lessor, or the person granting use of the equipment, sign them. You may need subleases, which grant you the right to let other people or companies use leased vehicles or equipment for a certain period.

 

Leases must specify compensation requirements. For example, if the authorized carrier will pay you a flat rate per mile or a variable rate, which can depend on several factors, including how long you travel, the type of freight you transport, and your destinations. The lease must also specify who is responsible for which fees – you the owner, the carrier, or the shipper. Otherwise, you might end up paying fees such as tolls, which your company may not be able to afford.

 

Always ensure everything in your lease is legal. For example, your carrier may be required to carry public liability insurance, but it cannot force you to buy a particular type of insurance. Carriers must provide copies of insurance policies on request. They cannot hold freight loads as escrow once the lease is terminated. All loads must be delivered or returned to you. Obtain a reputable attorney before opening your own freight company, and contact him or her with any legal questions.

 

Insurance

The truckers, shippers, and receivers who work with you must know they are adequately insured. If you operate under FMCSA authority, your freight company must carry $750,000 minimum in primary liability insurance. When you enter contracts with certain carriers, they may require secondary liability insurance. Non-trucking and general liability, which protect truckers and their vehicles while they aren’t on the road, are also required. Speak with your local DOT representative and insurers about your situation and needs.

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