Starting a Trucking Business Vs. a Truck Dispatching Business
Today we will discuss the startup of a trucking company and how it compares to the startup of an independent truck dispatching service. When people try to get involved in the transportation industry, very often they’re selecting between the three most popular choices—freight brokering, trucking, and dispatching.
In this post, we will review the pros and cons of trucking to see how it compares with truck dispatching. So, let’s get straight to the point and discuss the main advantage of starting a trucking company.
Trucking Is Potentially High-Profit
The main advantage of starting a trucking company is its high levels of profitability. You can make a lot of money by operating your own trucks. But that also brings us to the main disadvantage of starting a trucking company: you will carry a lot of risks. This is a high-risk, high-reward type of business.
Why is this risky?
First and foremost, when you decide to start your trucking company, you will need a certain level of initial investment. You must purchase a truck or a trailer, you must receive your authority (license), and you will have to obtain insurance to activate your authority.
This all costs quite a bit of money, so you must come in with a fairly large investment just to start. And if things don’t work out the way you plan, You could lose this initial investment.
When we compare this scenario with truck dispatching, which we have discussed in our previous post, you know that your initial investment is very low. You probably already have the equipment that you need. So, if dispatching does not work out for you, you will not lose a significant amount of money.
There’s Little Need to Market Your Services for a Trucking Company
That said, trucking has one major advantage over dispatching. With dispatching, you will have to market your services, and you will have to find clients to generate revenue. In trucking right now, if you have a truck, trailer, driver, and an active authority, you don’t really have to market your services.
As long as you go to the marketplaces or hire a dispatcher, there will probably be plenty of work for you. That means you don’t have to sell your services to anyone, and you don’t have to convince anyone that you can do the job. There’s plenty of work, and you can start making money immediately.
So, what’s the catch?
Before you get too excited about all the money you’ll make in trucking, let’s discuss a couple of other factors.
Funding and Planning
Unlike in dispatching, where your operational expenses are extremely low, you have to plan ahead with trucking. You’re going to have to buy a lot of fuel for your truck, and you have to pay the driver. As previously mentioned, you’ll need to purchase the right insurance, and there will also be certain administrative expenses, which you will have to pay regularly.
This means you must have enough money for your operations before you can turn a profit. If you don’t, you can get yourself into big trouble.
Also, in my experience, many new trucking company owners mismanage their cash flow. By that, I mean that some business owners treat their trucks as their own personal wallets. They look at the numbers at the end of the week and say something like, “Oh, we have generated $7,000 or $8,000 in revenue, and I spent $2,000 on fuel and $1,500 on driver pay, so I have made $3,500 or $4,500 in profits. Now I’m gonna go and buy myself a new Escalade.”
In reality, part of this money must go into reserves so that they save money for future repairs, administrative costs, taxes, and so on. If they don’t do that, what’s going to happen—and I have seen it multiple times—is our client will call us and say, “Sorry, my transmission went out, and it’s going to cost $15,000 to fix. I don’t have any money, so I’m shutting down to work as a driver for somebody else.”
You definitely don’t want anything like that to happen to you, so you must plan your cash flow accordingly. Save up for the difficult times that may happen to your company in the future.
Another huge factor you need to consider is drivers. Without drivers, your business is not going to work, and finding good drivers in the current market is extremely difficult.
A driver will make or break your business. Very often, people that advocate for starting a trucking company tell you about the equipment you should buy and how you should set everything up, but they forget to mention that finding a good driver is very difficult—and keeping a good driver in the long term will require you to be extremely competitive.
You definitely don’t want to hire inexperienced or bad drivers. They are a liability. As a trucking company owner, you will be responsible for compliance and safety. If you have an unsafe driver, this can lead to accidents, violations, and lawsuits.
There is a lot of liability in operating a trucking company, so you have to be aware of that. You need to screen your drivers properly to ensure that you only put safe personnel behind the wheel of your trucks. When all is said and done, I guess we can agree that trucking is a high-risk, high-reward business compared to dispatching.
Dispatching is a low-risk, medium-reward type of business. You will not be able to generate as much revenue with it as you could with trucking, but you’re also not putting much capital at risk. So, if your business venture does not work out, you probably won’t lose much money. Whereas, with trucking, you can lose a lot of money, and that is the risk factor you need to consider.
Also, if you don’t have much money to get started, trucking might be more difficult for you to get into. I would not recommend going into too much debt to start a trucking company because you will be exposed to even more risk. With dispatching, there is not really much investment needed, and just about anyone can start this type of business.
Flexibility Is a Major Factor
The last factor I would like to compare—it may not be important to some people but may be to others—is flexibility.
Dispatching is more of a virtual nature, which means you can do dispatching from anywhere. You can move to another state, another town, another country. You can operate your business from anywhere.
With trucking, you will be tied to the spot your trucks are based in because they will have to return for servicing. You will have to fire and hire drivers, so you will be tied up to a certain location. For some, this is not a problem. However, this might be a problem for people who seek more freedom, and they may prefer a different type of business that will provide them with that freedom.
But here is the best part.
I believe that both businesses can greatly complement each other. If you’re operating a trucking company, you can start dispatching for others. And if you’re dispatching for others, you can definitely start dispatching your own trucks. There’s a synergy that can only improve your business if you do both.
So, the easiest path might be for you to start dispatching first because it’s cheaper and easier to start. Then you can transition into a trucking company once you acquire your own truck or trucks and start operating them efficiently.
If you’re interested in starting a trucking company, we do not have any courses on the subject, but you can go to www.alfaxlogistics.com and schedule a consulting session to discuss any questions that you may have before starting this type of business.
© By Alfa X Logistics August 2022
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