Cash flow, insurance, more about getting your authority
Max Heine |May 18, 2016 | Overdrive Magazine
Getting your own operating authority is usually a straightforward process, but it’s still got enough hoops to jump through, complete with red tape, that a new entrant should allow three weeks to get approval, said Dave Gray, president of Glostone Trucking Solutions.
“Typically they’ll come to me on a Monday, say ‘I’ve got a load on Friday, can I get my authority?’” Gray said. “That’s a no.”
When things go smoothly, the process can be completed in “21 days minimum, and that’s if everything goes perfect,” Gray told attendees at the Certified Master Contractor Live conference outside of Omaha, Neb. The five-day training event is produced by Kevin Rutherford, a trucking radio host and long-time presenter for Overdrive’s Partners in Business program.
Gray also covered other key points for getting your own authority:
- Cash flow is often a problem. It’s often 45 to 60 days before a new independent gets paid for that first load. Consequently, it’s wise to have operating capital to sustain your business for up to two months.
- Every classification of authority, for various types of hauling, costs $300, though many operators need only one level. “You only pay it once. It’s good for life of your company,” he said. Getting broker authority, which comes with a separate DOT number, at the same time costs an additional $300.
- The application process for the DOT number is free now, and an MC number costs $300. Beginning in September when the MC numbers are phased out entirely with the next phase of the Unified Registration System, that $300 cost is expected to shift to the DOT number. However, the one application fee will cover multiple categories of authority if they’re sought at the same time.
- Before starting the process, get professional advice on what tax form your company will take. Sole proprietorship is common, but depending upon expectations of growth and other factors, forms such as partnership, limited liability company or S corporation could be better. Changing the tax classification after getting authority requires more fees and time.
- Likewise, to avoid spending more fees and time, be certain about your choice of a company name before starting the process. You can check existing company names in your state by looking at the Secretary of State website.
- Get approved for insurance before starting the formal process. “You might not be insurable,” Gray said. For example, two years of driving experience is often the minimum required. “Or the premium is so high you can’t afford it.” A new entrant with a good safety record might pay $9,000 to $12,000 a year, though that should decrease in a few years if no claims are made. Attendees cited examples that were higher, up to $21,000.
- You must have insurance on file to receive authority. However, to avoid paying for coverage you don’t need, arrange to have it effective about 15 days into the process.
- Check the fine print of insurance coverage. For example, there could be an operational radius restriction, such as 500 mile radius, or freight restrictions, such as no produce, or whether towing is covered.
- Don’t grow too fast. If you grow to five trucks in your first year, it appears “you don’t have a handle on your growth” and that increases the risk too much for the insurer, Gray said. “More than likely, they’re going to drop you.”
- Arrange for a process agent and complete the BOC-3 form. Process agent coverage is required to ensure that legal papers from any state where you do business, such as Court papers related to a truck accident, will reach you. Companies offer this service for all states, and Gray recommended comparing rates. “Some charge $150 a year to keep it on file,” he said. “Others, you pay one time. It might cost $50.”
- The authority process can be delayed for certain issues, such as the intricacies of authority to haul hazmat or household goods, or data entered for the Unified Registration System. Introduced last fall, it “raises the bar for safety.” It allows FMCSA to compare the information to other databases to spot “chameleon carriers,” which are companies being launched by individuals who have had a trucking business closed for violations. If you have prior association with anyone who’s flagged, it could delay your application.
- Once your application is submitted, it – including your telephone number – is public record, so “prepare for the shark tank,” Gray said. Within minutes, you will get calls from vendors trying to sell services purported to be essential to running with your own authority. They’re usually unnecessary. Some callers will falsely say, or imply, that they are with FMCSA. “FMCSA is not going to call you,” Gray added.