A permanent lease to a motor carrier involves leasing a commercial motor vehicle or bus to an operator, with the lessor typically hauling property for the lessee for the period of over 30 days to a year or more. In contrast, trip leases only include the shipment of property from the point of origin to the final destination.
A large number of owner-operators are permanently leased onto a motor carrier company, with others working under their own authority.
Permanent leasing comes with a range of business benefits, including coverage for certain types of insurance like physical damage and property damage, sourcing products to transport, covering expenses such as fuel, truck maintenance, and more.
For owner-operators, commercial trucking companies, and motor carriers who are leasing their vehicles, it's vital for them to learn about the lease requirements and laws that keep them safe. One of the federal leasing laws that relate to these contracts is 49 CFR Part 376, which outlines the various responsibilities for each party.
Having knowledge about the basic motor carrier regulations and checking the term length of the policy in compliance with other rules and regulations can help the trucking company (lessee) and the independent contractor or truck owner or driver (lessor) comply with their specific roles and responsibilities.
To increase a fleet's capacity, an owner-operator would often lease onto a company. There are many benefits that come with using a motor carrier to transport equipment, compared to other modes of transportation like railways and waterways. In terms of logistics, they can provide greater coverage, accessibility, and flexibility for business owners, making them one of the best options.
Motorway access isn't constrained by the locations of railroad tracks, airport locations, and waterways. It can service almost any location under the operating authority of the carrier, as long as there aren't restrictions on the areas they serve or the specific commodities they transport.
If a shipment is only traveling for a distance of under 800 miles, a vehicle can be much faster compared to other modes of transport.
The relatively smaller capacity of vehicles allows shippers to use a more affordable rate. This allows buyers and sellers to have lower inventory levels and ship goods more frequently.
The industry is rapidly embracing for-hire trucking models. Many companies are on the smaller side of things, enabling carriers to rapidly respond to customer requests and adjust to their demands.
For independent drivers leased to carriers, the lease agreement determines the terms of insurance coverage. Typically, they would provide Primary Liability insurance coverage as part of this contract, covering physical injury and property damage for an owner-operator leased to them. This helps cover a loss that may occur during a lengthy journey.
On the other hand, there are other types of insurance that are available to a business to purchase, including:
While the complete regulations for a permanent lease can be found in Part 376 from the Federal Motor Carrier Safety Administration (FMCSA) regulations, they can be rather complicated and take time to understand for the casual reader.
Firstly, the parties involved need to be identified so they can sign the lease agreement and carefully look over the policy. Another aspect to focus on is the definition of the total duration of the lease, along with the available equipment and load involved.
If the lease is terminated, the carrier's name should be removed immediately. In addition, the intended method of payment and payment schedule should be specified to the owner-operator in the agreement.
After a lease agreement is signed, the carrier and the owner-operator are required to provide a "receipt of equipment" statement, to see when the vehicle is under the carrier's control. They can also choose to verify whether it meets the company's trucking standards per state in terms of insurance coverages to help limit liability.
When the new carrier and the qualified driver are finally ready to operate, the mode of transportation must also have proof of lease on board. The power unit also needs to have markings of the carrier’s name and DOT number, which should be clearly legible from a distance of 50 feet away.
2018 statistics from the American Transportation Research Institute claim that the average marginal cost per mile of a truck or trailer lease is around $0.265, with the average marginal costs per hour at $10.45.
A permanent lease on for motor carriers means that the company may be more likely to handed more paperwork, fuel tax, provide dispatching services for products, arrange insurance coverage, and other forms of maintenance at their shop.
Federal Motor Carrier Safety Administration (FMCSA)
The FMCSA provides many resources to prevent any deaths and injuries related to commercial vehicles and details information per state.
FMCSA - USDOT Number Registration
Companies and owner-operators responsible for hauling cargo need to ensure that trucking vehicles are registered with the FMCSA and have a unique USDOT number.
Before signing a lease agreement, the owner-operator and all parties involved need thoroughly look over any liability coverages, operating regulations per state, and also include any other types of insurance coverage options that may further protect their business interests.
No matter if you're a commercial trucking company lessee or an independent trucking contractor interested in signing a lease agreement, having an experienced attorney explain what is required in an operating contract may clarify any confusing information found in the document.
To learn more about the benefits of Motor Truck Cargo Insurance and how it fits into your overall risk management strategy, read our blog post
For further insurance-related expertise, feel free to obtain competitive commercial truck insurance quotes on Assured Standard.
