Jumping from being an owner-operator leased on with a motor carrier to actually becoming the motor carrier takes careful planning. Besides the obvious – where to get freight, there are many other steps to consider before moving forward (e.g. adequate operating capital, corporate structure, ability to get liability insurance coverage, etc.). Let’s focus on the crucial steps to begin legally operating as a motor carrier – and the common scams to avoid.
Many third-party providers can assist you in getting your authority for a fee. However, the industry is unregulated. If you are unsure of the processes and responsibilities, the dream of complete independence can quickly turn into a nightmare. Yes, you can complete every necessary step of the process yourself online. But reputable third-party providers (including some associations) do offer valuable and cost-effective assistance in getting set-up. You should shop around and make “apples-to-apples” cost comparisons when choosing a third-party. I’ve seen paperwork from way too many owner-operators that have literally paid thousands of dollars in fees and yet they still didn’t have all they needed to legally operate as a motor carrier. In other words – they got scammed.
Initial step-by-step process:
- Determine corporate structure (sole proprietorship, LLC, corporation) and get an Employer Identification Number (EIN) from the IRS. When you apply for an authority, your application will be made public. Using your social security number leaves you open to identity theft – don’t use it!
- Begin shopping around for liability insurance coverage. Have some degree of confidence that an insurance company will provide you coverage before beginning the process. Bluntly, some people are simply uninsurable and money spent pursuing authority can end up “going down the drain.”
- Apply for a U.S. DOT number (Form MCS-150) and complete the operating authority application (Form OP-1) through FMCSA’s website. Both your DOT number and MC number will be issued as soon as all necessary data is entered. While there is no fee for a DOT number, each particular authority you desire will cost $300. Once your application is filed with FMCSA, it takes 3-4 days for the agency to publish your application in FMCSA’s Register for a 10-day protest period (HHG applications take much longer). Generally your permit (letter of authority) will arrive by day 21 of the process as long as the next two steps are completed during the protest period.
File Form BOC-3 (Designation of Agents for Process). Have someone designated in each state to accept legal process should you get sued.
SCAM ALERT: Avoid doing business with anyone who demands you pay an annual fee for filing Form BOC-3. By using a reputable company this is a “one-and-done” filing unless there are changes to your company structure.
File liability insurance coverage in the minimum amount of $750,000 with FMCSA. Your insurer, using Form MCS-90, does this.
- Beware that once your authority application is published, the phone number listed on your application will get calls from scammers trying to scare you into purchasing many products or services. Some of these callers attempt to sound as if they are associated with the government. FMCSA will contact you, sometimes verifying you did in fact apply for authority or to inform you of the requirements of the New Entrant Safety Assurance Program. Those calls originate from (202) area code.
SCAM ALERT: When using a third-party authority service provider, DO NOT let them insert their address as your mailing address. This practice occurs primarily to take your DOT and MC PIN numbers hostage so you must go through them for any updates to your carrier profile or authority.
Other necessary steps:
- International Fuel Tax Agreement (IFTA) and International Registration Plan (IRP) apportioned plates. Every state has a different agency tasked with overseeing that state’s participation in these licensing and registration programs. In some states, you must open these accounts yourself by visiting a state office; other states allow everything to be accomplished online. Requirements for participation in these two programs are identical. They are that the vehicle:
(i) has two axles and a gross vehicle weight or registered gross vehicle weight in excess of 26,000 pounds (11,793.401 kilograms), or
(ii) has three or more axles, regardless of weight, or
(iii) is used in combination, when the gross vehicle weight of such combination exceeds 26,000 pounds (11,793.401 kilograms).
- IFTA quarterly fuel tax reporting. Once an IFTA account is opened you are required to file quarterly fuel tax reports with your base-state jurisdiction. This really isn’t a difficult process and you can do it yourself. If you’d rather have a third-party service perform this task, typical fees are $65 - $125 per quarter, per truck. Or you can purchase software designed to perform this function.
- Once you have an active U.S. DOT number, you must pay Unified Carrier Registration (UCR) fees. This fee is based on fleet size and one-truck operators must pay $76. Most use a portal maintained by the State of Indiana to pay these fees (http://www.ucr.in.gov/).
- Permits. The states of New York, Kentucky, New Mexico, and Oregon require additional credentialing. Setting up on-line account access with New York and New Mexico is simple and inexpensive. Kentucky requires you mail an application for a KYU number for no cost. Oregon requires either a $2,000 bond or cash to open a permanent account. Oregon allows purchase trip permits instead, but will limit the total number of permits based on fleet size, before requiring a permanent account to be established. All of these extra permits require separate quarterly reporting.
- Drug and Alcohol testing. One-truck owner-operators are required to enroll in a third-party DOT random testing consortium. Also, have a pre-employment drug test performed on yourself.
SCAM ALERT: Reputable consortiums charge between $75 and $110 annually and pay for all testing costs when selected for a DOT random (not $150 - $300). Regulation requires testing the pool at a 50% level and generally speaking consortiums that have “teaser” enrollment rates also charge per test and will test at a 100% rate (they gotta make money someplace!). You are NOT required to have Supervisor Training as long as it’s just you operating the truck.
The “biggest” mistake you can make:
- Failure to “comply” with FMCSA’s regulations will get you shut down (especially failure to comply with the paperwork regulations). Motor carriers must comply with FMCSA’s New Entrant Safety Assurance Program as outlined in Part 385, Subpart D of the FMCRS’s. This program basically places you on “probationary status” with FMCSA for 18 months where the agency will monitor your safety performance. You will go through a safety audit and many “new entrants” fail because they either didn’t know the requirements or purposefully choose to ignore them. Either way it doesn’t matter to FMCSA. From the regulators point-of-view, ignorance of the requirements isn’t their problem - it’s yours.
Within 30-45 days of applying for a U.S. DOT number a letter from FMCSA will be sent demanding document submissions to the agency. Proof of items they will want to see include; drivers list, vehicle list, drivers medical certificate and MVR. They will also want to see drug and alcohol testing records, including proof of a pre-employment test for one-driver.
There are numerous sources that will sell you step-by-step guides to comply with the New Entrant Safety Assurance Program – but they are not cheap. Some associations (ours included) provide guidance manuals and assistance to help members comply with these requirements for little or no fee.