Celadon turns away from owner-operator model

Dive Brief:

Trucking company Celadon will boost employment of company drivers over owner-operators as it seeks to boost its profits, Overdrive reported last week.
The company faced a $10 million operating loss last quarter, which COO John Russell attributed to the costs of recruiting owner-operators and lease-purchase drivers during the earnings announcement.
Despite the costs of recruitment, owner-operators were also linked to poor use of equipment through deadhead miles, longer dwell times and reduced utilization, according to Russell.

Dive Insight:

Celadon's proposed move away from owner-operators sheds light on an expanding industry debate between employing independent workers versus company drivers.

The change is not groundbreaking, as the company does not rely fully on owner-operators. The 32nd largest trucking company by revenue, Celadon's fleet includes 679 lease-to-own tractors and 433 owner-opreator tractors, compared to the over 3,000 company-owned equipment, per Transport Topics data.

However, with 25% of its fleet still tied to contract workers, non-company vehicles can come with added variable costs, such as recruitment. Russell's comments point to the challenge of a high turnover rate in the trucking industry, particularly as a strong economy drives labor costs up. In low-margin businesses, a high ratio of variable costs can severely impact profits during market downturns.

But the turn away from owner-operators may also be a criticism of the model, particularly as cases over driver misclassification ramp up. Companies like FedEx, XPO Logistics and Swift Transportation have all been mired in litigation with owner-operators alleging they were, in fact, employees but lacking proper compensation.

Typically, businesses engaging contract work do so for the flexibility involved, and the ability to scale up or down labor costs according to needs. Yet, Celadon's recent operating loss and subsequent decision casts doubt on whether such a model is actually cheaper or as reliable as employing company drivers.