Too much of a bargain?

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Like used tractors, trailers are a bargain in the marketplace. For fleets planning to grow after we come out of the current downturn, now is an excellent time to add trailers to the fleet. Before you buy, however, set a goal on the ratio of trailers to tractors. This is a key ratio in trucking, particularly for truckload carriers. When this ratio gets out of whack, profits suffer.

In theory, carriers need only one trailer per tractor. In practice, a 1-to-1 ratio limits the carrier to live loading and unloading, drastically reducing the utilization for both the tractor and the trailer. Moreover, waiting in every instance to load or unload will also cause driver turnover to go through the roof.

But how many trailers per tractor can you afford? The answer depends on several factors. The most important is the fixed cost of the trailer. For example, refrigerated trailers typically cost more than twice as much as dry vans. The chart on this page illustrates the impact on cost per mile of operating different ratios of trailer per tractor for a dry van and refrigerated truckload carrier. Key assumptions are that a dry van has a fixed monthly cost of $300 and a reefer $700. Both assume the tractor averages 10,000 total miles a month.

Given these cost curves, it is not surprising to find that most refrigerated carriers operate with 1.4 or fewer trailers per tractor while dry van carriers typically operate with more than 2 trailers per tractor. In fact, a dry van carrier deploying 3 trailers per tractor will have the same operating cost per mile as a reefer carrier using 1.3 trailers per tractor.
Refrigerated carriers may enjoy a rate premium in the marketplace, but the high cost of equipment makes it difficult to eke out much of a margin. For that reason, it always surprises me to see primarily dry van carriers operating some refrigerated units. Rarely do these carriers make money on the reefer hauls.

If you operate a few reefers, calculate the effective trailer-to-tractor ratio for your reefer business. Divide the average number of loads your tractors haul each month by the average number of loads your reefer trailers haul. If your tractors average 15 loads a month and your reefer trailers average 5 loads, for example, you have an effective trailer-to-tractor ratio of 3. Reefer freight typically does not generate a sufficient rate premium to justify a 20 cents-per-mile fixed trailer cost.

These numbers sound far-fetched, but they are typical of what carriers discover when they calculate the numbers. And the issue isn’t limited to reefer trailers. I have seen dry van carriers operate flatbeds, curtain sides, drop decks, tankers and so on. If you run different types of trailers, calculate the effective trailer-to-tractor ratio for each trailer type. Then compare that number to the trailer-to-tractor ratio for a carrier that hauls exclusively with that trailer type. If there is a wide variance, these trailers probably aren’t making you money.

Often, your trailer-to-tractor ratio grows not due to diversification but because of inefficiency in your core business. Customers can tie up an excessive number of trailers by requiring you to drop trailers for loading or unloading. Calculating the trailer-to-tractor ratio is more difficult in this case because you must determine how many trailers the customers tie up for each load hauled. It’s worth the effort, however. Don’t be surprised if some customers tie up 3, 4 or 5 trailers per load. And don’t forget to factor in the cost of bobtailing in and out of their facilities. Customers that tie up large numbers of trailers usually go from extremes of having too many trailers to not enough.

Trailers may be a bargain today, but before you start taking advantage of the low prices, review your utilization of existing trailers. The numbers may surprise you.

David Goodson is a management consultant specializing in the transportation industry. E-mail dgoodson@eTrucker.com.