David Goodson is a management consultant specializing in the transportation industry. E-mail dgoodson@eTrucker.com.
Like chess, one of the keys to success in truckload is thinking several moves ahead. But too often, dispatch reacts to solve immediate problems without thinking ahead to the implications down the road. An excellent example is when a truck delivers its load. Often, the principal concern is getting the truck rolling. And to minimize deadhead miles, dispatchers often make it a priority to find a load near the truck. If the dispatcher is lucky, he will get a load that sends the truck into an area with more loads available. But most carriers will take any nearby load to avoid a lengthy deadhead. Only as a last resort – and sometimes after they have already laid the truck over – will these dispatchers deadhead the truck into another area.
|Three Load Types|
|Percent run empty||Revenue/Mile|
Does this approach make the carrier the most possible money? If it does, it’s purely by chance. Intelligent decisions on which loads to take and when to operate empty are key to profitability. Unless dispatch thinks two or three loads ahead for the truck, most carriers are leaving money on the table.
At a simple level, truckload carriers haul three types of loads, profit winners, losers and average. The table above provides key operating statistics for each type of load. Profit winners usually come out of good freight areas going into poor ones. A profit loser is a backhaul out of a poor freight area.
Let’s assume a trucking company runs a truck for a week on any combination of these three load types. The length of haul for each load is 850 miles with deadhead miles in addition. The carrier’s operating cost is 80 cents a mile. Overhead and equipment costs (for the tractor and trailer) for the week is $750.
The next table lists all the combinations of load types the tractor could run. For each combination the table lists the revenue per total mile, the percentage of empty miles and the operating ratio (operating expense/revenue) for the tractor for the week.
|Patterns of profitability|
Obviously, the tractor makes the most money if it runs nothing but profit winners. That’s not realistic, but by thinking two to three moves ahead a carrier increases the number of times a truck will run a highly profitable freight pattern.
A refrigerated hauler I once worked with, for example, would run meat into New York City from the Midwest at a premium rate – a clear profit winner. Then it would get a loser load into the Carolinas and return to the Midwest at a reduced rate for a below-average load. As predicted by the table, the carrier’s profitability was mediocre.
To boost profits, the carrier began running loads from the New York Metro area into Florida and then poor loads back to the Midwest. Typically, rates from a backhaul area to another backhaul area are at a premium. So the carrier was able to get a winner load into Florida. This more than paid for the loser load coming out of Florida. The carrier doubled the profitability of its trucks.
The carrier was surprised to find that it had little trouble booking loads from the East Coat into Florida, while it had to hunt for loads to the Carolinas. The reason is that most carriers are overly focused on their deadhead ratio. Certainly loads into Florida can result in long deadhead, but the economics are such the rate more than compensated the carrier for the empty miles.
To maximize profits, dispatch needs to understand the most profitable freight patterns on the major lanes of your business and then work to keep trucks in that pattern, even if it means incurring a deadhead. If a truck gets out of the normal pattern, dispatch must find loads to get it back on a profitable freight pattern.