Benchmarking to the top

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How do some carriers do it? According to the American Trucking Associations, the top 20 general freight truckload carriers with less than $50 million in annual revenue maintain operating ratios in the 93 to 94 percent range and, as a group, achieve net profits of around 3 percent.

One thing is certain. These results didn’t just happen. You can bet these carriers benchmark their operations either against past performance or against other top performers in their segments. Their entire companies probably strive to beat those benchmarks.

Benchmarking is not an ordinary cost-cutting tool. It’s more a way of life – and survival. Approximately 10,000 carriers with five or more power units have failed in the past four years. How many do you think were avid practitioners of benchmarking? Perhaps a handful ran good operations but just had particularly bad luck. You can bet that most operated their company without clear objectives in mind.

Benchmarking resources abound. You can use the quarterly and annual reports of publicly traded trucking companies, information compiled by credit lending institutions or financial data submitted to the Department of Transportation. Another resource is “Twenty from the Top,” a benchmarking guide to the operations of for-hire truckload carriers published by ATA. These stats are compiled from DOT filings and other benchmarking studies.

In 2000 and 2001, the latest benchmarking data available, general freight truckload carriers with revenues less than $50 million on average had $156,000 to $162,000 in operating expenses per power unit, according to ATA. In those years, they averaged 116,100 and 123,600 miles per power unit. That means their total costs per mile were $1.34 per mile in 2001, and $1.31 in 2002.

So what were major categories in cents per mile? Salaries, wages and fringe benefits were 40.1 cents and 38.3 cents per mile in 2000 and 2001, respectively. Equipment rents and purchased transportation (including owner-operators) totaled 32.6 and 38.6 cents per mile in those years.

Depreciation and amortization held steady each year at 9.1 and 9.2 cents per mile. Combined, these three costs – salaries and depreciation for company-owned trucks, and purchased transportation for leased trucks – were 81.8 and 86.1 cents per mile in 2000 and 2001.

I look at all three numbers together because companies frequently vary the mix of company-owned and owner-operator equipment in their fleets. But by combining all, it is remarkable to see that the costs per mile are pretty consistent year-to-year.

When 61 to 66 percent of your total costs of operations is in these three categories, you can see that failure to manage costs well in those areas is critical. If you can’t manage here, why bother worrying about other cost categories.

That may seem to be a bold statement, but just look at the numbers. For example, with all the press about skyrocketing insurance costs, insurance represented just 4.3 to 4.8 cents per mile in 2000 and 2001 among the top best carriers having less than $50 million in revenue. Certainly, in a tight-margin business like trucking, insurance costs do matter. Perhaps even more important, failing to control losses exposes you to potentially lethal lawsuits. But without primary attention to the big-dollar categories, your company will fail long before a jury verdict slams you.

Don’t get hung up on the notion that your business is unique and that no benchmark offers an apples-to-apples comparison. You may not be able to find a clone of your operation, but you can get close enough.

Benchmarking will never be perfect. But it can be the start of some eye-opening comparisons. Once you start the process of comparison of your costs compared to top performers, you begin to look at internal benchmarking. You start to realize that half your power units and drivers are above average, and half are below. What would happen if you brought up the bottom half average to equal that of the top half average? Do the math, and then begin to realize the value of benchmarking.


RESOURCES:
American Trucking Associations
RMA
Securities and Exchange Commission
Transportation Technical Services