The next loads matter most

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International Warehouse Logistics Association’s 2004 business outlook survey predicts strong growth for outsourced logistics this year. More than one-third of IWLA members polled in March expect double-digit revenue gains this year. Another 35 percent expect increases of between 5 percent and 10 percent. For more information, visit www.iwla.com.

Performance Logistics Group (PLG), Wayne, Mich., has acquired Leaseway Auto Carrier Group from Penske Truck Leasing in exchange for “a significant minority interest” in PLG. PLG is parent of Performance Transportation Services, Inc., which operates a nationwide automobile transportation business through subsidiaries E. and L. Transport Co., Hadley Auto Transport and Transportation Releasing.

XRG Inc., a Tampa, Fla.-based company established in November 2000 to consolidate established and profitable truckload carriers throughout the United States, has acquired Champaign, Ill.-based HighBorne Corp. and Evergreen, Ala.-based Highway Transport.

Small Business Administration is soliciting nominations until May 21 for the 2004 New Freedom Initiative Awards, which honor small businesses that have used innovative strategies to enhance the workplace environment and expand job opportunities for people with disabilities. Information is available at this site under the New Freedom Initiative tab.

Occasionally, you probably attend industry conferences where one topic is the profitability of a load for truckload carriers. Usually, the proposed approach is to measure the actual costs of individual loads rather than simply allocating costs equally. Knowing the costs of a load is important, but it’s not as useful in improving your profits as you might think.

Most truckload carriers serve a few key shippers within a 50-mile radius of their home base. For these customers, the typical carrier hauls most loads to outlying states. Sometimes the carrier finds a load that brings the truck home, but often it must take a load to another state in hopes of finding a homebound load. Of course, this action may lead the carrier to haul another load that doesn’t bring the truck any closer to home.

So while a good accounting system will tell a carrier the initial load was highly profitable, it does little to measure the impact of the two or three subsequent loads the carrier has to haul to get back home. That’s where the money is made or lost in trucking.

To account roughly for this pattern, I use what I call the “Rule of Three” for truckload carriers: Any three consecutive loads a truck hauls should be profitable. Carriers can control the profitability of the first load, but the second and third loads typically are at the mercy of brokers and the spot market.

If you want to maximize profits, understand the profit-making potential of the markets your key shippers send you to. Avoid going to markets that don’t allow carriers to make much money on subsequent loads and concentrate on profitable ones.

The table on the previous page lists 25 markets. I started with market rates for dry van truckload traffic, actual fuel and toll costs along the route and some realistic estimates of down time and empty miles. Then I calculated the profitability for all the possible three-leg moves among these 25 areas that were between 2,300 miles and 6,000 miles. The markets listed are the starting point for the trip. The table shows the percentage of all outbound trips that I deemed to be profit winners or losers. I have listed markets by those with the most winners. This is by no means the gospel, and it could be different for every carrier. But it serves to illustrate some general points about the different markets.

The best freight area, Columbus Ohio, shouldn’t surprise you, but Tampa’s second ranking probably does. Truckload carriers are quite effective in pricing into areas that carriers view as a backhaul market.

Serving major markets along either coast flirts with a profit disaster; New York is among the worst. More than half of the patterns out of New York City are profit losers with a good chunk being Big Losers. While rates into New York are high, they aren’t enough given the extra cost of East Coast fuel and tolls. While drivers love to run to the West Coast, it’s tough to make money due to the downward rate pressure of intermodal traffic and refrigerated haulers.

Another surprise is how poorly Kansas City ranked. There are no real premium rates into or out of this market. This may have to do with refrigerated haulers depressing inbound rates to get back to the beef patch. Outbound rates are also depressed as carriers run empty trucks into Kansas City from points further west.

Remember, there are always ways to make money. If a key shipper sends you to a poor area, evaluate what is the best pattern to get the trucks back home.