Time truly is money

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NAL Worldwide, which is affiliated with private equity firm Lake Capital Partners, has completed its acquisition of the assets of Sirva Logistics from North American Van Lines, a subsidiary of Sirva Inc. Previously known as North American Logistics, Sirva Logistics has operated since 1998.

Knight Transportation has acquired Edwards Bros., a refrigerated truckload carrier and brokerage based in Idaho Falls, Idaho. Edwards Bros., which generates about $25 to $30 million in annual revenue, will operate under its current name in the near term, but eventually the business is expected to be folded into the Knight Refrigerated brand.

Star Transportation of Nashville, Tenn., has taken possession of Camp Transportation, based in Jacksonville, Fla.

DHL held groundbreaking ceremonies in August for construction of its new $107 million East Coast Distribution Facility in Allentown, Pa. By the end of 2006, the Allentown facility will service 57 stations, and there will be daily truck runs out of the facility to 10 regional hubs located across the United States.

Maverick Transportation announced a pay raise of 2 cents per mile across the board, effective Oct. 2. Maverick’s starting pay will be 40 cents per mile for drivers in the company’s long-haul fleet, and between 38 and 39 cents per mile in the regional fleets.

Saia Inc. announced that its Orange County, Calif., terminal has been moved to a larger facility because of growth in the region and the need for additional doors and square footage.

This is my final column for CCJ as I leave the world of management consulting to take a full-time position managing the transportation operations for a major retailer. I have always strived to bring to this column an understanding of how both carriers and shippers work. Now, I’ll see how well I did. Having managed the operations of several motor carriers, I look forward to trying my hand on the other side of the fence.

One conviction I bring to this new job is that “time is money.” Certainly that’s the case for retailers. Many of their most profitable items have only a short selling season – a narrow window of time when they are in demand. And the same is true in trucking. All a carrier really has to sell is the daily use of a truck to a shipper. Once that truck goes a day without a load, it’s an opportunity lost forever.

But this isn’t how most people really think in trucking. It’s about miles. Income and expenses are measured in terms of miles, and most people think of utilization in terms of miles per truck or tractor. This mindset is a relic of the past, when carriers had to report miles driven to various entities. So the data already was there, and dividing revenues and costs by miles driven became convenient and solid indicators of performance.

Certainly, per-mile fleet statistics can shed light on what is wrong with an operation, but they are a poor measurement of the profitability of an individual load or customer. Time is a much better measurement of a truckload carrier’s profitability. Truckload carriers really only sell one thing: the time a shipper load is on the trailer and the amount of time a tractor pulls a load from origin to destination. As the truck moves, the carrier incurs costs such as fuel and drivers wages, but a focus on per-mile statistics can make poor loads look profitable.

Suppose it costs $200 a day in fixed costs for a carrier to put a tractor-trailer out on the road. This includes the lease payments on the equipment and a portion of all the overhead costs at the office, such as rent and salaries. The variable cost of wages and fuel for moving a truck down the road is $1 per mile. A carrier hauls a load 400 miles and receives $700 revenue. If the carrier picked up and delivered the load in one day, the carrier made $100 profit – $700 minus $400 in variable costs and $200 in fixed costs. If the load takes two days of equipment time, the carrier actually loses $100 because of the second day of fixed costs. Plus, you now have an angry driver who got stuck with the bad load.

Such loads happen more than most carriers want to admit. Certainly the length of haul might be better than in this example, but anytime a load takes a day more than it should, profits and driver morale suffer.

The operation department makes many decisions that affect how long a load will tie up equipment. The most important one is scheduling when loads are picked up and delivered to get maximum utilization out of the truck hauling the load. In addition, a dispatcher always must worry about utilization on the next load. If a load doesn’t deliver until late in the afternoon – by which time most customers have stopped shipping – the truck may lose valuable hours of utilization.

Remember, once a driver starts the truck moving, there are only 11 hours of driving. If a truck runs five hours to deliver a load late in the afternoon and then has nothing to do until the next day, he loses six hours of driving time.

To get loads scheduled properly, operations must have the freedom to push back at customers and not agree to load schedules that result in poor utilization. Now that I’m working for a shipper, this might sound like heresy. But all shippers should be interested in maximizing the productivity of a scarce resource – truck drivers. As people constantly have told me, they don’t make drivers like they used to, nor do they make enough of them.

Shippers must realize they are as caught up in the driver shortage as their carriers. I hope to lead by example.

Crete Carrier thinks practical
Crete Carrier Corp. will drop its short route mileage plan and pay all its drivers practical route miles as of Oct. 1. By switching to practical miles, which reflect routes usable by a heavy-duty tractor-trailer rather than the shortest possible route, driver compensation will increase.