Paying close attention to operating expenses has always mattered to truckload carriers, but the current market is in a period of transition that is making cost management more important than ever. Rates, in general, are softening which is affecting many carriers’ revenue. And, if we’re honest, a lot of shippers are a little testy after being overwhelmed by high rates over the past two-plus years. As a result, they’re looking at the present situation as an opportunity to find lower rates. From your perspective as a carrier, being in a more competitive market environment means focusing on cost management needs to be a top priority.
Often, the most useful benchmark carriers can use to measure the effectiveness of managing expenses is on a cost per mile basis. The challenge right now for carriers is that many factors are working against them when it comes to minimizing their cost per mile and maximizing the rate per mile they can charge. Here are some ideas to help carriers improve on this important metric.
As we’ve already said, shippers are looking to save money, and the market has been shifting in their favor as of late. Conversely, costs for carriers are increasing—therefore pushing up their cost per mile. For example, inflation is impacting rates of pay (and not just for drivers) everywhere within most trucking operations. At the same time, commodity prices (primarily diesel fuel) and equipment costs have gone up making things even more difficult.
With the goal being for carriers to reduce their cost per mile, the solution for them is to focus on better planning in ways that help drive efficiencies in three areas—time, miles, and unnecessary expenses.
Cost per mile is a simple equation—your cost divided by the miles invoiced for a given load. Improving the number can be a matter of either reducing the cost, obviously. But carriers also benefit by reducing their miles driven just as much.
Right now, an obvious opportunity to reduce the cost of operations is by lowering fuel expenses—no surprise there. But many carriers underestimate how much they can do about it.
Tracking individual drivers and their fuel economy should be a standard operating procedure, for example. With that information, feedback and training can be given to underperforming drivers to encourage improvement. There is a lot of money at stake, so it’s worth it for every carrier to emphasize fuel economy with their drivers. Enough so that many savvy carriers actively find ways to recognize and reward high performers because they find the effort and cost more than pay for itself with overall cost savings.
Every mile traveled by truck costs money—and not just in fuel. Driver time, equipment wear-and-tear, and other overhead expenses add up. So, every mile avoided is a win for carriers' bottom lines. This is especially true when these miles come from unnecessary deadheading or other out-of-route miles. Sitting in traffic is another under appreciated expense. These issues can never be eliminated, but trucking companies that put extra effort into better planning and navigation can mitigate much of these extra miles and costs that carriers are usually unable to bill for.
Lastly, it’s important that carriers don’t overlook maintenance and safety. Like traffic and unnecessary miles, side of the road issues cost time and money. Well-maintained vehicles remain in operation more consistently. And safer, well-trained drivers put less wear and tear on their vehicles, which cuts back on maintenance and other problems. Properly trained drivers also have a smaller chance of being selected for random (and time-consuming) roadside inspections or running afoul of any HOS issues.
An under-appreciated and harder-to-quantify expense that hurts a carrier’s cost per mile is time. To state the obvious, carriers make money when trucks are full and on the road. Delays of any kind work against that.
Some of the biggest time wasters for trucking companies happen during pickup and delivery. Remember, these are costs that add to the cost per mile equation even though the truck is not technically on the road. Costs are costs, after all.
Waiting time for any reason is a killer, so anything carriers can do to keep things moving and minimize wait times at the dock are a good thing. The relationships your drivers and dispatchers have with origins and consignees can do a lot to speed things up at these crucial moments. It’s important to remember that shippers all have their own limitations they must deal with, so doing what you can to help them work around their challenges will end up helping you as well. Utilizing drop trailers where possible, for example, can help shippers with limited space or dock hours.
It also helps to have dispatchers working ahead to ensure deliveries go as smoothly as possible. Making appointments when allowed and doing everything to remove barriers to communication with drivers and shipping locations can be impactful. It should also be understood that showing up on time for those appointments is a straightforward way to minimize wait times, as well.
Not surprisingly, minimizing your cost per mile is a combination of many factors and requires a company-wide effort. Trained drivers, proactive dispatchers, and proper maintenance are all equally important.
Carriers can still help themselves by doing things to create more revenue by charging higher rates per mile. It’s not easy in the current environment, but by taking care of your best shippers you’ll find that many are willing to pay a small premium to work with you. Companies that appreciate the service you provide usually become far less price sensitive.
Optimizing your cost per mile requires a proactive approach in many areas, as does measuring and quantifying the impact your efforts are making. The trend shows that it will remain a shipper’s market in the near term. So, the responsibility falls with trucking companies to find ways to operate more efficiently and be the best possible partner to your shipper customers.