The trucking industry in one of the most competitive industries in the market today. There are over 4.5 million trucks on the road and over 85% of carriers in the industry belongs to owner/operations (1-6 truck fleets). With this many carriers looking for loads to haul, spot rates can get low and profit margins thin.
In trucking, where profit margins are between 2.5% and 6% any error in trip planning, vehicle maintenance issues or unexpected situations can leave carriers losing money on loads. As a carrier it is critical to have a strong understanding on your expenses and realistic expectations on what you can haul in order to keep you company above water in volatile market conditions.
With so many carriers willing to take loads for what seems like unreasonable rates, how can drivers expect to make their payments and a living without working themselves to death?
Here are some of the ways that you can navigate the landscape of "cheap freight" and how you compete in a volatile market without putting yourself out of business.
Before you can begin to navigate the spot rate market successfully you need to know in detail what your expenses are and what they cost your company. This information will tell you what you must earn in order to keep the doors open.
If you aren't keeping track of your expense closely today there are many programs and financial projection tools available that can help you understand how your business currently operates. Projection Hub has a great financial projection spreadsheet that you can download to help understand where your business is today and where you can take your business based on your goals and input.
By knowing what your expenses are in detail you can start to anticipate what kind of loads you will be able to accept. This is essential to determine what your cost per mile is and what rates you can accept that will allow you to make a profit.
Vehicle maintenance is one of the most overlooked areas in trucking. By not anticipating vehicle maintenance expenses and having a preventative maintenance program in place you are setting yourself up for failure.
Many carriers adopt the "if it's not broke, don't fix it" mentality and this leaves them exposed to vehicle maintenance violations, huge towing expenses, extended truck downtime and traffic accidents.
Anytime that the truck is not moving, it is not making money. By not making sure that the truck is fully operational you put yourself at risk of letting fate decide when you will deal with maintenance issues and the outcomes can leave you feeling desperate.
One of the best ways to avoid these surprise vehicle maintenance issues it to emphasize that drivers perform pre-trip inspections or DVIRs. These inspections are often overlooked or properly performed. Incentivizing that your drivers perform these task the way you want them to can help increase the life of your vehicles and avoid unnecessary downtime.
There are a lot of situations that pop up in the trucking industry that leaves drivers in tough spots. Most of a drivers risk comes from encountering the DOT or enforcement official. Operating outside of the laws can open you up to fined and fines can cost big time.
Fines and violations may seem like minor stings. However, inspections and violations compound and raise your CSA score which can open you up to DOT audits and increased insurance rates. All of these items are added expenses that are a result from minor violations building up.
Being overloaded is a common example of one of these situations. The cost of being overloaded generates fines, finding longer routes to avoid weigh stations, back tracking to fix loads which adds miles and eats drive time and wear-and-tear on equipment.
Another area of avoidable risk is around unsafe driving events. Common unsafe driving violations that carriers and drivers find themselves in are:
Carriers that allow these type of events to build up may find themselves in a situations where they have higher expenses.
When things start to get tough and profits are start to dip the burden of the decisions made usually get moved to the driver. Carriers who panic and start accepting loads below what is comfortable will sometimes push drivers to over work themselves. This starts a cycle hardship on the carrier that can take months to correct.
Making decisions that increase a drivers workload is usually a recipe for disaster. Drivers can get burned out and quit at a moments notice leaving carriers to apply more pressure to the rest of the fleet. Then they are scrambling to find a replacement driver quickly. In the chaos of everything going on drivers get added to the fleet without proper due diligence. This can result in hiring unqualified drivers who cause more harm than good to your company.
Driver churn is also a huge expense for a carrier. It cost a lot to bring a new driver on with incentives that get them to look at your company over your competition. If you have to pay a sign on bonus to bring someone new onboard and then have to replace them a year later then you must address the issue of driver churn or you will struggle to make a profit and stay in business.
Trucking is not immune to the changes brought on by new technology. As the world becomes more connected, leveraging new technology will give you the insight that you need to make the best decisions for your business.
With all of the apps available carriers can monitor everything from hours of service, vehicle maintenance, driver effectiveness, fleet performance and more. Being able to see this kind of data and making sense of it all will allow you to manage your company in ways that have never been done in the past.
One important thing to remember is "if you can't measure it, you can't manage it." Being able to measure trends in your company will allow you to see where the weak spots are and allow you to find the best ways to address them. If you are just blindly cutting cost or making decisions you could be making the wrong moves that put your company at risk.
Being able to make smart decisions based off of data will allow you to take on loads that will not put you at risk of losing revenue or making tough compromises.