For the times, they are a–changin’ …
By Timothy Brady
Trucking in the second decade of the 21 Century is going to be vastly different from how carriers have done business in the past.
There are currently over 600,000 motor carriers in the US. Of that number over 75% have 20 or fewer trucks, 85% have fewer than 10 trucks and 92% have 6 or fewer trucks. The majority of freight in this country is hauled by trucking companies with 20 or fewer licensed units. In other words, large carriers haul less than 12% of the freight in this country.
The business of trucking is going through an evolution. Many shippers are realizing that it’s best not to put all your hauling needs into one basket by contracting with just a few large carriers. These same shippers have realized they can save themselves large amounts of shipping costs by opening their own logistics booking departments and scheduling their shipments directly with the carrier - not using a freight broker. And these shippers have concluded they can pay a higher rate to the carrier while actually having the overall cost of shipping reduced. It also gives them a higher level of control over the quality of the carrier who transports their freight.
How will this evolutionary approach by shippers affect smaller carriers? First, it opens markets and lanes that before were either difficult or impossible for the small carriers to be active within. Second, it provides the potential for increased revenue by working directly with a shipper rather than going through an intermediary to book the freight. Third, the carriers can diversify their freight and lanes.
But this demands new knowledge and skills for the small motor carrier.
It will be imperative for a carrier to know exactly what the fixed cost and operation cost is on each piece of equipment operated. It will be extremely important for a carrier to have a hauling rate range that fits both cost and profit needs, along with matching the hauling rate needs of the lanes and shippers. Gone are the days when you depend on the shippers or brokers to provide the rates you’ll be paid to haul their products. This doesn’t mean carriers will go into a shipper demanding a particular hauling rate. It means that by understanding your revenue needs and having an established rate range to work within, you’ll be able to negotiate a rate with these shippers which is beneficial to both. Of course this requires knowing your rate range and then negotiating within that range.
Next on the list of new skills and knowledge will be, “Just how green can your carrier become?” This is not about becoming an environmentalist or joining Greenpeace. It is about learning to conserve energy to become more competitive in your segment and lane. The more fuel efficient your operation, the lower your overall costs; and this equals either higher profit margins or hauling rates which are lower than the trucking companies with which you compete for freight. There are two areas of concentration in becoming a green carrier:
- The fuel efficiency of your fleet is the most obvious. By purchasing the highest mile per gallon vehicles possible; incorporating SmartWay™ technologies into your existing fleet (and being sure new equipment has it) and keeping fleet speeds at their lowest fuel consumption level without sacrificing the service demanded by your customers, fuel efficiency accelerates. (Many shippers subscribe to higher hauling rates as incentives for carriers using SmartWay™ technologies.)
- Creating a dispatch system that optimizes fuel purchases at the lowest cost, reduces empty, unpaid miles through load and lane planning, and crafting a fuel cost reimbursement system that rewards both your truckers and shippers for fuel efficiency. (A couple of ideas: provide a shipper with a Green Discount for not detaining trucks and working with your dispatch to schedule loads. Both work well with your fuel optimization plan. Also, have a discount for the shipper when they schedule a delivery permitting the truck hauling their load to travel at the most fuel-efficient speed. Drivers could be given an incentive to conserve fuel by providing them with a fixed fuel compensation amount based on your hauling rate pricing for your shippers. An example would be requiring a minimum of 7mpg for your trucks and provide the trucker with a Fuel Compensation amount equal to the 7 mpg. If the trucker achieves 7.5 or 8 mpg, he gets to keep the difference. If he gets less than 7 mpg, the difference comes out of his pocket.)
The third area of knowledge and skills is all about creating an even safer operation. Safety is going to be paramount in the future of trucking, not just the obvious concern for the wellbeing of the motoring public and truckers, but how safe your operation is will also have an economic impact on your company. The sooner a carrier gets on board with a proactive safety program, the less likely he will run afoul of the FMCSA. CSA 2010 isn’t a new set of regulations; it’s an improved way for the FMCSA to manage existing rules. The earlier you get on this bandwagon, the better your bottom line. Your safety policy of the future will need to lay out to your truckers in no uncertain terms that safety must be their top priority. The days of fudging on logbooks are coming to a close. Out of Service Orders will have a devastating effect on your overall safety rating; too many, and added moving violations and accidents can get your authority suspended. But beyond this, shippers will be scrutinizing your safety rating more than ever before. The better your safety rating, the better freight rates you’ll receive. Here are a couple of safety program ideas that a carrier could implement: If a trucker receives more than one moving violation on his DMV per year, it will be grounds for dismissal or cancellation of contract. It is also recommended any driver who receives a citation for a moving violation needs to challenge it in court. This tells the trucker what is expected of him or her, and then gives them a means to vindicate themselves. It’s expensive to fight a citation, but if spending $500 to $1,000 isn’t incentive enough to avoid a violation appearing on his DMV, then maybe the threat of losing his position at the company will.
One of the largest areas of noncompliance by truckers is actually performing the Pre-Trip Inspection. With the new and increased roadside vehicle inspections and the fact the more non-violation inspections a carrier receives the lower your safety rating score (lower is better), the incentive is definitely there to be sure your vehicles pass all inspections with flying colors. Set up a procedure so your trucks and trailers are inspected by qualified mechanics from bumper to ICC bar at least once a month and all repairs are completed before the truck leaves the shop. Then have your truckers send in photos via cell phone of certain areas of the truck the driver is required to inspect during each PTI to verify they are actually doing their PTIs. The location for inspection needs to be different every day, and drivers should be notified by text message each day as to the new location. At least once a week, the driver should send pictures of each brake assembly from underneath the truck. (You should provide a mechanics’ creeper for each truck.) The objective is zero on the road breakdowns and zero Equipment OOS orders.
The future of trucking and small motor carriers is evolving at breakneck speed. With everything from CSA 2010, the new economy, unpredictability of fuel prices and other events occurring almost daily, the business environment of trucking and logistics changes drastically. Only companies prepared for those changes with a plan on how to move forward will survive. The changes currently underway are as revolutionary to the industry as was going from horses and wagons to motorized vehicles a century ago. Change is never easy, but change is inevitable. Being prepared with a plan of action is always your best course.
Good loads and good roads, everyone.
Timothy Brady © 2010
www.timothybrady.com
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