Letters: Rate Setting, Fuel Efficiency, Restrictive Laws
About the two May 17 “rate setting” letters (p. 6): It’s important for trucking companies to understand that we are the ones who set the rates. (Click here for previous letters.)
Very few brokers, if any, set rates based on cost. Few of them could even tell you what it costs to move their freight. That’s the big disconnect that hurts this industry, because if they approached their business with a little more passion to understand trucking costs, the disparity between rates and cost would not be so wide.
What’s sad is that many shippers hide behind brokers and, in some cases, actually think there’s a connection between the rate and the cost. Even sadder, most carriers couldn’t tell you what their true cost is; they just accept whatever rate the broker offers and hope it’s enough.
In many ways, we carriers are our own worst enemy because we allow the tail to wag the dog. We don’t need a revived Interstate Commerce Commission and tariff bureaus to do our job for us. We just need to learn our costs and move freight based on them.
Once you understand the cost, it becomes very easy to put it all into perspective: If it doesn’t pay enough to generate a profit, don’t haul it.
Here is a quick example based on the simplest type of freight scenario — out and back, in this case between Cleveland and Edison, N.J.:
• Fixed cost per day: $142 (based on revenue days per year).
• Variable cost: $1.24 per mile.
A shipper offers a load from Cleveland to Edison for 455 loaded miles. Your truck is in Akron, Ohio — 38 empty miles to the pickup point for a total of 493 miles.
Now, it’s important to understand that it doesn’t end here. Before you give the shipper a rate, you need to know what kind of revenue/miles you can expect to get for the return trip to the Cleveland area.
Let’s say you’re going to make a return trip out of Trenton, N.J., back to Elyria, Ohio, for $500. That gives you 30 empty miles from Edison to Trenton and another 478 loaded miles to Elyria from Trenton for a total of 508 miles. That amount totals two revenue days and 1,001 miles round-trip.
• Fixed cost: two revenue days at a cost of $142 a day — $284.
• Variable cost: $1.24 a mile at 1,001 miles — $1,241.24.
• Total cost: $1,525.24.
• Backhaul revenue: $500 (Trenton to Elyria).
• Revenue needed: $1,101.30 (includes fuel surcharge).
• Fuel surcharge (35 cents a mile): 455 miles at 35 cents a mile — $159.25.
• Cleveland to Edison rate needed: $942.05, or $2.07 a mile plus fuel surcharge.
The costs obviously will change by carrier, but this example clearly shows that once a carrier understands its cost, it will be empowered to make the right decision with respect to rates, regardless of whether it involves a shipper or a broker.
Carriers must be smart in the way we approach business, or we’ll be talking about the same issues 15 years from now. The same holds true for owner-operators: You’re a small business and need to act as one. The better you understand your costs, the more exposed the company and/or shipper(s) that you work for will be. It’s a pennies business, and we need to start managing them or we’ll never see the dollars.
JR Kays Trucking Inc.
Spring Creek, Pa.
As a credit analyst in the finance industry, I am shocked at how key leaders in the trucking industry are all too eager to march in lockstep with the federal government as policies are proposed and implemented that will mandate more burdensome costs to be shouldered by carriers and manufacturers.
Everyone agrees that improved fuel efficiency — i.e. doing more with less — is a good thing, but what is missing from the current “feel good” dialogue is the fact that a key opportunity for top performing companies to achieve a competitive edge in the arena of fuel efficiency is being forfeited in favor of government regulation.
Of the two largest expenses for the vast majority of fleets, personnel and fuel, only fuel affords a carrier the opportunity to explore ways of spending less while simultaneously improving customer service and return on investment.
As technology continues to improve (without the need of government assistance), carriers have the opportunity to capitalize on said improvements as allowed by their ability to invest in fixed assets. In the absence of government-imposed fuel-efficiency standards, market competition can reward and punish a company for its own fuel-efficiency standards.
As “Big Brother” steps in to level the playing field, any bottom-line improvements will be short term and modest, at best.
Perhaps industry executives are willing to forfeit the competitive landscape in favor of gaining the perceived public support believed to be associated with “going green.” If that is the case, I encourage them to actually look at public polling trends. While Americans always will applaud companies that find ways to do more with less, a majority of mainstream citizens attributes changes in the global climate to naturally occurring, long-term environmental fluctuations, rather than human activity, and this majority continues to grow as more research is conducted and debate increases.
Even if this trend begins to reverse, are you truly willing to give up the benefits of competition to gain the favor of the fickle public, when that favor could just as easily be gained without the help of Uncle Sam? Why must we assume that corporate responsibility is unattainable without cumbersome regulation?
Furthermore, if being perceived as green is truly your focus, you should be warned that you always will be at a competitive disad-vantage to other forms of freight transportation.
Executives should be more careful with whom they choose to partner.
Rather than being “one of the rare times when it appears that good public policy and good corporate policy are in virtually full synchronization” (6-7, p. 6), it is simply one more example of private industry having control taken away by the government. What does the industry stand to gain? I assert it will gain nothing that it could not gain on its own at a much smaller price tag.
The Obama administration continues to enact more restrictive laws against the transportation industry, including railroads, interstate trucking, airlines and maritime. We are getting to the point that regulatory compliance is strangling our industries — and we’re not even talking about the tax code. It has come down to an unfortunate scenario that applies to the “mega” corporate-fleet motor carriers right down to the mom-and-pop single-truck operators.
We are all going to have to push back through total work stoppages, slowdowns or voluntary furlough days — parking on the interstates for 48 hours to show what kind of power we do, in fact, wield.
Now, I know things like this have been tried somewhat in the past, but the dynamics of today’s regulations have driven our industry’s situation to the breaking point with massive bankruptcies and business failures. I am asking all parties concerned to come together and start organizing a plan to effectively carry out a nationwide shutdown. It is going to take everyone’s cooperation in planning and executing this.
Just remember that these new, “pending” regulations will affect every one of you, whether or not you fight back. We either win as a collective group and gain some much-needed relief, or we’ll all hang together by the same rope. Either stand up like proud Americans or lie down and give up. The choice is still yours, so do it while it still is yours to make.
Semper Fi Transport
Klamath Falls, Ore.