Opinion: How to Profit Under the New Hours of Service

Lack of financial management is the biggest single factor in these failures. Most companies cannot pinpoint their costs of doing business.

Owners and managers have adjusted to many changes. They have adapted to regulations, become cost-efficient in maintaining complicated trucks, learned to use technology in their businesses and improved their services. Although they have survived, most still do not understand their costs.

To stay competitive in a global economy, manufacturers have implemented rigorous cost controls. Trucking fleets, which are also capital-intensive companies, must do the same.

Historically, carriers have been unable to control the changes affecting their own industry. These strategies have dramatically changed how truckers function: core carriers, just-in-time delivery, lane-specific carriers, the growth of brokerage and third-party logistics providers, and ISO 9001/9002 certification.

None of these initiatives began within trucking. They were all conceived or promoted by shippers, largely through the Council of Logistics Management.

Shippers take the position that these are motor-carrier problems. We are hearing the same thing from shippers regarding the hours rule. They will work with carriers, but expect pricing requests to be supported by hard data.

Motor carriers must lead the initiative. They are the first recipients of the problem, so they should be able to define strategies that minimize or eliminate the effect of the problem.

What prevents motor carriers from taking the initiative? It is not lack of intelligence or assertiveness. It is the lack of credible costing information about their operations. What is missing is an activity-based, cost-accounting system for trucking companies.

Activity-based cost accounting is very common with manufacturers. The same process can be applied to trucking.

Variable expenses are caused by moving trucks or creating revenue. Fixed expenses are departmental — for example, equipment and support personnel. Variable expenses like fuel, driver mileage pay, parts, tires and tolls are measured by the mile.

Fixed expenses like depreciation, maintenance, operations, marketing and administration are absorbed by assigning a burden rate to each truck in operation on an hourly or daily basis. You can then measure the effect of time, distance and increased productivity.

My company has been working with such a cost system since 1983. We use it to measure the impact of HOS rules for a specific trip or company. For example, a 1,030-mile round trip with pricing that was marginally profitable before the new rules is now unprofitable.

Three examples show how the loss can be lessened through increasing truck productivity by reducing loading and unloading hours and “drop-and-hook” operations.

Truckers must become good asset managers. When was the last time you were on an airplane that stopped because the pilot ran out of hours? Saw a train stop because the engineer ran out of hours? A bus or a river barge?

Trucks can have accelerated depreciation over three years. The typical warranty is 700,000 miles, with design life exceeding 1million miles. That means the optimum combination of revenue, profit and tax advantage is to operate the truck 700,000 miles in three years. Those carriers that do so will be more profitable. You cannot do that with a one-driver-per-truck operating philosophy.

It is time for truckers to start controlling their own destinies. The HOS rules provide a platform. Knowing your costs will allow you to profit from the new regulations.

The Trincon Group, Columbus, Ohio, offers business advisory services to the transportation industry.

This story appeared in the March 1 print edition of Transport Topics. Subscribe today.