(Even “cheap freight” pays something)
By Timothy D. Brady
The pitfalls of driving a trucking route without paying freight should be avoided.
Some points I find it interesting: first, that there are still truckers who think if they can make a static rate per mile they’ll earn enough to make it in this industry. Second, what constitutes cheap freight for one carrier may not be for another.
On a static rate per mile. This is so wrong in so many ways and is one of the reasons many truckers and carriers find themselves behind the hauling rate 8-ball. In simple terms, you have a consistent, fixed cost of truck payments, insurance, base plate, office rent etc. which all have to be paid whether a truck is hauling paying freight, running empty or just sitting in the yard. Because of this fixed cost, your required rate per mile will change based on both time and distance. A difference of 500 miles in a week can cause the cost per mile of a truck to go up or down as much as 20 cents per mile–the fewer miles you run, the higher your cost per mile. The more miles you run, the lower your cost per mile. Example: a truck running 3,000 miles a week might have a cost per mile of $1.40, but if that same truck runs only 2,500 miles in a week, it would cost $1.60 per mile. So it’s imperative you know your fixed cost per day and look at the number of days a load requires plus its total miles from destination to destination.
The formula goes like this:
(Days on Load X Daily Fixed Costs) + (Total destination to destination miles X fuel cost per mile) + (total destination to destination miles X operational cost per mile) + (Tolls, permits, lumper labor, etc) = Load’s break-even point.
Don’t assume because you made a profit at $1.75 per mile last time it will hold true this time. All these costs must be tracked. Fixed costs and operational costs should be tracked monthly; fuel cost as it changes and load-specific costs on each load.
Deadheading or waiting an extra day for a “Good paying load” will increase the cost per mile you’ll need to cover. This must be factored into every load—Take/Decline load decision. Many times it’s more cost-effective to take the “cheap freight” load, but it requires diligent planning and effort.
Cheap freight is an over-used and misunderstood term. What is cheap freight for one may be the profit for another. Here’s something more to think about:
1. Truck-to-load ratio is the largest determining factor: more loads, fewer trucks, higher rates; or fewer loads, more truckers, lower rates. (The ratio is the major determining rate factor for areas like Miami and Denver). So it is important to know those ratios when accepting a load to an area. It’s also important to know the market of the areas in which you operate.
2. Another problem with many truckers is they don’t establish definitive freight lanes. This is NOT hauling dedicated freight for one customer. This is establishing a series of hauling routes which have multiple shippers and brokers, with quality hauling rates that are consistently available. But in every freight lane, there’s usually one leg which has low-paying freight. If you plan your lane correctly and have the cost of the low-paying leg incorporated into the revenue from all the other legs in the lane which are profitable, at the end of the month, then any load hauled in the low-pay lane becomes pure profit.
Example: I have a client who operates out of Denver with a 565-mile deadhead out of Denver to his first load in the lane. Because he incorporated the cost of the deadhead into the needed revenue and profit margin of the other three legs in the lane, he’s making a $1,035 profit per truck per month or around $4,140 for the four trucks he operates in that lane per month.
Now for the kicker. He hauls a 60-cent per mile load out of Denver that pays $339 per load per truck for the deadhead leg three weeks each month. This $339 goes straight to profit, adding an additional $1,017 profit per truck per month or an additional $4,068 profit per month for the 4 trucks operating in that lane. That cheap freight represents $48,816 additional profit per year, which has allowed him to add 4 more trucks and trailers to his operation in the last two years, (Yes, during the Recession), and his carrier is growing by leaps and bounds. If he had continued to deadhead those 565 miles because he doesn’t haul “Cheap Freight” he’d still own only 4 trucks. Something to think about.
Good loads and good roads, everyone.
Timothy Brady ©2011