Carriers in the trucking industry today are actively looking for ways to combat the rising costs of operating their businesses, but they often do not fully understand proper benchmarking, cost analysis, and profit management are intertwined. Without understanding true costs and using benchmarks as just that – benchmarks – carriers and owners will struggle to effectively analyze and reduce their costs.
A popular, and possibly overly-stressed, component of profit management is benchmarking. Although it is certainly important for carriers to review industry averages in comparison with their own costs and profits, many may use these averages – or benchmarks – without proper conjunctive analysis and without fully understanding their costs and profits. For a trucking company or logistics provider to be profitable, owners must understand their cost of purchased transportation and expenses need to be in line with desired profitability. Using only industry averages to gauge business successes can not only be inaccurate, but can also be ineffective and even damaging.
The following categories represent a major portion of a carrier’s operating cost; the average cost per mile for the industry over the last year, according to industry experts is as follows:
- LTL – $1.79 per mile
- Specialized – $1.73 per mile
- Truckload – $1.51 per mile
In addition, experts figure that on average:
- Fuel costs represent 39% of a total carrier’s cost
- Driver wages represent 26% of costs
- Payments on leased/purchased trucks and trailers represent 11% of costs
- Maintenance repair was the next most expensive line item expense
Do you know how your company fares against these figures? If you are looking for ways to reduce your costs but don’t understand a comprehensive breakdown of those costs, benchmarking won’t be a useful tool by itself.
Fortunately there are several sources on benchmarking information available, two of which include the American Trucking Associations and the American Transportation Research Institute. The ATRI provides an analysis of operational cost of trucking and update the report once each year; the report is available online on a donation basis. The ATA can also provide you with specific materials on the subject.
While benchmarking is a valuable tool to gauge costs and profits overall, it is critical to also utilize effective profit management skills as well. In order for a business to be successful, you must plan your expenses to your profits, treat every truck as a profit center, and know prior to dispatching every truck whether or not you’ll make a profit each time it is dispatched.
One of the reasons why benchmarking alone isn’t enough to properly measure profits is that there are constant changes that influence the industry and affect costs and profits. Furthermore, each change that comes about impacts every business in a unique way; no two businesses are exactly alike, and fluctuations in the industry are never going to impact two companies in exactly the same way. Some of those changes come about as a result of changes in laws; currently, there are more than 20 laws pending that will impact the cost of transportation – not to mention CSA compliance, Hours of Service, e-logs, and changes in other areas as well.
Focus on the Future, but not at the Expense of Today
Regardless of how your numbers stack against benchmarked industry averages, it is important to not only think about the future, but also to deal with the complexity of today. Today there are too few drivers, costs are rising, and staying ahead of the technology curve while being one way to grow a business is often overwhelming. Staying on top of today’s developments in the industry will provide you with a roadmap to the future. With sound awareness of benchmarking and diligent, accurate profit performance management, you will be on the right path to a continually profitable business not only today but in the future as well. For help with effective cost analysis and management for your company, contact our leading trucking and transportation consultants for help.