Lose the cost drivers and win

This sudden surge in demand for trucking services doesn't mean that our industry's long-term challenges are over. In fact, I hear the same old rhetoric about the same old problems: too few drivers, too much government, not enough credit, blah, blah, blah. I have faith that those of us left standing after the economic tsunami of the past few years can deal with the flotsam piled up on the beach. We're

This sudden surge in demand for trucking services doesn't mean that our industry's long-term challenges are over. In fact, I hear the same old rhetoric about the same old problems: too few drivers, too much government, not enough credit, blah, blah, blah. I have faith that those of us left standing after the economic tsunami of the past few years can deal with the flotsam piled up on the beach. We're a resilient bunch. What I'm not hearing about is the trucker's appetite — or should I say lack of appetite — for growing his business to meet market demands.

It's a real Catch-22. We know it's time to ride the current toward steady growth and profits. We know that throwing more trucks at the market isn't the answer. Yet we have no motivation to change because the economics are finally in our favor. So what do we do? Sometimes you have to shrink your business to grow your business.

There are many ways to grow in this “new normal” economy. One approach is to identify and eliminate cost drivers, reducing your revenue with each customer but resulting in stronger margins. Any bean counter worth his salt will tell you that cost drivers are activities or a series of activities between companies that cause costs to be incurred. Some are necessary. Others, like these four, are just wasteful:

Inefficiencies

I don't think many customers understand the “series of activities” we perform in order to get their product to market. So educate them. Be the expert and find specific examples of inefficiencies. Spotted trailers, daily LTL service to long-haul points, and a lack of committed contracts are just a few activities that come to mind. Imagine your customer's surprise when he learns that the path to the best rate is through his own supply chain.

Fuel surcharges

You're not going to eliminate fuel costs; however, explain to anyone outside the business that 35% of your revenue comes from a surcharge that's based on fuel being $1.20/gal. Wouldn't it make more sense if today's pricing proposals included our largest variable cost driver at a market rate with provisions for fluctuations? Fuel costs can be managed more responsibly.

Waste

I'm increasingly asked by quality customers to prove what we're doing to make Earth a better place for our grandchildren. The response can range from adding more fuel-efficient equipment to eliminating the gobs of unnecessary paper we produce. Identify what you're doing to eliminate waste and how those activities contribute to your bottom line (or need to be recovered from the customer).

Price-shopping customers

Stop throwing resources at the crowd whose distribution strategy starts and ends with the deal of the day. Don't encourage these “unknown” prospects by giving them better prices than a current customer. They'll get the message, move along, and waste someone else's time.

Eliminating cost drivers is good for your business. It's also good for the customer. In a recent survey by the Journal of Commerce, logistics managers said they're bracing for a 9% increase in transportation budgets. Yet many of us are walking in with the 14% rate increase because we know we can get it. Customers don't like blanket increases. Take out cost drivers and you'll not only grow your business, you'll help the customer with transportation strategies where the focus is on better operations instead of the same old business-as-usual battle over rates.


Mike McCarron is managing partner at the MSM Group of Companies, which specializes in transportation and logistics service between Canada and the United States.

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