Inside the numbers

Freight volumes are up, but hauling rates are still down, only now starting to slowly inch their way higher. Experts are touting the good news about the improving economy and increases in manufacturing and consumer spending. On the other side of the equation, fuel prices are on the upswing. They've gone over $3/gal. and are headed towards $4.

The problem isn't so much the cost of fuel, but more the lack of a predictable rate. If fuel leveled out at $4/gal. for six months, for example, and didn't vary more than 20¢ one way or the other for a year, working with shippers on setting your hauling rate would be simple. But this is a pipe dream. So what is the best business practice for dealing with increases in freight volumes, plus the slow uptick of hauling rates, plus the rapid rise in the cost of fuel?

It's all about the numbers. Your numbers. Many carriers know the break-even point of their operation and have a general idea of how much revenue they need to cover costs. But in this new game, knowing generally how much revenue is needed isn't enough. In many cases, you'll be short the needed cash to operate and grow your operation. The numbers you'll need are the break-even points of each piece of equipment you run under your authority. Just a nickel change in the cost of fuel for a truck operating at 6 mpg will move your operational cost per mile up or down by a penny per mile. But even more costly is an idle truck. The average fixed cost of a truck today hovers near $250 per day, so each day it sits without producing revenue drains $250 from your operating cash. If that truck sits for a week, it'll cost you $1,750; for a year, you've laid out over $91,000. For most carriers, this idle fixed cost isn't calculated into the hauling rate structure, which means revenue isn't being produced to cover it.

There are three areas of cost for a trucking operation: fixed, operational and load-specific. Fixed costs are any expense that has to be paid when your truck or trucks are idle. Operational costs are the consistent expenses that occur each time any of your trucks are rolling, loaded or empty. Load-specific costs, while a part of the operational costs, are separated out because they deal with expenses either specific to a particular load (such as tolls or lumper labor) or are different on each load (such as fuel and driver pay).

So what's the bottom line? In order to manage your operation, it's imperative you know the cost to operate each piece of equipment. And not just the per-mile cost, but the costs per day and per week that occur even if the equipment is parked. All the increases in freight volume and hauling rates won't help improve your company's bottom line unless you know the real numbers.