Fuel costs: Q&A with two experts

The first in a series of three free Webcasts on fuel-saving strategies and technologies presented by Fleet Owner and Truckload Carriers Association was held in June. The event, which took an in-depth look at the operations side of running a fleet, was sponsored by TMW Systems and attended by 360 people.

The first in a series of three free Webcasts on fuel-saving strategies and technologies presented by Fleet Owner and Truckload Carriers Association was held in June. The event, which took an in-depth look at the operations side of running a fleet, was sponsored by TMW Systems and attended by 360 people. Participants had plenty of tough questions for the two speakers--consultant George L. Edwards, founder and president of George L. Edwards and Associates, and Ray Haight, executive director of MacKinnon Transport, Inc. Some of the best questions are below.

The second Webcast in the series, “Help drivers help you survive the fuel crisis,” will be on August 5 at 2:00 p.m. EDT. There is no charge to attend. Register at: www.fleetowner.com/fuel-webcast.

Q: Should you attempt to dominate one lane rather than dabble in several?

Edwards: Lane density is very important in revenue generation and profit maximization. I believe that being very prominent in one or a limited number of lanes is superior to dabbling in many lanes. The major advantage is that you can build customer loyalty on both ends of the lane or geographic area. This is most true at the origin point of the outbound lane and most certainly helps at the termination point(s) of the lane.

Obviously, with greater frequency over a lane at more concentrated termination points, the more reliable your service to customers who will work with you for return haul or onward movements. This approach is far superior in developing "Core Customers" throughout the lane. I do not like the shotgun approach because it causes too much reliability on the spot market for loads. Spot market rates are lower than those for proprietary customers. Proprietary customers also provide better cash flow and payment performance.

Q: You need miles to cover costs. What choices do you have on lanes where you are not covering costs? Raise rates? Give up the lane?

Edwards: By and large, trucking is a high variable and relatively low fixed-cost business. Variable costs (wages, fuel, maintenance, tire costs, certain taxes and insurance) make up 65 to 75% (in most cases) of the total cost structure for operating a truck. Therefore, if a unit is not in operation, most of the costs are not incurred.

With this type of cost structure, just running miles is not the best solution. The “power lanes,” lanes over which you make your best revenues and profits, are not difficult to identify and work within. It is the “grey areas” that cause the difficult decisions. What you must do in all cases is cover your out-of-pocket or variable costs to run the unit. If you can get enough revenue to cover your variable costs plus some to offset your fixed costs, that is better yet. Obviously, revenue that covers fully allocated costs plus a bit for profit is the best scenario.

If your revenue is not sufficient to cover at least variable or out-of-pocket costs, then you would be better off financially not to run the load or the lane. In most cases, if the carrier is able to show legitimate proof of costs to a customer, the carrier can obtain some adjustments that help offset the actual incurred expenses. Also applicable to this situation is how many customers you have for return or onward movements over the respective lane(s). Obviously, if you have a good population of customers that you do not have to deadhead too far to pickup the next load, this would factor into the price of the outbound movement for the lane.

Q: How do you “sell” the benefits of a satellite communications/tracking system to your owner-operators?
Haight:We implemented a satellite system in our owner-operators’ trucks. We did it some years ago. Their initial reaction was negative until they saw everything that it did for them. We even had one driver leave because of it. It is an easy sell these days. Independents like the no “hold buttons” on the phones and the driving directions. Our system also allows them to e-mail home or other drivers. It was not a big deal for us.
Edwards: I have implemented mobile communications for independent contractors at several companies. There are various approaches that can be taken. Some companies pay for the installation and use of the system. Others pay a portion and some pay none. In almost all cases, the company and the independent contractors benefit from use of mobile communications, and it is a bit easier to quantify the benefits now than it was in the past.

Q: We are a small fleet. We monitor our drivers, but if a driver is not meeting our performance goals, what can we do? Fire him? Just go out of business?
Haight: Discipline is never easy, but once you draw the line in the sand that this is the rule for everyone and no one gets preferential treatment. That is it. You cannot make enough money to blow it out the stack; none of us can. Show your drivers why you are doing what you have to do to control fuel costs. If they still say they are going to go to another company, wish them well and find people who will work with you as well as for you. Sorry, there are no easy solutions in this business.

Q: How do you reward drivers for meeting expected miles per gallon and idling goals?
Edwards: It is most important that the company share the savings with the drivers. Most successful programs include the drivers in the planning of such a program. A couple of important factors to keep uppermost in mind when establishing a driver rewards program: keep it simple to administer and to be understood by the drivers. Get the rewards in the hands of the drivers either monthly or at least quarterly. This is very important to keeping the drivers motivated. On a personal note, I have achieved far better results by having a separate check for the incentives. This highlights and emphasizes the importance of the rewards program.

The types of rewards for drivers are as varied as the imagination of all concerned in establishing the program. Some examples of well-founded rewards are:

  1. Additional mileage pay for exceeding the established goals for improved MPG.
  2. Pay for reduced idle time.
  3. Incentives for accident free miles driven.
  4. Performance pay for no late or missed appointments.
  5. Pay for no damage to equipment.

Q: How do you determine if/when you need an automated dispatch system?
Edwards: Investing in a GOOD management information system is a very important move. Motor carriers have had to change to accommodate shipper or customer requirements and to achieve process improvements within the company itself. Size or the number of power units operated is no longer the primary determining factor. There are several start up companies with 25 units or less that purchased an information technology system very early in the life of the company.
It is important to know precisely what is happening in the overall operational, customer service, financial, safety, and maintenance functional areas of the company so immediate feedback and corrective action can be implemented. It is also just as important for a smaller operation to achieve the fuel and operational savings as it is for a large company to do so.
At the same time, it is important to use that capability to proactively provide essential performance information to customers. Providing essential data elements to core customers may very well be the value-added factor that solidifies a working relationship between the carrier and shipper that will last for an extended period of time.

Q: Some potential customers want only asset-based companies working for them, but when we quote a rate, it is too high because of the broker. What can we do in this case?
Edwards: Unfortunately, this is a scenario that is more complex than it may appear on the surface. Assuming that your company is an asset-based organization and you are calling on shippers (customers) who prefer to have an asset-based company move their freight, you must emphasize the fact that you are providing value-added service of exceptional quality. Ensure that you ascertain precisely what services and level of service the customer desires. Provision of the precisely defined services and level of service have a major influence on the quoted price. You must also show that your equipment and a fully qualified and rested driver will be available when and wherever needed.

Many motor carriers and brokers can quote reduced prices. However, not all of these entities can consistently provided the various services and levels of service mandated by the respective customer.

There are good, reputable carriers and brokers that compete in the marketplace, but there are also carriers and brokers who may try to "buy" the business with unusually low rates at the outset of the relationship. This does not make it easy for a service provider to have the initial offer accepted. However, if you cannot make an honest and reasonable profit by providing the service, you are better off to pass on working with that specific shipper. You must always strive to create a win/win situation for the customer and your company. I recognize that this is much easier said than done. However, many times when a service offer is rejected in favor of a lower price, the cheaper service provider cannot live up to the expectations of the shipper and the higher quality service provider ultimately gets the account.

Q: What percentage MPG improvement can you get by implementing progressive shifting?
Edwards: It is difficult to precisely measure the increased mileage derived from progressive shifting alone. Usually progressive shifting is incorporated with other fuel-saving techniques. With some fleets where progressive shifting, elimination of jack rabbit starts, steady road speed driving, and elimination of hard-braking actions were implemented and stressed, the results in increased fuel mileage ranged from two-tenths to six-tenths of a mile per gallon. Keep in mind that the results may vary widely based on equipment specifications, traffic conditions, and types of operations in which the units are engaged.

The absolute showstopper is the driver. With a cooperative, professional driver, the results will probably exceed expectations. With a driver that fails to cooperate and fully develop his/her skills as a professional driver, the results will not meet expectations.

Q: Your internal quality improvements are significant. At what percentage of implementation are you currently?
Haight: We are constantly looking for process that we can formalize and streamline. If we have reoccurring processes, we will review them for how we can document and improve them and then design an SOP (Standard Operating Procedure) that become the rule for all. We have been following this practice since 2000 and it has saved us unlimited amounts of time and money over the years.
The entire first Webcast is available for viewing at: http://w.on24.com/r.htm?e=110888&s=1&k=3F2AF4C9BF20E9B4B1DF7CBBFE914BDF. There is no charge.

View more Fleet Owner news relating to alternative fuels, hybrid technologies, fuel conservation and diesel fuel prices.

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