Small Business Review: Gaining Control

Calculating workable hauling rates is one of the biggest business challenges facing most micro or small trucking companies. Many smaller carrier owners and managers are under the impression brokers and shippers are responsible for low freight rates, when in reality there are multiple forces fighting in both directions. The trucking company is trying to get the high­est freight rate possible; shippers are trying to get the low­est rate they can; and the broker, in many cases, is trying to please both while getting as big of a piece of the rate pie as possible.

The bottom line, however, is that it’s not up to the bro­ker or shipper to know what each trucking company needs to make a reasonable profit. There is absolutely no way a broker or shipper could know the fixed and operational costs of any carrier unless the information was given to them by that carrier. So, the responsibility for establish­ing a fair rate is squarely on the shoulders of the carrier. If a carrier owner is unable or unwilling to take the time to know his/her numbers (fixed costs and operational costs) along with a profit range that’s in line with the market he serves, he can’t complain.

The other part of this matrix is that every lane is dif­ferent based on the truck-to-load ratio (supply and de­mand) of the area being serviced. And this can changeat different times of the week, month, quarter or year. It’s up to the shipper, broker, and carrier to know when their truck-to-load ratio changes—and to be prepared to negoti­ate accordingly.

A trucker’s cost per mile is impacted by time based on fixed costs. The fewer miles driven over time, the higher the cost per mile; the more miles driven over that same period, the lower the cost per mile. In other words, cost per mile is the last calculation to be completed on each load because it’ll be different from load to load based on the time required to complete the load. A single additional day haul­ing a load can increase a trucker’s cost per mile 50¢ or more.

This is why it’s important for a small carrier to know what that fixed cost is per day and per week on each truck he/she operates, along with the operational cost per mile. A 2,500-mi. week cost per mile will be higher than a 3,000- mi. week for the same truck. If your customer requires a rate per mile, then this is why it’s the last equation you cal­culate, not the first.

To calculate the rate per mile, add fixed cost per day with the profit per day and multiply that by the total days from destination to destination. Then take total miles from destination to destination and multiply that by operational and fuel cost per mile. Add the two numbers together for the total rate for the load. If you need a rate per mile, divide this answer by the origin-to-destination miles the broker or shipper provides. And that’s your final answer.