Maximizing Profit Through Load PlanningMay 17, 2015 / Posted in Trucking Tips
The misconception of load planning for a majority of small motor carriers is, ‘the best load is always the highest-paying load out of an area.’ However, only considering the highest-paying load without looking at other factors is like purchasing a lottery ticket: winning is possible, but not likely.
The first mistake many planners make researching a load is asking, “How much does it pay?” Why? Because this isn’t enough information. As a planner, you need to know the amount of money required on each load that will cover your Break-Even Point, leave you the necessary cash for emergencies and to grow your company.
Your Break-Even Point is a combination of three factors:
1. Fixed Costs: every expense your operation pays if all your trucks were parked for a month. Items like truck payments, office expenses (including your draw or salary), insurance, licenses, taxes like FHUT, etc. These are figured annually and divided by 365 days = Fixed Cost per Day.
2. Consistent Variable Costs: are the expenses which occur every time your trucks are rolling. Items like: tires, repairs, maintenance, washes, parts, etc. These are figured for last month with repairs and tires being amortized over their anticipated useful life. Total amount expended for the month divided by total odometer miles for the month = Current Cost per Mile.
3. Load-Specific Costs: any expense which changes load-by-load or trip by trip. Items include: fuel, tolls, lumper labor; and if paid by the mile, your driver’s pay. These are amounts on a load-by-load basis, and figured as a single dollar figure = your Load Specific Cost).
(For more information on your Break-Even Point go to www.truckersu.com )
The lesson here is, know what rate to quote to make the revenue you’ll need for a profit on this load. Do your load planning by using these questions:
1. What loads are available at final destination of the current load being considered?
2. Can you maximize your revenue for time and distance required when these loads are combined as outbound and inbound?
3. Are these destination loads returning you to your home terminal, or going to areas that have tonnage you can haul profitably?
4. Will the revenue create a positive cash flow when all miles and total days are calculated from destination to destination?
5. Are you being compensated for detention time, required labor, etc.?
6. Can the loads be picked up and delivered within Hours of Service regulations?
7. What are your hauling rates for this area and lane?
To get these answers, you must ask direct questions of the broker or shipper. Remember, it’s your job to know what it costs to own and operate each of your trucks. With this in mind, some direct questions:
1. What’s the commodity?
2. How much does the shipment weigh?
3. How many cubic feet does it take up?
4. How many linear feet are required?
5. How is it to be loaded? Forklift? By hand? Or?
6. Who’s loading the shipment?
7. Any labor required? Who pays for it?
8. Will the trailer be sealed?
9. What other duties are expected of the driver?
10. Any special services?
11. Who’s responsible for the item count?
12. Where does the load pick up?
13. When does it pick up?
14. Where does it deliver?
15. When does it deliver?
16. Do you know of loads to pick up at destination, or someone there who would have load information?
As a small motor carrier, you must know what your hauling rate should be on this specific load based on the answers to these questions and what your Break-Even Point is on this particular trip. Not knowing your fixed costs, cost per mile and load-specific costs puts you at an extreme disadvantage. Any time you allow someone else to set your hauling rates, you’re putting control of your entire business in their hands. That’s not the reason you started your trucking company. To be sure you are getting the revenue you need; you must first know what it really costs to provide your services. If your rates are too high for the area in which you’re hauling based on your Break Even-Point; you either need to figure a way to cut costs, or you’re hauling in the wrong freight lane, or with the wrong equipment. In today’s highly competitive hauling market, it is imperative your operation and equipment match the freight lane rates in which you pull tonnage. The only way to do this is to know your Break-Even Point per truck.