Trucking is a lucrative business that is plagued with a lot of silent profit killers. Many small companies and owner-operators have faced a lot of challenge in recent years to stay in business, due to market instability and supply-chain disruptions. You might think that driving a truck is all about getting the job done, but there are a lot of factors to keep up with, which can affect your bottom line. Not all expenses are created equal. The first step to increasing profit is finding out what affects your profit margin, in order to have a plan of action to tackle any unnecessary expenses. Here are the basics of the relationship between empty miles, market instability and profit in trucking.
What Affects Trucking Profits:
There are numerous factors which can affect the profits of a truck driver or carrier. The imbalance between expense and profit is a challenging line to walk these days. The obvious fluctuating gas prices do play a role, but there are also a few more consistent profit killers that are important to address.
Perhaps the main factor causing a lack of profit is the empty miles driven. On average about 30% of a truck's total miles can end up as empty miles in a given year, which amounts to a lot of loss financially. Many regulations in place make it so that drivers often end up running these empty miles when returning from a delivery or going to pick up their next load. Deadhead miles are when the driver is driving with an empty truck, and usually this is to go pickup another load after dropping one off. Most companies don’t pay for deadhead miles, and though some do, owner-operators often run the most risk of wasting gas and money in deadhead miles. As a result a lot of carriers end up having to take on partial loads or change their routes, because shipments are harder to come by in the areas they are servicing.
Federal guidelines are also creating challenge for trucking companies to retain business while making a profit. Cabotage rules make it so that drivers cannot pickup loads in certain places, resorting to returning home empty. Between fuel regulation, green energy initiatives, and carbon credit shifts, truckers find it stay in compliance and avoid fines and time off, while also making profit. .
Many trucking companies are still adapting to a digital age, where real-time tracking and visibility over the shipment is present through the whole journey. In a competitive market like today, shippers are looking to have as much safety on their freight, so these types of features are significant. Visibility electronically also translates into understanding where improvements can be made, but without the data companies often end up being unable to catch up as quickly with the volatile markets or the supply-chain shifts. Technology can make recovery easier in times of volatility, while also providing more opportunity for clients.
In times of instability in the market, it is difficult to find drivers who remain long term. Most truckers are taking on spot contracts and taking loads on a need basis, as this provides them more room to move around in times of uncertainty. Trucking companies find it difficult to attract or retain drivers, which means that driver availability for them could be limited. In order to see more consistent profit, companies are beginning to use technology to analyze data and create a system which provides drivers autonomy through flexibility, and incentives to stay with the company. This can reduce driver turnover and ensure that companies can take on loads on a consistent basis. New hires can be an insurance liability, so the ultimate goal in increasing profit would be to find quality drivers and retain them. A turnover can cost companies thousands of dollars per driver, on average, so it is essential to ensure driver retention is addressed.
How Truck Drivers Can Increase Profit:
increasing profits in this industry comes down to planning and accounting for the expenses one can control. While at times, some shippers and brokers do pay for deadhead miles, the rates are lower than carrying a full load. The average is anywhere from 60 to 90 cents per mile. You can research ahead of time, to see if your specific broker pays for deadhead miles, in order to know what you are getting into. This is an important consideration when trucking, because often drivers who are owner-operators will have to pay gas out of pocket for their deadhead miles, while also adding wear and tear onto their truck. However, technology, and not just TMS systems, but all forms of digital means available, can be the key to increasing profit while reducing unnecessary waste. There are a few methods to increase profits in trucking while also avoiding deadhead or empty miles:
While load boards are not ideal, and it does take some planning, it is possible that drivers can use a load board to find nearby freight and avoid deadheading.
Sometimes drivers can get lucky and book loads which come with a return material, meaning they will have to transport back material or equipment and get paid for it. You can look at multiple brokers to see if any offer this type of load, and you do not have to use the same broker all of the time.
Retaining drivers is key for a trucking company of any size to maintain profit. It could cost a company over $10,000 per each turnover of a driver, which can cut into profit significantly. Predictable pay checks, more autonomy and benefits are sure to entice drivers to consider staying at a company where they feel valued. A large percentage of drivers is seeking more balance in work and home life, which means better scheduling and load options. Asking questions directly can help assess driver needs and make sure they are taken care of.
Many owner-operators or smaller companies can negotiate directly with shippers (direct shippers at least) for freight rates and business. This saves the cost of load boards, but it does require a little more preparation and networking.
In order to not get taken advantage of by brokers or shippers, you need to study and be aware of the prices for loads at a given time. Know the load availability in your market, to help prevent being underpaid for loads.
Given the fluctuating prices of everything, it is important to regularly assess what it costs to run your truck and determine what your freight rates need to be. Fixed costs remain the same but the variable costs fluctuate often, so ensure you are keeping up with the expenses which may be changing, as a way to maintain profit. You can calculate CPM by adding total fixed cost + variable cost and dividing it by miles driven. Make it a habit to do this regularly, in order to keep up with changing costs of operating.
For more information on freight pricing, look at: A Guide To Understanding Freight Rates and Pricing
While getting into a routine and running the same lanes is comfortable, if you are seeking profit, it is important to change up your lanes and look for more optimal choices. Research the best lanes that are located in between your destination market (where it's going) and origin market (where it's coming from), in order to be in the best spot to get a good paying, quality lane.
Cutting deadhead miles can be easier than it seems. Deadhead miles are one of the key areas where profits may be burning, but knowing how to make use of the technology and opportunities offered can make a big difference. When the profits are eating away at your revenues, it's time to take a look at what's killing your bottom line. Knowing the profit margin of your trucking business can help you be more profitable than your competition.