Rates are going down and operating expenses are going up, creating a perfect storm for motor carriers of all sizes, but an expansion of operating costs hits smaller carriers especially hard.
Joining Jason and Matt this week on CCJ‘s 10-44 is Loadsmith CEO Brett Suma, who advises all carriers to take a hard look at costs when the entire industry turns its attention to rates, because cost per mile is easier to influence than revenue per mile.
Contents of this video
00:00 Driving down costs
03:35 Preventative maintenance
06:21 Tire maintenance
06:47 Lowering fuel costs
08:23 Viewing brokers as customers
09:32 Survival tips for 2023
This week’s 10-44 is brought to you by Chevron Delo 600 ADF ultra low ash diesel engine oil. It’s time to kick some ash.
What worked in 2021 didn’t necessarily work for most of 2022, and it’s certainly not going to work in 2023. Let’s dive into making trucking’s new year a happy one.
Hey everybody, welcome back to the 10-44, a weekly webisode from the editors here at CCJ. I’m Jason Cannon and my co-host on the other side is Matt Cole. Rates going down and operating costs going up is a recipe for almost nothing good, but that’s the environment we’re currently in. Contract rates are still pretty robust from a historical perspective, but that’s plateaued and it started to leak down. Spot markets cooled considerably. It’s at mostly a historically normal level, but operating expenses have not followed along.
Carriers of all sizes have seen an expansion of operating costs, especially in fuel, maintenance and tires, but smaller carriers are more exposed to these swings than their larger counterparts, mostly because larger carriers can negotiate better deals and their cost structure tends to be tighter and more well defined.
Tightening market conditions and a cost per mile average that right now might be over $2 for some motor carriers often sends the accounting department to its spreadsheets to analyze rate structure. But Loadsmith’s CEO, Brett Summa says it’s not all about rates, don’t forget your costs because you can’t always control your right, but you can’t control how much money you spend.
There’s a Facebook group that exists called Rate Per Mile Masters, which is a very popular Facebook group for independent carriers, and I think that there’s an element on the rate per mile aspect side of things from a revenue generation perspective, but in my 20 years of working at an asset based provider, one of the great things about working at that asset based provider was that we really got to focus on what our costs were, and the cost per mile mastery is just as important as the rate mile mastery. And ultimately, I think it’s figuring out how do you have the best balance between those two.
And so I think that it’s important right now for the small to medium set carrier to really be focused on cost control because the reality is that you can’t … You’re not going to be able to control that economic environment that’s existing right now, and your rate per mile is probably dropping significantly. And so in order to continue a healthy operation, you’re going to have to focus on cost and that requires a lot of deliberate decision making. You’re going to be generating more useful hours for yourself, more actual driving hours, which will spread those costs, those fixed costs, out across more miles.
And I think that it’s sometimes counterintuitive when you say, “Well, in order to reduce your costs, you have to drive more,” because that actually increases your costs. But if you are able to say, look at it objectively and say, “I have a minimum amount of revenue that I need to generate in a day and I can break that down per hour, if I can figure out how to generate that revenue, then I’ve got to figure out how to do it at the lowest cost possible.” And that’s a combination of fixed and variable. And so if I’m able to drive more miles, I can drive down my fixed cost. If I’m able to do that more efficiently, I can drive down my variable costs and then all of a sudden when I look back at the end of the week, I could say I actually drove down my overall cost per mile and I increased my revenue per mile because I had more loaded miles, and so I just have overall less waste.
Granted, there are costs a carrier doesn’t have a lot of control over, namely driver pay and fuel. Management can certainly influence those numbers to one degree or another, but a fleet is going to have to meet a certain bar for pay or it can’t hire drivers, and you can only negotiate so much on fuel price and push truck efficiency so far. Brett says those carriers need to shore up their maintenance programs and slash on-road failures.
I think that slowing down is probably one of the most important aspects. And what I mean by slowing down is first off, you can’t have unexpected over the road costs. So a tire over the road as an example, is going to be much, much more costly than a tire at your home shop. Any type of activity that occurs over the road is going to be more costly to you. So it’s a combination of slowing down and saying how can I prevent additional expenditures that occur over the road? So how can I make sure that I’m doing a spectacular job on my pre-trip every day? Do I understand what’s going on with every single tire that is on the road.
From a preventative maintenance perspective, I think sometimes people in the cost environment that we’re in try to extend out the useful life of their current maintenance program. That’s a mistake because if you’re not doing the preventative maintenance that you need to be doing throughout the entirety, then what is going to happen is you might end up having a catastrophic failure over the road. Catastrophic failures over the road can put trucking companies out of business.
Preventive maintenance is the first part to getting cost under control, but what’s the second part? Brett tells us that after a word from 10-44 sponsor, Chevron Lubricants.
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Understanding your tires is the second part. Replacing a tire over the road, God forbid you hit something that’s a little bit of a different story, but sometimes people will think in the environment that we’re in that oh, these tires, they’re still legal, but they’re getting close, maybe I should wait to repair it. And then all of a sudden they’re repairing a tire over the road at 3X what they could have done it for at home. So I think that those types of things are important.
Small fleets may never be able to negotiate the kind of discount that the fuel pump a large fleet gets, but there are ways to at least get some discount and Brett says there are other things not associated with pump price that can help fuel expense.
There’s partnerships that exist from a fuel purchasing program. Some large fleets offer that to people that are working with them. There’s also independent fuel card programs that exist. But probably the most important thing from a reducing fuel cost perspective is A. How are you driving? Okay? And paying attention to fuel economy is the number one most important thing. A truck gets a widely different MPG going 62 miles an hour versus 72 miles an hour, so do you really need to be driving as fast as you are or can you slow down and conserve fuel? That’s one part of it.
Lowering your empty miles is the most impactful thing that you can possibly do. Lowering empty miles is by far and away will have the biggest impact on overall fuel costs for any carrier, and that doesn’t … Size doesn’t matter in that regard. But really looking and saying, “Okay, how can I be more efficient when my tractor is running?” So shorting the distance between loads is important. Not driving an outer route. Not using the truck for personal conveyance. I mean, if you’re talking about a truck that gets six and a half to seven miles per gallon, those empty miles or unpaid miles, what I would call them is empty, unpaid miles are a huge opportunity and that just involves slowing down.
When freight was hot last year, carriers could go practically anywhere they wanted, haul whatever they wanted to wherever they wanted, but that’s changed. Brett encouraged carriers who use brokers to look at those brokers like customers, which can help reduce deadhead mileage hopping between freight by better planning your stops.
In the environment that we’re in today, I think that finding and finding the right relationship with a customer, and I would encourage you to view your freight brokers as customers, meaning that lots of freight brokers, and not just Loadsmith, but I would throw Loadsmith in this category. Lots of freight brokers have a tremendous amount of contractual freight and they would be willing, and not even willing, encouraging, to find opportunities to keep you loaded on their freight back and forth between two origin and destination points or perhaps a triangle. And I think that figuring out what works for you as a carrier and then how you can find customers, including freight brokerages, that help you stay loaded as much as possible and stay in a healthy revenue per hour generation and a healthy revenue per mile generation.
Trucking in ’22 has not been easy, and 2023 probably isn’t going to be a whole lot different. So how do you survive what’s left of this year and thrive into next?
You need to evaluate the relationships you have and you have to ensure that no money is going out the back. I think that that’s the most important thing. I think the waste that exists … We often talk about consistency and efficiency in our business. We try to make every load that we have as efficient as possible. I think that if you’re a carrier, consistency and efficiency will help you survive this down tick. Consistence. Making sure that from a consistent perspective, and consistency from a carrier’s perspective is across everything.
Am I consistently buying fuel at the lowest possible place that I can buy it route? Am I on top of making sure that I’m monitoring what the fuel is throughout my trip? Am I consistent in terms of my driving pattern and my driving behaviors? Am I consistent in my MPGs? Am I consistent in my inspections? Am I consistent in my PM? Am I consistent in all of the things that will cause greater issue down the road? Am I consistent in my loads? Meaning if I have the opportunity to look at how the freight is loaded, can I look at it and understand is it loaded properly? Am I going to have an issue in transit with a potential OS&D at the end, which will be … Those issues are issues that go right to the bottom line.
And so are there anything that I can look at and say, “Are there costs that I have incurred previously or avoidable, but I chose to take those costs because the rates were so high?” So deadhead would be an example out of route miles, OS&D claims, those are all things of going too fast, right? So if I’m moving too quickly, I can create costs that exist that I don’t really need to create. And so if I can do that, slow down, and then work on partnerships and work on relationships, I think that if you can be consistent in everything that you’re doing and then work on the efficient use of your time, all of a sudden you’re creating an environment in which you’re actually driving down your variable costs. And then if you’re more efficient with your time, then you’re actually driving down your fixed costs as well.
That’s it for this week’s 10-44. You can read more on CCJDigital.com, and as always, you can find the 10-44 each week on CCJ’s YouTube channel. If you’ve got questions, comments, criticisms, or feedback, please hit us up at email@example.com, or give us a call at 404-491-1380. Until next week, everybody stay safe.