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KSM Blog | Katz, Sapper & Miller CPA

Understand Revenue, Optimize Loads to Mitigate ELD-Related Productivity Losses

Posted 5:26 PM by

The electronic logging device (ELD) mandate that relies on technology to monitor drivers’ hours will take effect later this year, and the operational reality is that there is a productivity loss associated with ELDs. However, carriers can use the data obtained from ELDs to evaluate loads and improve operations while taking advantage of a more level playing field.

There are 4.1 million power units that fall under the ELD mandate based on the Department of Transportation’s Federal Motor Carrier Safety Administration records. In the rule’s analysis, the agency estimated there would be a 22 percent adoption rate among long-haul and seven percent among short-haul commercial vehicles by the end of 2016.

Noël Perry, a transportation economist with the research firm FTR Associates, said the productivity hit for early adopters of ELDs initially ran four to eight percent for over-the-road operations as drivers had to comply more closely with hours-of-service (HOS) regulations. That figure could go as high as 12 percent for carriers that were purposefully disregarding HOS rules.   

Requiring ELDs for all truckers removes any competitive advantage carriers can obtain by violating work rules. With ELDs and HOS regulations, the number of hours of productivity are the same for everyone, which may help rationalize pricing.

Time is a perishable commodity, and carriers must maximize the margin generated in a given time period to remain competitive. One advantage of ELDs is the amount of data the devices provide. Proper analysis of the information allows carriers to make data-driven decisions to adjust lanes and prices. Schneider, for example, has worked through productivity losses and improved pricing, Perry said. KSM Transport Advisors' (KSMTA) clients have reported similar stories.

Within the parameters of legal driving time, there are ways to maximize drivers’ hours and the fleet’s productivity. One method is to use data to identify ‘tweener loads’—loads that take two days to deliver but result in one day of revenue or margin.

To maximize productivity and revenue, carriers must understand their break points between loads completed in one day versus something that becomes a ‘tweener load.’ Similarly, carriers need to get enough revenue on one-day loads to generate an acceptable margin. It is possible to track and analyze the data that reveals how the carrier’s profitability fits in terms of the aggregate length-of-haul (LOH) bands.

The above chart, from a KSMTA client’s freight network dashboard, shows the revenue per day (teal), cost per day (red) and margin per day (blue) by LOH band. This client is experiencing a margin squeeze in the 300- to 600-mile LOH bands as there are challenges generating enough revenue for the amount of time the loads within these bands take to deliver.

This chart looks different for each carrier because each company’s pricing and productivity is different. However, all carriers should look at their freight with a 300-600 mile LOH to see if a paradigm shift in pricing and productivity is needed due to ELD regulations.

Freight network engineering and optimization plays a key role in this arena. KSMTA conducts a freight network assessment that calculates profitability on a lane-by-lane and customer-by-customer basis. Carriers need to be aware that productivity and how many miles a driver can drive in a day are changing as a result of ELDs.

Although the primary objective of ELDs is to ensure drivers comply with HOS regulations, the devices can offer significant return on investment and help increase trucking profitability. Improved freight network intelligence from ELD data when properly analyzed and applied will help carriers optimize routes and improve utilization. 

About the Author
David Roush is president of KSM Transport Advisors, LLC, part of the Katz, Sapper & Miller Network. With 30-plus years of experience, David’s focus includes freight networks, financial management, operational metrics and optimization strategies. Connect with him on LinkedIn.

 

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