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Are You Dense? Understanding the Importance of Freight Network Density

April 16, 2024

As we navigate through a prolonged freight economy trough, the concept of network density is increasingly becoming a focal point for trucking companies. Why? Because it holds the key to not just optimizing operations but also boosting profitability. The KSMTA mantra, “density builds efficiency, efficiency builds velocity, velocity builds profitability,” encapsulates the cascading effect of how closely connected a freight network is to the overall success of a trucking enterprise. Therefore, it’s vital to explore the reasons for improving network density and how it serves as the foundation for enhancing operational efficiency, increasing speed of service, and, ultimately, driving greater profits.

The Foundation: Density Builds Efficiency

At its core, network density refers to the concentration of loads within a defined geographic area. Many carriers have defined their own standardized geography as “market areas” or “pods.” Almost all of them use the same methodology, which is clustering three-digit zip codes into distinct areas. This process is important for all facets of a company’s operations. For those who do not have a defined model, we have constructed the KSMTA FreightMap based on hundreds of iterations and interactions with our clients. This tool provides the best match of distinct regions of economic activity for the United States and Canada.

A higher network density means more freight moving within an increasingly more concentrated geographic footprint. However, as a result of the continued oversupply of capacity (e.g., too many trucks/carriers) within North America chasing limited freight, the average carrier has become less dense, not more. This behavior is eroding margins and diluting the freight network. The consequences are clear: broker freight percentages continue to climb higher, loads destining outside the prescribed network increase, and deadheads become longer and more frequent.

Scaling Back Network Size Expectations

Staying disciplined with your network footprint leads to a multitude of efficiencies:

  1. Improved Business Development and Backhaul Opportunities: A disciplined freight network fosters a reliable and efficient service which naturally attracts more business. When customers see that a trucking company can consistently deliver on time, handle freight with care, and provide transparent communication, they are more likely to engage in repeat business and recommend the service to others. Economies of scale apply to all facets of life – personal and business. A freight network is no exception.
  2. Cost Certainty: Discipline in freight network management helps significantly reduce operational cost variability. Through consistent routing, efficient load planning, and effective asset utilization, companies can predict their expenses more accurately. Following these disciplines leads to better budgeting and financial planning. Additionally, the cost certainty is invaluable for responding to RFPs with conviction.
  3. Driver Compatibility: Drivers know what to expect in terms of freight they will haul. They get to know the shippers and receivers which creates a better understanding of expectations. Therefore, they are more equipped to deliver on specific needs. Hiring drivers that live inside the geographic constraints of the network reduces out-of-network freight, and correspondingly reduces operating costs and improves operating margins.
  4. Reduced Pre-Planning Work: A well-organized freight network simplifies the planning process. Having standardized routes, schedules, and procedures decreases the amount of work needed to plan each base and subsequent load.
  5. Forecasting: A disciplined freight network enhances forecasting accuracy. Compiling reliable data on transit times, customer demand patterns, and other operational metrics enables companies to anticipate future trends and prepare accordingly.

Carriers might create something like the sample FreightMap below. The blue areas represent the prescribed network. The white areas are out-of-network. The blue dots indicate individual driver home domiciles, and the red lines are freight – the arrows denote direction, and their thickness denotes volume. A FreightMap will help carriers drive density at their companies.

Are You Dense FreightMap

The Catalyst: Efficiency Builds Velocity

As a trucking network becomes more efficient, the speed at which operations can be conducted – velocity – naturally increases. This combination of speed and volume should result in an increased rate of margin capture.

As speed is an element of time, it is critically important for carriers to adopt methodologies to measure the transit, dwell, load, and unload times related to each load. Further, measuring the time associated with a load that is not “under power” will allow carriers to drive trailer utilization improvements.

Time is a missing link for many carriers. As a byproduct of increased network density, the ability to efficiently build geofences for auto-arrive and depart functions with telematics will allow for increasingly more accurate timestamps to isolate each of the segments above. Having accurate time associated with each empty and loaded movement will drive better decisions and pricing actions.

Velocity also translates into better service quality, with reduced delivery times and higher reliability. This improvement in performance can significantly enhance customer satisfaction, leading to repeat business and a stronger reputation in the market. Furthermore, a faster, more responsive network allows trucking companies to capitalize on short-notice opportunities, filling last-minute vacancies more effectively and at higher rates, thus driving up revenue.

The Outcome: Velocity Builds Profitability

The culmination of increased efficiency and velocity is improved profitability. Profitability in the trucking industry hinges on maximizing revenue while minimizing costs – a balance that a dense, efficient, and fast network facilitates. By reducing operational inefficiencies, companies can lower their expenses, while faster service and improved customer satisfaction can lead to higher demand and better pricing opportunities.

Moreover, a profitable trucking company can reinvest in its operations, whether that’s expanding its fleet, enhancing its technology stack, or investing in employee training and satisfaction. Such investments feed back into increasing the network’s density and efficiency, creating a continuous cycle of improvement and growth.

The mantra “density builds efficiency, efficiency builds velocity, velocity builds profitability” is more than just a catchy phrase; it is a strategic framework that guides trucking companies toward operational excellence and financial success. In an industry where margins are thin and competition is fierce, focusing on improving network density offers a clear path to differentiating oneself and achieving sustainable growth. The question then is not if trucking companies should strive to increase their network’s density but how quickly they can adapt and implement strategies to make their networks denser, more efficient, and, ultimately, more profitable.

Our next article, “Recruiting for Fun,” will continue to focus on network density but with a spin. We will concentrate on maintaining recruiting discipline within the defined network, with real-world examples of the negative financial impact of recruiting outside a carrier’s core network.

To learn more or discuss any of the ideas shared above, please contact a KSMTA advisor or complete this form.

Chris Henry Chief Operating Officer, KSM Transport Advisors & KSMTA Canada

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