Driven To Adapt: A FreightMath Approach To Outlasting the Downturn

With the ongoing delay in freight market recovery, the KSM Transport Advisors (KSMTA) team has launched an article series containing practical recommendations designed to help carriers “level-set” in any market environment. The need to “prepare to thrive” has become a powerful mantra, reminding us and our clients to stay focused and resilient, even in the face of significant challenges.

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As the depressed freight appears to have no positive inflection point in sight, carriers must proactively adapt strategies to maintain margin. FreightMath^TM, a network profitability approach pioneered by KSMTA, offers actionable insights that enable trucking companies to strategically adapt, optimize their operations, and navigate economic uncertainties.

Understanding the Financial Realities

The trucking industry today confronts multiple financial pressures: weak spot and contract rates, persistent inflation in operational costs such as insurance, driver compensation, equipment expenses, and higher interest rates. Coupled with unpredictable freight demand, these pressures threaten profitability and necessitate agile management decisions. Companies utilizing FreightMath leverage detailed benchmarking and analytics through KSMTA FreightMarks^TM, providing clarity to their financial outlook and enabling informed, proactive decisions.

Strategically Engineering Your Freight Network

A cornerstone of the FreightMath approach is proactive freight network engineering. Carriers must define a strategic footprint aligned across sales and operational goals, eliminating distractions and enforcing consistent routing and load planning. By analyzing inbound and outbound profitability, carriers can identify areas of strength and eliminate low-volume or unprofitable lanes.

Key steps for strategic freight network alignment include:

• Identifying broker-dependent markets: Which market areas are too heavily dependent on brokers (more than 50% IN and OUT)?
• Evaluating customer diversity and seasonality impacts: What percentage of revenue, loads, and margin do your Top 5 customers represent?
• Actively enforcing disciplined network practices to maintain operational focus: Define and stick to a strategic geographic footprint. This applies not only to freight, but also to recruiting!

Maximizing the Value of Shipper-Direct Freight

To enhance profitability, carriers must prioritize shipper-direct freight – lanes that are reliable, recurring, and stable in rates. Such freight should align with the carrier’s core network, providing predictable patterns and profitable return trips.

Indicators of optimal shipper-direct freight include:

• Favorable appointment scheduling: Improves the velocity (and profitability) of network, which is how fast freight is moving through your network for a given period.
• Sufficient lead times: This is a no-brainer – being able to look ahead 3-7 days, and match capacity with commitments is the holy grail in profitable trucking operations.

Enhancing this “Tier 1” freight means proactively building supporting lanes and eliminating inconsistent spider lanes that drain resources and profits. Carriers should strategically price or decline unfavorable lanes, resorting to broker and spot markets only as a tactical backstop, or using them as bridges to profitability, which connects one solid market area to another.

Transforming Broker Freight Management

Traditionally, broker freight has been treated as an afterthought, managed reactively, and entrusted to less experienced staff. FreightMath advocates a transformative shift:

• Aggregate broker freight under a single customer entity to enable transparent operational comparisons. When this aggregation is done, many carriers are dumbfounded when they realize that “broker freight” is actually their top one or two customer overall.
• Segment broker freight by geographic location and assess frequency of reliance.
• Appoint dedicated personnel responsible for broker freight improvement, accountability, and strategic integration into the broader network plan.
• Enforce mandatory negotiation checklists. All personnel that procure spot loads, must ask for more – always! Consider negotiation training for these personnel (the counterparties are well trained on sales and negotiation tactics).

This proactive approach to broker management significantly reduces vulnerability and enhances overall profitability.

Operational Optimization: Evaluating Every Operation

FreightMath demands meticulous operational assessments, insisting on segmenting operations into clear, measurable cost centers with distinct profit and loss statements. Each operation’s operating ratio (OR) provides insights into operational efficiency and profitability, empowering managers to make data-driven strategic decisions.

Driver Domiciles

This is a complex but critical issue. Begin by mapping driver home locations and identifying those who live outside your primary freight network. Replace these drivers with those who reside within the network to improve operational efficiency and reduce unnecessary costs. Do not make exceptions based on tenure, loyalty, or perceived productivity. Out-of-network drivers erode margins and add unnecessary expense.

Asset Profitability and Fleet Downsizing

One of the toughest decisions carriers face during downturns is determining whether to park trucks. FreightMath equips carriers with clear metrics:

• Calculate the variable costs per mile (driver pay, fuel, maintenance, tolls, permits).
• Evaluate fixed per-truck costs (leases, insurance, plates, overhead).
• Determine the net contribution per truck and identify break-even mileage.

When projected miles consistently fall below break-even with no imminent rate recovery, and contribution to overhead becomes negative, carriers should strongly consider parking trucks. There are many other variables to consider on this topic, including pure cash flow, but management teams should be analyzing their operations to determine at what point it makes sense to park tractors.

Optimizing Drop Trailer Programs

Carriers often overlook drop trailers, yet these assets significantly influence operational efficiency and customer satisfaction. Carriers leveraging FreightMath should:

• Actively monitor trailer location and utilization.
• Evaluate ROI by assessing reduced driver wait times, alignment with awarded capacity, and improved customer retention.
• Integrate trailer costs into pricing models, manage deadhead miles from destination pools, and actively control pool sizes.

Personnel Considerations: Aligning Staff With Fleet Size

Carriers must assess whether their support staff and drivers align with fleet size and operational demand. Carriers must continually evaluate drivers based on performance, tenure, safety, and location relative to core operational markets. Similarly, support staff evaluation includes forecasting revenue changes from fleet adjustments and identifying roles tied directly to reduced workloads. This is one area that KSMTA has observed a disconnect. When downsizing tractor count and drivers, there is a large lag in corresponding reduction in support staff downsizing. To realize the benefits of a downsizing initiative, the reduction in revenue-producing capacity must be combined with a corresponding reduction in overhead.

Targeted personnel adjustments, cross-training, role consolidation, and fostering financial literacy among employees ensures alignment and transparency during periods of adjustment.

Embracing FreightMath To Thrive in Uncertain Times

In both challenging and strong economic environments, carriers adopting the FreightMath philosophy aren’t merely surviving; they are positioning themselves to thrive. Through strategic network engineering, disciplined freight selection, proactive broker management, operational optimization, asset profitability evaluation, and thoughtful personnel alignment, carriers ensure sustainability, agility, and profitability.

The FreightMath approach isn’t just about weathering the storm – it’s about driving proactive change and leveraging analytics-driven strategies for lasting success.

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