Metrics Matter: Know Your Numbers to Improve Trucking Profitability
As trucking consultants, we are regularly asked to help our clients benchmark their revenues, costs and productivity. Metrics are the building blocks of business planning and profitability, and minor changes in key metrics can have a significant effect on the performance and profitability of any trucking company. The transportation industry has never been more metric driven than it is today; and as a result, access to industry data is becoming more prevalent with new benchmarking endeavors covering all aspects of the business including general financial data, driver recruiting and retention statistics, maintenance and a wealth of operations statistics.
In order to properly use the information available (and to understand your own company’s information) it is important to recognize how key factors are defined and measured. For example, miles, revenue, and trucks, the building blocks of many trucking statistical elements, can each be defined in several different ways.
Mileage-based metrics typically utilize different “miles” depending on the metric. Fuel and many equipment maintenance statistics (tractor maintenance cost per mile, miles per gallon, etc.) are usually presented using odometer, hub or ECM miles. This can be confusing when comparing to fuel and maintenance costs per mile as presented in financial reports which use dispatch miles, and therefore reflect a higher cost per mile, as by definition dispatched miles are less than odometer, hub or ECM miles.
Miles used for billing between two points may be different than miles used to pay the driver between the same two points due to routing or mileage program differences. Understanding these mileage differences is crucial when evaluating or proposing rates to shippers. Historically, the carrier has an understanding of its operating costs and quotes its prices based on the dispatched miles generated in the carrier’s TMS or dispatch system. Shippers may specify the mileage engine (Rand McNalley, PCMiler, etc.) and mileage type (short, practical, etc.) when requesting rates in bids; sometimes shippers provide their own miles. Carriers must understand the variance in the miles used by the shipper and the miles used to generate the carrier’s costs when submitting bids or quotes. Failure to do so may result in under or overpricing the freight; a 3-5% variance between the miles used for calculating operating costs and the miles used for invoicing the customer could possibly mean a 3-5% “discount” given to the customer.
The different types of revenue can also cause confusion when looking at various revenue statistics. Are fuel surcharges or other accessorial charges included in the statistic? When comparing rates among customers or to industry rate indices, fuel surcharges should be included, but when comparing rate trends over a long time period they probably should not. (For more on this issue see Paradigm Shift: Linehaul + Fuel Surcharge is the New Linehaul.)
Truck counts can vary for productivity, driver turnover and other statistics depending on whether the statistic is using total trucks, active trucks, staffed trucks or available trucks and how each of those terms is defined.
The key point is to be aware that there are differences in how various elements used to measure key performance indicators and other statistics are defined. When looking at industry statistics try to find out how the key factors are defined and use similar definitions when comparing your own statistics. This will allow you to more accurately benchmark your activities and results, and to more accurately price your freight.
If you are interested in learning more about trucking profitability metrics, contact us or visit our Carrier Profitability Assessments page to learn more about our trucking company consulting services.
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