Dollars & Sense

Rates Verses Operating Costs

What happened over the last five to ten years?

Much like other industries, it became a supply verses demand issue. What started with Roberts Express as the pioneer, quickly turned into hundreds of companies competing for the same freight. Over time, rates have either been stagnant, or have dropped.

As to whether they rise or fall is based on a lot of speculation and further questions. A lot of the current issues are surrounded by not only fierce competition, but by the current struggles of the US auto industry, limited supply of decent qualified drivers, rising fuel, equipment costs, and government regulations.

To be successful in the market today, one must forget any attempt to run their business with a cowboy mentality. If one does, certain failure is almost guaranteed. The good news is there are excellent opportunities if one applies themselves correctly. New advances in technology, trucks, and business acumen have given operators a great advantage over their early counterparts.

One of the first places to start is understanding and knowing your costs per mile to operate. Without those numbers, you have lost your ability to know whether you are turning a profit. Every part of ones business revolves around that number. That includes what one may pay a driver and what they would pay for a truck.

It would also provide a guide as to whether you are operating successfully if leased to a carrier. I am often surprised that fleet owners contract drivers that are making location and runs decisions without knowing those basic numbers. They are essential for any fleet owner or operators success.

For fleet owners and operators alike, one of the wisest decisions can be in truck buying. Many buy a truck for personal needs, but it fails to fit the needs of the carrier. Careful planning is required to look at the present and future opportunities when making your selection.

Everything from fuel economy, price, financing, available warranties all play a part. And just when you think your done, you then have to look at what your competition is offering if a fleet owner along with generators and other items and costs. All of these items are a factor in your cost per mile.

I am often amazed when I see the truck that requires payments of $2500 a month with 20 plus percent interest rate. That would clearly be a sign of poor planning. The other side of that coin is the truck purchase based only on price. Underperforming equipment or sleepers that are too small, may make finding qualified drivers more difficult to find for fleet owners. Like any other business, know what your assets are really worth. Whether new or a three year old truck, it helps to always know its value.

For any operation, the single biggest cost is fuel. For many, they drive around and fill up when getting low like they are driving the family car. The savvy operator is careful with fuel purchases and understands how the fuel tax system works. Hundreds of dollars can be saved with some basic calculations and purchasing fuel at the right location.

Having a generator is almost essential as they pay for themselves in a very short period of time. The sophistication of the new generators have went to the auto-start options to save additional fuel. Maintaining tire pressure, driving at sensible speeds, and having equipment with the correct specifications can go along way. Many know these things already, but not all practice them as a habit.

Most companies offer a fuel surcharge with some having the highest numbers in the industry, but they may or may not apply to every mile your truck is driven. With fuel being the single greatest cost, it comes as no surprise that some of the most successful are the ones that exercise that daily discipline to monitor their own spending and driving habits.

These drivers are controlling their speed, keeping their truck maintained, cutting unnecessary idling, and not wasting money in truck stops and casinos. The ones that don’t, usually wind up as expediter casualties.

So where does that leave the future and current operators? Or possibly, the fleet owners who are looking to expand. Actually, in quite a good spot if some basic business principles are adhered to. There are some skeptics that think competition, Mexican carriers, government regulation, and equipment costs will force many from participating. For some that will be true. However many will enjoy the “silver lining”.

Many are fearful of foreign competitors, but they likely will be on the bottom of the freight opportunities. If for no other reason, they won’t be able for quite some time to be in a position to provide the same level of expected service that expediters provide. That can go all the way from language barriers to well maintained equipment.

The cost of that equipment is rising, but many of the new vehicles that are equipped correctly, will last many more years than their predecessors. The jury is still out on the longevity and performance of the new EPA models except the higher cost.

With regards to government driver regulations, the more stringent they become, the fewer operators that can qualify. Many of these regulations are not in the industry’s best interest so it is wise to stay active in their developments and let your voices be heard through your government representatives and OOIDA. Another place to watch is the activity of the larger carriers.

It is no secret that several are expanding and purchasing other logistic companies and the like. That old saying “follow the money” certainly applies here. These companies are setting the ground work for future opportunities that they and investors have their sights set on. That brings one back full circle to that supply and demand issue again. As the demand for these services increases, so does the rates. That will benefit everyone whether a fleet owner, driver, or owner operator.