Trucking Profitability Consultants

KSM Transport Advisors (KSMTA) exclusively serves the trucking industry, providing freight network engineering, trucking consulting, and profit improvement services.

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Our carrier profitability assessments and trucking consulting services are designed to be self-funding, provide a thorough analysis of the current situation and create a roadmap so the identified issues can be quantified, prioritized and pursued.

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Our trucking products are designed to support and improve carrier profitability, and are used within our assessments and implementations to provide the intelligence and strategies for change and action.

KSMTA insights

Overcoming the Lull: How the Trucking Industry Can Power Through the Changing Market  

All bubbles burst. Technology experienced it in 2000 and 2001, followed by the housing market from 2008 to 2010. Unfortunately, the global commodities market is the latest vertical to feel the impact, and it is having far-reaching effects on the U.S. transportation industry.

Katz, Sapper & Miller hosted its annual Trucking Owners Business Roundtable on Feb. 24 at its Indianapolis office, at which experts discussed the state of the industry, their predictions going forward, and the potential results of regulatory changes. Moderated by Tim Almack, the roundtable featured:

The Current Economy

“Every 10 years in trucking ending in a '4' seems to be special,” said Albrecht. “1984, 1994, 2004 and 2014 were all strong, but you need to be careful in how you read the tea leaves.”

Many of the gains achieved in 2014 re-corrected in 2015, due primarily to the drop in oil prices and a strengthening of the U.S. dollar. As a result, industrial trends began to suffer. Albrecht presented four components to explain the 2015 lull:

  1. Industrial Production (IP) is more important to freight creation than Gross Domestic Product (GDP). In 2015, IP quickly shifted from a state of consistent growth to no growth, without first experiencing a gradual slow-down. For 11 of 12 months, IP either shrank or was flat.
  2. The strong dollar led to a decrease in exports, which subtracted substantially from GDP.
  3. Fleets began to grow in size, increasing capacity.
  4. Hours of Service (HOS) suspension of the 34-hour restart impact was greater than expected, adding back capacity. 

Accurately projecting how much excess capacity exists is of major concern. Albrecht believes implied excess capacity is currently between 2.2% and 3.2%. In July 2013, that number was closer to 1%, representing a sizable industry shift that will likely take at least another year to change as the industry takes steps toward correcting the capacity gap.

Albrecht then moved on to the global economic factors affecting the industry. These included:

  • Oil’s historically dramatic slump, comparable only to a collapse in 1985-1986
  • The reduced demand for commodities (i.e., corn, copper, rubber, wheat, etc.)
  • Changes in consumer spending patterns, where the fastest-growing areas create little relative freight
  • The increase in healthcare costs

The drop in oil prices has been especially significant. Merolla pointed out that with the price of oil currently hovering around $30 a barrel, the high cost to produce it in the U.S. makes profitability difficult. “The number of working U.S. oil rigs has dropped precipitously while oil storage has grown rapidly,” said Merolla. “We have so much excess oil right now. Even as U.S. production wanes, global production remains high.”

Albrecht noted that one industry bright spot has been the housing market. Permits for new housing have increased and bank lending is growing. Student loan balances, however, have gone up 77% since 2004. Because of debt, the age of first-time home buyers has increased from 26 to 30.

The e-Commerce Effect on Trucking

Freight flows have also been dramatically impacted by the shift among consumers toward online shopping rather than at traditional brick and mortar stores. Albrecht said he believes at least 15% of all malls will disappear within the next decade as retailers put more focus on their online efforts. In the trucking industry, Less-Than-Truckload shipments are growing a faster rate than full truck loads. Merolla noted that because of heavy inventories, retailers are cutting back on orders.

The Truck Driver Challenge

Albrecht highlighted some key statistics about the changing face of today’s truck driver:

  • 21 years ago, 40% of drivers were 20-34; today, less than 21% are in that age range
  • 21 years ago, 11% of drivers were 55 or older; today, 26% are in that age range

Making the industry attractive to new drivers will be an ongoing concern. The main challenges include finding acceptable candidates for the position, minimizing turnover, and being able to provide livable wages for employees. 

The Short-term Outlook

Albrecht and Merolla agreed U.S. manufacturing will remain under pressure through 2016. “The energy markets will continue to be an albatross,” said Merolla. “We are going to see continued declines on the industrial side, which means more capacity than freight. As a result, rates will be flat or down.”

Merolla recommended in 2016 that companies focus on building relationships and creating greater strategic alignment for 2017. Albrecht added, “Downturns in industrial production historically do not last more than three years, which is why there is expectation that we will begin to see signs of improvement in 2017.”

Merolla still urged caution. “There is always concern industrial weakness will stay for a while. And if those industrial markets begin to have a greater effect on consumers, we could see a decrease in spending, which might portend an extended drop.”

The Regulatory Spin

Following the economic discussions, Andy Marquis of Scopelitis, Garvin, Light, Hanson & Feary discussed the current regulatory state for motor carriers. Marquis provided an overview of the Federal Motor Carrier Safety Regulations created by the Federal Motor Carrier Safety Administration, with specific focus on the Compliance Safety Accountability system.

Because the regulatory environment continues to change, Marquis urged attendees to preserve high levels of compliance and safety, including maintenance of all pertinent documentation. “Drivers, small business owners and motor carriers must work together to minimize liability and increase safety,” said Marquis.

.
The Challenge of Analyzing Rates When Fuel Prices Change Rapidly  

The precipitous drop in fuel prices over the last year has affected the trucking industry in several ways. One ramification, in particular, is being felt in our work as trucking consultants.

Freight network optimization toolkits include rate indexes, which are used to analyze how a carrier’s rates compare to the market’s rates. When fuel prices change significantly in a short period of time, complications arise with rate analysis, and we have to confront the discrepancies that occur when the time periods between industry and carrier rate data vary considerably.

This is a vital issue right now for carriers who use rate indexes. Let’s take a closer look as to why this problem is occurring.

Changes in fuel prices create corresponding changes in the fuel surcharge billed by carriers (FSC). Due to the myriad FSC methodologies employed in today’s market, KSM Transport Advisors rely on the linehaul rate plus the fuel surcharge (LH+FSC) when comparing rates. (For more on this methodology, see this post.) The inclusion of the FSC in the rate means that rate data is directly affected by fuel-price fluctuations.

Over the past few weeks, some carriers have seen a pronounced trend in the metric that compares their rates with market rates. While the variance between carrier rates and the industry rates has increased substantially, these figures are inflated, due to a rapid decrease in the FSC that resulted from the steep decline in fuel prices.

This inflated variance occurs because the data set for carrier rates reflects one time period, while the industry index figures correspond to a longer and less recent time period. Most of the time, this time-period discrepancy between the two sets of data is far less significant. However, when the FSC figures change significantly and rapidly, the contrast in time periods becomes an issue.

For example, according to the Department of Energy’s (DOE) National Average Prices, fuel sold at an average of $2.519 and $2.143 in October 2015 and January 2016, respectively. As fuel prices have dropped from October to January, the FSC has dropped, and thus rates defined as LH+FSC have dropped. If industry rate data from the last quarter of 2015 is compared to carrier rate data from the first month of 2016, the analysis will be skewed, because the FSC component of the rates has changed significantly and independently of any change in the linehaul component of the rates.

In this case, comparing industry rates for the final quarter of 2015 to a carrier’s rates for the first month of 2016 is an apples-to-oranges comparison to some degree. For that reason, any comparison at this point between industry LH+FSC rates for a three-month period and your company’s LH+FSC rates for a more recent month should be taken with a grain of salt. (The problem becomes more pronounced for carriers as the time-period discrepancy increases.)

It is worth emphasizing that this article should not be taken as a criticism of rate indexes. The major rate indexes available today answer a vital need in the industry. In order to optimize freight networks, you need reliable data, and the success of our clients testifies to the value of the rate index data that we use. This current problem arises from a specialized circumstance that is specifically related to the FSC component of rates and in no way indicates that there is a larger issue with the rate index.

In terms of the time period KSMTA uses for rate index data, there is a reason for our chosen structure. Usually, fuel prices change more gradually, so the time lag does not create a problem. We feel the time period for the data set from the industry index offers the best tradeoff between data time-matching, seasonality and density.

Nevertheless, it is difficult to say how fuel prices will move in the future, so KSMTA is exploring several options for providing a clearer comparison between client and industry rates. We are specifically looking at the issues that arise during periods of quickly changing FSC.

Sophisticated analysis of freight networks will always involve an assortment of challenges in terms of choosing data sources, determining time periods and more. Our goal is to continuously improve the accuracy of our methods, which is why this issue deserves your attention.

.
How Trucking Companies Can Profit from Time  

Time is directly connected to money in the trucking industry. This may seem obvious because so many metrics refer to various time frames. We are constantly monitoring numbers that demonstrate how revenue, loads, miles and more stack up over time (per day, week, month, quarter and year). From those perspectives, we are thinking about time at every turn.

What may not be so obvious is that trucking companies can profit from paying more attention to time. For most managers, efforts to increase profitability primarily focus on finding methods to increase rates and decrease costs, but there is another powerful angle to consider – decreasing time.

By decreasing time, I mean get loads delivered in less time. If you are able to decrease the amount of time spent hauling the load, you can increase your velocity. This would result in an increased capacity to handle additional loads, which can boost revenue and profit per day, week and so on.

Our trucking consultants measure the profitability of a given piece of business using a yield calculation. Yield is defined in terms of an equation that includes revenue, cost and time as they apply to a company’s entire freight network. Although the details of the equation can be complex, one result is simple: when time decreases, yield increases.

By working solely on managing time more effectively, a carrier can improve its yield and the profitability of the freight in its network. If you are able to find ways to deliver loads faster, there is potential to make more money. Time is a perishable commodity; you cannot make up the profit you do not earn today.

Will ELDs Help or Hinder?

There is a common assumption that the impending mandate to move from paper logs to electronic logging devices (ELDs) will steal time from carriers. Paper logs have a reputation for allowing drivers to squeeze in a few more minutes here and there so they can get more done before taking a break. The use of ELDs will eliminate a driver’s ability to alter their time. Conventional wisdom suggests that carriers will encounter more headaches around getting freight delivered on time.

Although this is certainly true in many situations, and many fleets have documented reduced capacity with ELDs, there is a flip side. When each driver’s hours of service can be managed electronically, dispatchers have an opportunity to optimize driver availability.

Having visibility into driver hours means that it is possible to devise a more efficient plan and avoid aggravating delays that occur when a driver unexpectedly runs out of hours. This visibility allows you to see which driver has the hours required for each load and assign the loads accordingly.

Instead of impeding the flow of operations, ELDs could increase productivity among the carriers who strategically use this technology. And, when productivity goes up, profit follows. It is all about time.

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Click on a logo to see what our clients have to say about us.

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We have worked with several consultants over the years, and KSM Transport Advisors (KSMTA) is truly a cut above the rest. While many consultants will try to “strong arm” you into buying into their recommendations, KSMTA most certainly doesn’t operate that way. In fact, I felt as though they became a fully integrated part of our team. They are able to leverage their industry experience and tools to deliver options that are well thought out, quantified, and most important, can be realistically implemented. They offer real-world solutions to real-world problems.

One example is their maintenance assessment. We felt confident about how we handled our maintenance practices, but they showed us innovative ways on how we could improve even further. The report they compiled contained metrics and analyses that were both thorough and easy to understand. We were so impressed that we engaged them to help us implement their solutions. I would recommend KSMTA to anyone who is interested in driving down their maintenance costs in order to maximize profits.


Averitt Express, Inc.

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Working with David Roush has been an invaluable experience. David worked with us in the details of our business, but also guided us at a higher, strategic level. In both instances, TransCorr was led in a better direction. David's experience in the trucking industry is vast, and he used that knowledge to help us in many different business scenarios. With KSM Transport Advisor's (KSMTA) help, we have been able to improve our LH/Mile by $0.14 within 12 months. And with David's guidance, we were able to more strategically develop a new market.

In addition, David is extremely personable and easy to relate to. He's been a reliable person to converse with for quick questions or for longer strategic discussions. I have greatly enjoyed the experience working with David and KSMTA and I look forward to continuing working together.

Michael Kuebler, Director – Business Intelligence
TransCorr

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We called on KSM Transport Advisors (KSMTA) to evaluate our company's recruiting strategy. We did not believe we were properly configured to achieve the performance benchmarks we'd outlined for ourselves, and needed assistance with improving our core recruiting methods to ensure we were bringing in the right people.

KSMTA brought decades of experience to the task and continues to play a large role in helping us to strengthen our recruiting group. The firm made several site visits and offered a series of recommendations regarding the metrics, advertising, and other tools we were implementing to attract new hires. In the past month alone, we've seen a 10 percent increase in seated trucks. Moreover, our new hires have been a great fit for our firm. I'd highly recommend KSMTA to anybody who wants to improve their driver recruiting results.

Chip Watkins, President, Transportation Division
Watkins Associated Industries

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Boyd Bros. hired KSM Transport Advisors (KSMTA) to evaluate our freight network. We had purchased and implemented TMW’s IDSC Netwise® software, but our use of the software was sporadic, and thus so were the results.

We do not use a lot of consultants as we have had several negative experiences in the past. Our experience with KSMTA was very positive.

We have implemented a systematic weekly and monthly review of our freight network based on the best practices shared with our team by KSMTA. We have integrated KSMTA as an integral part of our go-forward network design to ensure we continue to maximize our operating margins.

I highly recommend KSMTA and their Freight Network Assessment as a high value project that delivers real-world insights and solutions.

Richard Bailey, President
Boyd Bros. Transportation, Inc.

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Our company engaged the services of KSM Transport Advisors (KSMTA) after our board of directors determined that key ingredients to improving our overall operating performance were missing. KSMTA's challenge was to help our company create a business plan that was attainable, sustainable and would allow us to achieve our profit goals.

KSMTA hit the ground running. They visited every company location, conducted a complete review of our business plan and our existing resources. They asked critical questions about our revenue models and our personnel needs. They examined what our competitors were doing and looked at how federal regulations were affecting our business. They were proactive, results driven and impressed us with their knowledge of the freight industry.

Ultimately, they determined our company was heading in the right direction, but helped to sharpen our focus and make sure that our business model was both strategically and statistically sound. They met their deadlines, were competitively priced and were considerably more engaged than other consultants we've work with. We continued to work with David and KSMTA on various follow-up projects, and I would recommend KSMTA to any industry leader who is interested in improving operational efficiency.

Chip Watkins, President, Transportation Division
Watkins Associated Industries

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Our company, Kane is Able, had experienced significant change in our operations as the result of adjustments to the recession, as well as undergoing cultural change as the company transitions from a family-operated company to a company with non-family professional management. Additionally, we had made some management changes and I was assigned to "right the ship."

Fundamentally knowing that a strong foundation is critical to success and anecdotally experiencing a multitude of "system" issues, I hired KSM Transport Advisors (KSMTA) to complete their Systems Assessment. I felt comfortable from the start as the proposal was professional and thorough with a well-defined process and very specific deliverables.

The onsite team exceeded our expectations with a strong focus, organized methodology, and instantly apparent expert knowledge combined with industry experience on the carrier side. Our team was highly involved at the operation, administrative, and IT levels; daily briefings kept our leadership in the loop and provided short-term wins as well as made our system and use of the system world class.

Our team was in unanimous agreement that this was a great investment and I would recommend KSMTA and its Systems and Assessment to any carrier who would like to better understand how to configure their systems immediately and in to the future.

Steve Buckman, Vice President Operations
Kane is Able, Inc.

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I recommend David Roush and his team at KSM Transport Advisors. Young’s Plant Farm, Inc. sells plants to large retailers and utilizing our private fleet, we ship our plants directly to store locations.

David evaluated our entire operation and has provided us a playbook that we are implementing to take our transportation department to the next level. David is incredibly effective and is great working with the younger generation.

Bryan Young, Owner/CAO
Young's Plant Farm, Inc.

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Bestway engaged David Roush and KSM Transport Advisors (KSMTA) to evaluate our freight network and it was a very positive experience.

KSMTA delivered exactly what they promised and more. Their entire approach was professional and designed to deliver maximum value with minimal effort on our part. They quickly understood our unique and proprietary concepts and issues and “dialed” them into their analysis and presentation. We learned more about the profitability of our customers and lanes in a day and a half with their team than we had in all the time prior to the visit.

The solutions resulting from their work were easy to understand and actionable as promised. We began immediate implementation resulting in a nice increase in our rate per mile. Our rate per mile has increased nicely as a result of this process, and our operating ratio has declined accordingly. That increase far exceeded our investment in the project.

Terry W. Croslow, COO/CFO
Bestway Express, Inc.

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In today's highly competitive truckload industry, regulatory concerns, driver turnover issues, and a generally soft economy are impacting carriers' profitability. We turned to KSM Transport Advisors (KSMTA)'s Freight Network Assessment (FNA) to better equip ourselves to manage through these challenges. KSMTA's data-driven work products and processes support and leverage the power of the TMW IDSC Netwise® Technology.

KSMTA team members went above and beyond in helping us understand how to use advanced analysis to improve our overall operational efficiency. They analyzed every aspect of our revenue stream to allow us to close profitability gaps and find new revenue opportunities. They even provided us with an in-house analyst to manage the FNA technology until one of our own people was fully trained to do the job.

We were impressed with how well KSMTA's people understood the truckload industry. They instilled us with confidence as they guided us through the analytical process. On top of their experience, the KSMTA team members were great to work with – humble, willing to roll up their sleeves on our behalf, and completely focused on our success.

Matt Anderson, Senior Vice President, Sales & Marketing
Landair Inc.

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Our initial goal was for KSM Transport Advisors (KSMTA) to provide an overall analysis of our entire truckload freight network, provide specific deliverables for the project, and to make recommendations for future improvements. Having worked with KSMTA on previous projects, we were very confident that they would bring the same level of enthusiasm and expertise to the network analysis project. We were not disappointed.

The team from KSMTA brought real-world industry experience and a proven track record of success to our project. Their approach is very systematic, thorough and results-driven. We continue to refine our processes and overall approach to our freight network management based on the systems and logic implemented through our engagement with KSMTA. We began to see positive results from the very beginning, and a favorable trend has continued during the six months since launching the project. I would recommend KSMTA to anyone who is interested in analyzing their freight network in order to drive improvements in yield and margin.

Danny Crooks, Vice President, Corporate Transportation
Averitt Express, Inc.

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We hired KSM Transport Advisors (KSMTA) at Decker Truck Line in April of 2012 to provide guidance with increasing our profitability through freight network improvements. The ROI on that investment has been outstanding.

David Roush and the KSMTA team continue to support us three years later and we’ve added their services to all sectors of our over the road fleet. We’ve seen very substantial improvements on a wide array of key performance indicators affecting our operating ratio.

His team is knowledgeable, accessible, and just overall great to work with. I would recommend KSMTA to any carrier looking to improve their operating ratio, regardless of fleet size or sector.

Reggie Grave, Director of Sales & Account Management
Decker Truck Line, Inc.

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When our company engaged the services of KSM Transport Advisors (KSMTA) we had completed an acquisition, but we did not have the opportunity to perform an in-depth evaluation of the freight network. The initial goal was for KSMTA to provide an overall analysis of our entire truckload freight network, provide specific deliverables from the project, and to make recommendations for future improvements.

We made strategic decisions regarding certain segments of this fleet – including where to hire drivers and which markets to grow. We turned to KSMTA to provide the analysis and support to confirm our thoughts, assure this effort would be successful by providing a plan for attaining our objectives within a given timeframe, and provide follow-up measurements to report progress. They responded timely with tools and analysis that supported this effort.

We continue to refine our processes and overall approach to our freight network management based on the systems and logic implemented though our engagement with KSMTA.

I would recommend KSMTA to anyone who is interested in analyzing their freight network in order to drive improvements in yield and margin, and ultimately overall profitability.

Terry A. Wallace, President
Transco Lines, Inc.

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I have spent 20 years helping truckload carriers all across North America with the problem of identifying which shippers and lanes at various rates and volumes make up the best freight mix; yield management. One of the most valuable lessons learned over my years is that there's both a science and an art to freight mix optimization.

Understanding the science is the easier of the two: what data do you need, what's the proper math to apply, and how do you read the resulting information? There are few commercially available yield management systems designed for the truckload industry. These systems are wonderful tools for taking vast amounts of raw information and very quickly producing objective business intelligence. The problem with these systems is that they can lack direction. Lack of direction often leads its users to a condition known as “analysis paralysis” resulting in very little realized improvements.

The art is finding the right blend of real-world transportation experience and the objective measurements to form actionable tasks. It takes many years at various positions and levels within a trucking company for an individual to gain the necessary experience needed to identify actionable opportunities presented in the analytics. Intuitively you know you can't take what a mathematical model says to do 100%; but on the flipside, you can't exclusively rely on an individual's subjective experience either.

I've seen carriers attempt yield management by applying science or art, always with less success than when both are applied. Done right, yield management will bring huge improvements to the bottom line with very little disruption to operations and sales.

Our industry is small with a very small number of yield management experts. David Roush and his team at KSM Transport Advisors (KSMTA) are truly among the best. They use software to produce objective business intelligence and possess a rare wealth of industry experience needed to guide actions. You won't find a better blend of art and science. KSMTA is a professional group passionate about what they do. I've seen their success firsthand and would recommend them to anyone and everyone.

Ben Murphy, President
BJM Advisors, LLC

 

KSMTA insights

Overcoming the Lull: How the Trucking Industry Can Power Through the Changing Market  

All bubbles burst. Technology experienced it in 2000 and 2001, followed by the housing market from 2008 to 2010. Unfortunately, the global commodities market is the latest vertical to feel the impact, and it is having far-reaching effects on the U.S. transportation industry.

Katz, Sapper & Miller hosted its annual Trucking Owners Business Roundtable on Feb. 24 at its Indianapolis office, at which experts discussed the state of the industry, their predictions going forward, and the potential results of regulatory changes. Moderated by Tim Almack, the roundtable featured:

The Current Economy

“Every 10 years in trucking ending in a '4' seems to be special,” said Albrecht. “1984, 1994, 2004 and 2014 were all strong, but you need to be careful in how you read the tea leaves.”

Many of the gains achieved in 2014 re-corrected in 2015, due primarily to the drop in oil prices and a strengthening of the U.S. dollar. As a result, industrial trends began to suffer. Albrecht presented four components to explain the 2015 lull:

  1. Industrial Production (IP) is more important to freight creation than Gross Domestic Product (GDP). In 2015, IP quickly shifted from a state of consistent growth to no growth, without first experiencing a gradual slow-down. For 11 of 12 months, IP either shrank or was flat.
  2. The strong dollar led to a decrease in exports, which subtracted substantially from GDP.
  3. Fleets began to grow in size, increasing capacity.
  4. Hours of Service (HOS) suspension of the 34-hour restart impact was greater than expected, adding back capacity. 

Accurately projecting how much excess capacity exists is of major concern. Albrecht believes implied excess capacity is currently between 2.2% and 3.2%. In July 2013, that number was closer to 1%, representing a sizable industry shift that will likely take at least another year to change as the industry takes steps toward correcting the capacity gap.

Albrecht then moved on to the global economic factors affecting the industry. These included:

  • Oil’s historically dramatic slump, comparable only to a collapse in 1985-1986
  • The reduced demand for commodities (i.e., corn, copper, rubber, wheat, etc.)
  • Changes in consumer spending patterns, where the fastest-growing areas create little relative freight
  • The increase in healthcare costs

The drop in oil prices has been especially significant. Merolla pointed out that with the price of oil currently hovering around $30 a barrel, the high cost to produce it in the U.S. makes profitability difficult. “The number of working U.S. oil rigs has dropped precipitously while oil storage has grown rapidly,” said Merolla. “We have so much excess oil right now. Even as U.S. production wanes, global production remains high.”

Albrecht noted that one industry bright spot has been the housing market. Permits for new housing have increased and bank lending is growing. Student loan balances, however, have gone up 77% since 2004. Because of debt, the age of first-time home buyers has increased from 26 to 30.

The e-Commerce Effect on Trucking

Freight flows have also been dramatically impacted by the shift among consumers toward online shopping rather than at traditional brick and mortar stores. Albrecht said he believes at least 15% of all malls will disappear within the next decade as retailers put more focus on their online efforts. In the trucking industry, Less-Than-Truckload shipments are growing a faster rate than full truck loads. Merolla noted that because of heavy inventories, retailers are cutting back on orders.

The Truck Driver Challenge

Albrecht highlighted some key statistics about the changing face of today’s truck driver:

  • 21 years ago, 40% of drivers were 20-34; today, less than 21% are in that age range
  • 21 years ago, 11% of drivers were 55 or older; today, 26% are in that age range

Making the industry attractive to new drivers will be an ongoing concern. The main challenges include finding acceptable candidates for the position, minimizing turnover, and being able to provide livable wages for employees. 

The Short-term Outlook

Albrecht and Merolla agreed U.S. manufacturing will remain under pressure through 2016. “The energy markets will continue to be an albatross,” said Merolla. “We are going to see continued declines on the industrial side, which means more capacity than freight. As a result, rates will be flat or down.”

Merolla recommended in 2016 that companies focus on building relationships and creating greater strategic alignment for 2017. Albrecht added, “Downturns in industrial production historically do not last more than three years, which is why there is expectation that we will begin to see signs of improvement in 2017.”

Merolla still urged caution. “There is always concern industrial weakness will stay for a while. And if those industrial markets begin to have a greater effect on consumers, we could see a decrease in spending, which might portend an extended drop.”

The Regulatory Spin

Following the economic discussions, Andy Marquis of Scopelitis, Garvin, Light, Hanson & Feary discussed the current regulatory state for motor carriers. Marquis provided an overview of the Federal Motor Carrier Safety Regulations created by the Federal Motor Carrier Safety Administration, with specific focus on the Compliance Safety Accountability system.

Because the regulatory environment continues to change, Marquis urged attendees to preserve high levels of compliance and safety, including maintenance of all pertinent documentation. “Drivers, small business owners and motor carriers must work together to minimize liability and increase safety,” said Marquis.

.
The Challenge of Analyzing Rates When Fuel Prices Change Rapidly  

The precipitous drop in fuel prices over the last year has affected the trucking industry in several ways. One ramification, in particular, is being felt in our work as trucking consultants.

Freight network optimization toolkits include rate indexes, which are used to analyze how a carrier’s rates compare to the market’s rates. When fuel prices change significantly in a short period of time, complications arise with rate analysis, and we have to confront the discrepancies that occur when the time periods between industry and carrier rate data vary considerably.

This is a vital issue right now for carriers who use rate indexes. Let’s take a closer look as to why this problem is occurring.

Changes in fuel prices create corresponding changes in the fuel surcharge billed by carriers (FSC). Due to the myriad FSC methodologies employed in today’s market, KSM Transport Advisors rely on the linehaul rate plus the fuel surcharge (LH+FSC) when comparing rates. (For more on this methodology, see this post.) The inclusion of the FSC in the rate means that rate data is directly affected by fuel-price fluctuations.

Over the past few weeks, some carriers have seen a pronounced trend in the metric that compares their rates with market rates. While the variance between carrier rates and the industry rates has increased substantially, these figures are inflated, due to a rapid decrease in the FSC that resulted from the steep decline in fuel prices.

This inflated variance occurs because the data set for carrier rates reflects one time period, while the industry index figures correspond to a longer and less recent time period. Most of the time, this time-period discrepancy between the two sets of data is far less significant. However, when the FSC figures change significantly and rapidly, the contrast in time periods becomes an issue.

For example, according to the Department of Energy’s (DOE) National Average Prices, fuel sold at an average of $2.519 and $2.143 in October 2015 and January 2016, respectively. As fuel prices have dropped from October to January, the FSC has dropped, and thus rates defined as LH+FSC have dropped. If industry rate data from the last quarter of 2015 is compared to carrier rate data from the first month of 2016, the analysis will be skewed, because the FSC component of the rates has changed significantly and independently of any change in the linehaul component of the rates.

In this case, comparing industry rates for the final quarter of 2015 to a carrier’s rates for the first month of 2016 is an apples-to-oranges comparison to some degree. For that reason, any comparison at this point between industry LH+FSC rates for a three-month period and your company’s LH+FSC rates for a more recent month should be taken with a grain of salt. (The problem becomes more pronounced for carriers as the time-period discrepancy increases.)

It is worth emphasizing that this article should not be taken as a criticism of rate indexes. The major rate indexes available today answer a vital need in the industry. In order to optimize freight networks, you need reliable data, and the success of our clients testifies to the value of the rate index data that we use. This current problem arises from a specialized circumstance that is specifically related to the FSC component of rates and in no way indicates that there is a larger issue with the rate index.

In terms of the time period KSMTA uses for rate index data, there is a reason for our chosen structure. Usually, fuel prices change more gradually, so the time lag does not create a problem. We feel the time period for the data set from the industry index offers the best tradeoff between data time-matching, seasonality and density.

Nevertheless, it is difficult to say how fuel prices will move in the future, so KSMTA is exploring several options for providing a clearer comparison between client and industry rates. We are specifically looking at the issues that arise during periods of quickly changing FSC.

Sophisticated analysis of freight networks will always involve an assortment of challenges in terms of choosing data sources, determining time periods and more. Our goal is to continuously improve the accuracy of our methods, which is why this issue deserves your attention.

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How Trucking Companies Can Profit from Time  

Time is directly connected to money in the trucking industry. This may seem obvious because so many metrics refer to various time frames. We are constantly monitoring numbers that demonstrate how revenue, loads, miles and more stack up over time (per day, week, month, quarter and year). From those perspectives, we are thinking about time at every turn.

What may not be so obvious is that trucking companies can profit from paying more attention to time. For most managers, efforts to increase profitability primarily focus on finding methods to increase rates and decrease costs, but there is another powerful angle to consider – decreasing time.

By decreasing time, I mean get loads delivered in less time. If you are able to decrease the amount of time spent hauling the load, you can increase your velocity. This would result in an increased capacity to handle additional loads, which can boost revenue and profit per day, week and so on.

Our trucking consultants measure the profitability of a given piece of business using a yield calculation. Yield is defined in terms of an equation that includes revenue, cost and time as they apply to a company’s entire freight network. Although the details of the equation can be complex, one result is simple: when time decreases, yield increases.

By working solely on managing time more effectively, a carrier can improve its yield and the profitability of the freight in its network. If you are able to find ways to deliver loads faster, there is potential to make more money. Time is a perishable commodity; you cannot make up the profit you do not earn today.

Will ELDs Help or Hinder?

There is a common assumption that the impending mandate to move from paper logs to electronic logging devices (ELDs) will steal time from carriers. Paper logs have a reputation for allowing drivers to squeeze in a few more minutes here and there so they can get more done before taking a break. The use of ELDs will eliminate a driver’s ability to alter their time. Conventional wisdom suggests that carriers will encounter more headaches around getting freight delivered on time.

Although this is certainly true in many situations, and many fleets have documented reduced capacity with ELDs, there is a flip side. When each driver’s hours of service can be managed electronically, dispatchers have an opportunity to optimize driver availability.

Having visibility into driver hours means that it is possible to devise a more efficient plan and avoid aggravating delays that occur when a driver unexpectedly runs out of hours. This visibility allows you to see which driver has the hours required for each load and assign the loads accordingly.

Instead of impeding the flow of operations, ELDs could increase productivity among the carriers who strategically use this technology. And, when productivity goes up, profit follows. It is all about time.

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