Truck profitability is the goal of all carriers, but how they get there varies as much as the operations themselves. Analyzing the right metrics, focusing on the correct expenses, and finding available incentives and tax grants can all go a long way toward hitting those profitability goals.
Speakers at the Katz, Sapper & Miller 2020 Trucking Owners and Leaders Roundtable on Feb. 4 in Indianapolis hit on all these points. Three carrier executives joined David Roush, president of KSM Transport Advisors, to discuss some of what they focus on in the quest for profitability, and Chris Henry, program manager for the Truckload Carriers Association’s Profitability Program (TPP) shared some of its members’ best practices. Finally, Brian Szymanski, director of KSM Location Advisors, which assists businesses in finding locations and available incentives/credits, provided tips on maximizing incentives.
All the carrier executives pointed to information and data as key to understanding profitability.
“You don’t know what you don’t know until you know it, and then you have to do something about it,” Sherri Brumbaugh, president and CEO of Garner Trucking, said, noting that lane discipline is extremely important. “We all have lanes that are not beneficial to our organization.”
Brumbaugh said revenue per truck, per day; dwell time; and deadhead miles per truck are three key indicators for Garner.
John Flick, CFO of Buchanan Hauling & Rigging, said gross margin and load count are a focus for its broker business. About 65% of Buchanan’s revenue is from the brokerage business. On the truckload side of the business, it’s fuel, accessorials and driver costs that hold managers’ attention.
Stephen Voorhees, vice president of finance and accounting for Big G Express, pointed to “multifaceted metrics,” saying he follows about 28 metrics each month. Asked to pick a couple, he said open trucks and loaded miles per seated truck per day are among his favorites.
Going beyond the metrics, all three executives said fleets need business plans.
“A business plan drives the numbers and it drives the compensation plans,” Flick said. “We’re not there, but we need to be there.”
Brumbaugh said a business plan allows the operation to continue operating even if top leadership is unavailable.
“I want the business to run whether I am there or not, so it’s empowering folks to make decisions and ensuring they have the resources to make those decisions,” she said.
Incentives and tax credits
When it comes to maximizing opportunity, incentives and tax credits offer ways to make investment more palatable. Brian Szymanski, director of KSM Location Advisors, which assists businesses in finding locations and available incentives/credits, said securing incentives needs to begin before any expansion plans advance very far, but they are a great way to recoup some of the investment.
“You want to start the negotiating before commencing activities,” he said, noting that once work begins or even public pronouncements are made, state and local governments are less inclined to offer incentives.
To illustrate the power of incentives, Szymanski pointed to a recent project in which KSM was opening a new office in central Indiana with a capital investment of $300,000. KSM was able to negotiate $400,000 in state tax credits with the promise of 30 new jobs at the location.
Szymanski also advised staying on top of requirements within these programs — some of which may run several years — to ensure targets are hit. In some cases, missing an incentive requirement such as a hiring target may force a company to repay the entire incentive or tax benefit. This is equally important when it comes to documenting compliance. Thirty percent of all incentives go unclaimed simply because of administrative errors, Szymanski said.
Finally, Szymanski said employee pay rates increase the chances for being approved for incentives.
“The more competitive you are within the county average wage, the stronger your negotiating power is,” he said.
How to be more profitable
During his presentation, Henry touched on some of the metrics that are important to TPP carrier members. He also focused a bit on some hot topics the industry is facing, based on conversations he’s been having with members.
Insurance costs are a big issue for fleets of all kinds. “We’ve seen a lot of smaller carriers — 60-truck fleets — move to captive insurance markets if they have good safety records,” Henry said. “We are seeing some really good risks leaving the insurance market for captives, and that could [create challenges for those that remain].”
Like the health insurance marketplace, if the only carriers that remain in traditional insurance markets are those with increased risk, that will drive up costs for everyone, Henry noted. On the plus side, the higher insurance costs could dampen enthusiasm for adding capacity, something many carriers are still planning on doing, Henry said. It will also create higher barriers for new entrants.
Henry said insurance costs are running about $7,100 per truck for TPP members, although he has seen costs as high as $18,000. FreightWaves’ SONAR data (SONAR: Insure.VCFFOO) indicates that insurance expense as a percentage of revenue for company fleet and leased fleet dry van is 3.58%. Reefer expenses are 3.18% and flatbed 3.99%.
FreightWaves’ SONAR data (SONAR: Insure.VCFFOO) indicates that insurance expense as a percentage of revenue for company fleet and leased fleet dry van is 3.58%. Reefer expenses are 3.18% and flatbed 3.99%. (Photo: FreightWaves SONAR)
Previewing what attendees would hear from the executives later in the day, Henry said TPP members’ net revenue per truck per week (SONAR: NETREV.VCF) is $3,544 for company fleet and leased fleet dry vans.
Maintenance expense is a large cost for fleets, with dry van fleets spending more than 20 cents per mile, Henry said.
“In the last six months, we’ve seen 9 cents per mile, and we can document that all the way up to 40 cents per mile and that’s all profit,” he said.
Flick said maintenance is a cost his fleet needs to get a better handle on.
“Our maintenance cost is way too high, and we haven’t found a way to lower it yet,” he said, noting that Buchanan is looking for a “good maintenance metric.”
“Maintenance cost per mile is the biggest opportunity we have to drive profitability,” Henry concluded.