10/22/2022
Logistics is all about efficiency, and operating as efficiently as possible will help carriers perform better financially, regardless of the current rate environment. As a carrier, you need to manage your expenses, make the most of your resources, and search for efficiency by whatever means necessary to find savings.
The good news for carriers is meaningful improvements don’t always have to be massive. Doing the small things well adds up to real change and can have a significant impact taken altogether.
Making incremental improvements
When starting out, it helps to find the low-hanging fruit to drive more efficiency in a trucking operation. Improvement and savings can come by fixing processes that don’t work as they need to. However, that takes recognition of where those opportunities are.
This starts with some introspection. What are the obvious problems in your business? How are you performing? Answering these and other questions requires a way to measure where you are at today and the potential success of your improvements in the future. A great metric for that is cost per mile because it combines data points from many different areas into one figure. And, if you are taking meaningful steps to be more efficient, success should be reflected in that number.
Cost per Mile (CPM) = Fixed Costs + Variable Costs / Total Miles
Managing the components of your Fixed and Variable costs is where most companies can find the most immediate benefits. Fixed costs include office rent, permits, salaries, insurance, and other overhead costs that happen whether you have trucks on the road or not. Variable costs vary with the amount of work your team is performing. For example, fuel costs will increase as your trucks drive more. The same goes for general maintenance costs, tolls, and other expenses that accumulate as miles are driven.
Anything you can do to lower fixed and variable costs will lower your CPM. There are obvious things to do, like find an office with lower rent, but there can also be more impactful (and sometimes easier) approaches. Here are three areas trucking companies can focus on to make even more incremental improvements that significantly reduce fixed and variable costs.
Streamline around the office
Many carriers underestimate the time and resources they put into doing things around the office that feel unrelated to actually moving freight. Creating better processes to speed up the time it takes to deal with compliance issues, permits, and certifications are prime examples of opportunities for rooting out inefficiencies — both process and people-related.
Taking a close look at your insurance costs is another great opportunity to reduce operating costs. Carriers’ insurance premiums can be lowered by adjusting deductibles and coverages. But this should NEVER be done in a way that puts your company at greater financial risk.
Cash flow is vital to carriers (of course, you know this already), so finding ways to improve billing and minimizing the average days an invoice is in accounts receivable before you receive payment are always important. Ensuring your billing processes, including back office handling of all paperwork, run smoothly to keep cash moving through your business may be the most critical area to look for more efficiency. Any steps you can take to improve the speed at which you invoice customers, reduce billing errors, and make it easier for customers to pay you are all positive steps.
Improve driver performance
Carriers should also focus on driver performance when searching for more efficiency. The goal with drivers is to keep them on the road because that’s how everyone makes money.
A big part of keeping drivers on the road is proper maintenance. In the short term, a well-maintained truck avoids most day-to-day mechanical issues so your drivers can keep covering the miles. Long-term, well-maintained equipment stays in use longer with fewer problems, improving asset utilization and ROI.
Driver safety training and accident avoidance come with similar benefits. Providing feedback on driver performance will help create efficiency as well. Training and guidance for drivers and feedback helps reduce idle time, hard braking and accelerations, and speeding, all driver behaviors that impact fuel economy.
Lastly, with all this investment in drivers, the importance of minimizing driver turnover also becomes apparent. You need to keep your best drivers.
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