Twin 33 Amendment Defeated

(via Truckload Carriers Association)

TCA would like to thank our dedicated members for your hard work over the last several days in helping us defeat a potential amendment on twin 33-foot trailers. This amendment to the House Transportation Housing and Urban Development (THUD) Appropriations bill, would have mandated the use of twin 33-foot trailers nationwide. TCA members across the country made calls and sent emails to their members of Congress to urge their opposition.

The Voice of Truckload was heard loud and clear, and no amendment was offered during the full House Appropriations Committee meeting late Monday night.

None of this would have been possible without the dedication of TCA members of all sizes. TCA will remain engaged in every trucking-related issue on Capitol Hill. As we move forward, we hope that we can count on you to continue advocating for the Voice of Truckload.

For more information on other TCA Advocacy and Industry initiatives, click here.

Blockchain: A Cure (in part) for Detention Woes?

Detention continues to be a major issue plaguing the trucking industry. Although some fleets report no problem securing accessorial revenue to offset their detention time, many (especially smaller fleets) have communicated challenges asking for (and collecting) detention revenue. For the smaller fleets, many feel they are at the mercy of the large shippers or 3PL’s. Sure, you can ask, but it’s going to delay the final payment of the freight bill (and that still won’t guarantee the detention revenue is fully collected).

Part of the issue, as I interpret it, is that many companies (on both sides) are operating with an incomplete set of data. The solution to this issue (in part) could be the introduction of Blockchain technologies into the supply chain. Blockchain is the technology which allows Bitcoin to exist, a ‘virtual ledger’ that clearly defines ownership and prevents fraud, while also eliminating the need for a trusted middleman (e.g. Bank, Trust Company, Custodian).
Blockchain is now being used to add transparency and insight into the global supply chain. As a perfect example of how Blockchain works, and the practical application in transportation, here is a short video by IBM:

At it’s core, Blockchain is a distributed ‘ledger’ in which history cannot be modified, but allows for chains of information to be added, included ownership. Parts, or all the information can be shared between many parties, without the need for a third-party intermediary.

Although this technology (as described in the video), will provide significant added value to the supply chain, the one specific item it will eliminate is the conflict between the trucking company and the shipper about detention revenue/time owed. If the contract clearly defines when, and how much detention revenue will be applied (communicated via the described Smart Contract), it eliminates the gray area that is currently driving down the margins of many trucking operators, who deserve this compensation in return for lost productivity.

Going forward, we will be providing focused updates on Blockchain, and its future in trucking, including areas which may potentially increase the potential liability for carriers.

Introducing the TCA Profitability Program

Truckload Carriers Association (Alexandria, VA)

On July 1, 2017, the Truckload Carriers Association will launch its “TCA Profitability Program (TPP),” a three-tiered system powered by the inGaugeTM online platform. It’s designed to provide truckload carriers with functional composites to increase their profitability and lower their risk profiles.

“The TPP is going to be the catalyst for truckload carriers who seek to be the very best,” said TCA President John Lyboldt. “The trucking industry is constantly changing, so the more certainty that carriers can maintain during times of major change, the easier it is for them not only to get through these times unscathed, but to remain highly profitable.”

The TPP’s three-tiered system allows carriers the flexibility to choose exactly how much time and resources they want to dedicate to the program, with plans ranging from simple snapshot composites to full online access and bi-annual meetings.

The program’s first tier, Digital Composite Lite, requires little from the carrier. By inputting only a small subset of information into the inGaugeTMplatform, carriers receive a limited snapshot of critical data points from other carriers in their segment of the industry to which they can compare themselves.

TPP’s second tier, FastStart, provides full access to the inGaugeTM platform. Carriers input their full revenue, expense, and operational lines, and the platform standardizes them and creates an action plan. Whereas the first tier provides only a snapshot of data, this second tier includes a full digital composite for the carrier’s segment of the industry.

The final tier is exclusively for those carriers who are committed to being top performers in the trucking industry. Best Practice Groups are the foundation on which the TPP was formed, with six groups and 60 carriers already active. This tier includes all of the features of inGaugeTM that the FastStart users can access, but with the additional benefit of peer-to-peer, bi-annual group meetings. These sessions provide opportunities for carriers to share ideas that make their businesses successful, thus learning from each other in a deeper way than simply comparing numbers from the office.

“We take back two or three things we’ve learned at each meeting, and just progressively have gotten better,” said Chairman of Hirschbach Motor Lines, Inc., Tom Grojean, Jr. “Trucking’s a penny business—there are no silver bullets—so in our mind, [we] just raise the needle a little bit here and there as we go along.”

If you would like more information on the TCA Profitability Program, including pricing and how to get involved, please contact Jack Porter by email at [email protected], or Chris Henry at [email protected] . Both can be reached, by phone, via 1-888-504-6428.

Response to USA Today’s ‘Rigged’ (Submitted as a Guest Editorial to USA Today)

In response to your USA Today Network Investigation – “Rigged” June 16, 2017

I have spent 35 years in the Heavy-Duty Trucking Industry, and found your report interesting, yet possibly misleading. I have had the unique pleasure to work closely with 50-60 Truckload Carriers in their Strategic Planning and Best Practices efforts to provide a better life for their drivers and the health of their businesses. My comments are based on facts that were not divulged in your investigation, and some alternative opinions from the Well-Run majority of the Trucking Business!

Your investigation has obviously exposed the underbelly of a segment of the Trucking Industry. You noted a scope of Drivers that were in Southern California, and interviewing 300 drivers. While their plight as described seems unfair, the connection to the Trucking Business couldn’t be further from the truth. The Trucking Business in America has 3.5 Million Truck Drivers, is a Nationwide Business, moving 10.5 Billion Tons of freight annually or 70% of all freight tonnage in the US.

Your portrayal of the Truck Driver as “indentured servant” was an exaggeration, and an insult to the Professional Truck Driving Community. Many of our best Trucking Companies offer some form of Lease Purchase Program for Drivers who would like to own their own business. Your investigation portrayed the Lease/Purchase Program as a no-win situation for the Driver – not with the Carriers I know. The Good Carriers structure their program so that any person who wants to build their own business, and loves the Truck Driving Profession can get started. Where in America is the Dream of starting with nothing, working hard, and building your business more evident. The proof is in the results, most of the successful Truckload Carriers today started their family business with one truck and a Dream!

The reporting on extended hours of working is also not aligned with the Trucking Business. Most of the Carriers that I work with pay strict attention to the Federal Hours mandated, and insure their compliance by investing in monitoring devices that the authorities can check at any time. However, the Companies that you exposed make the competitive landscape of Trucking very challenging. When the legitimate Carriers must compete against the Companies that you exposed, the legitimate Carriers lose some of their business to the lowest priced provider, and the legitimate Driver loses miles. When the Driver loses miles they all suffer.

Last, but not least, the identification of “America’s most beloved retailers, from Costco to Target to Home Depot”, and their role they play in this Port Trucker atrocity is very interesting. There are more than 575,000 For-Hire Trucking companies in the US, and running approximately 3.5 Million Class 8 tractors. Thus, the ability for a Volume Shipper to attain a low price in transportation for their goods is very accessible. Their hands-off approach to your inquiries spoke volumes as to their culpability to the problem of many Truckers that may be running illegal in the US. The ability for a Fortune 500 company to hire a separate Logistics company to attain a “Low Price at any Cost” needs to be addressed. Their view that they are removed from the transaction and the byproducts of that transaction, needs to change. Quality Carriers care about their Drivers and their interaction with the Passenger Driving Community, and they cannot compete on low price against the Trucking Companies you highlighted in your Investigation.

There are more than 7 Million people employed in the Trucking Industry, not including the self-employed Independent Contractors out there. This industry is predominantly Family Type of Organization, moving approximately $725 Billion in Revenues annually. These Hard-Working folks take “NASA type risks, for Super Market returns”, they passionately care about this business, and needed a contrarian voice to your “Rigged” Investigative report.

Incentivizing Your Way to Success Part II – Targets for Accounting/Billing Associates

Last week, we discussed best practices for implementing Performance based pay structures within your trucking operation with the ultimate goal of imrpoving Gross Margin AND Net Margin. In order to implement appropriate incentives, you have to first decide which targets to use (based on role/responsibility/department). As a reminder, the targets you implement for your associates need to be: 1) Understandable and easy to calculate, 2) Improve the financial health or lower the risk profile of the company 3) Within the realm of control of the associates, and 4) Give high-performing associates the chance to earn more than they were previously able to.

Over the course of the next five weeks, we will be providing examples of targets/measures you can examine for each of the following departments: 1) Accounting and Billing, 2) Operations/Fleet Management, 3) Shop/Maintenance, 4) Recruiting and 5) Safety. For this week’s article, we will focus on accounting and billing. The reason I want to focus on this group is that many companies do not have ANY type of incentive/variable compensation for those in the Accounting and Billing. In my opinion, this fact reinforces the general idea that accounting and billing is just a series of tasks on a checklist that stays within a narrow range of performance. This is absolutely not the case! Based on our data, the high performing fleets have exceptional Accounting and billing teams. They have low Days Sales Outstanding (DSO) results (typically in the 28 to 32 day range on average), and have very little lag between deliveries and accurate invoices AND a high rate of accessorial capture. A great accounting team has the ability to dramatically improve your cash flow.

With this in mind, here are some measures you can consider using for implementing a Performance based pay structure for your accounting and billing teams:

  1. Days Sales Outstanding (DSO) – Many companies simply aren’t tracking their DSO numbers religiously. For any company, regardless of industry, if you’re not being prepaid for your service, you need to start doing so right away. The formula for this measure is: (Current Accounts Receivable including Linehaul, Accessorial and FSC / Period Total Revenue) * # of Days in Period. Prior to implementing a proposed target, you may need to finally write-off those ‘doubtful accounts’ that have become ‘not a chance” accounts. Further, as additional targets within this topic would be the % of receivables that are paid within 15, 30, 90 days, and then establish target ratios to maintain. By improving on these values, your invoicing lag will undoubtedly improve, as will your utilization of EDI.
  2. % of Accessorial Revenue Capture – From company to company, there are some pretty dramatic differences in levels of accessorial revenue. Obviously these results can be a direct result of the type of freight you’re hauling, and the way you charge your customers. However, it is safe to say, that all companies can improve the percentage of accessorial opportunities that convert to revenue. A simple KPI, would be to track the percentage of Accessorial Revenue on weekly or monthly basis versus your linehaul revenue and/or Total Revenue. By improving on this KPI, you will definitely see higher gross margin and more importantly improved communication between accounting and operations.
  3. # of Bank Reconciliations Completed During Month – I’m a big believer in daily (yes daily) bank reconciliations. Daily bank recs reinforce discipline within accounting and can drastically improve internal processes that have a collateral positive affect on other departments. Further, chances of inefficient cash management and potential fraud are greatly reduced. All accounting systems have many tools available to allow you efficiently handle daily bank recs and report to interested parties (which would be me if I was the President).

These are just a couple, hopefully it got you thinking about additional measures specific to accounting which you can use to motivate top accounting performers!

Paying for High Performance: Incentivizing Your Way to Success

In a perfect world, all expenses in your businesses would be variable. The economy takes a turn for the worse? No problem, your rent just went down 10%. However, what about the flip side of that proposition – The economy and or your customer activity results in improved revenue and income, are you willing to share in the upside?

For many years, I’ve been preaching the benefits of adjusting your compensation practices to be geared toward variable compensation, or what I prefer to call Performance Pay. If done correctly (and fairly), a Performance Pay model has the ability to transform corporate culture, improve profitability and make a positive financial impact on those non-driving associates who want to achieve more – and be compensated for going the extra mile.

In this week’s post, we will discuss general guidelines to follow when creating a framework for performance-based pay programs. Before we start, let’s be very clear, performance pay can (and should) be used for all non-driving associates, not just sales, marketing or Fleet Managers. The whole concept leads to a ‘averaging up’ phenomenon within organizations – the people that can’t produce or are not efficient will be the first ones to ‘opt out’ of the process by moving on, leaving existing and new high performers to execute on your mission, and take their spots – All Boats Rise!

Step 1 – Clearly Define What Success Looks Like for the Company

The best place to start is to determine what realistic success looks like for your organization, taking into account your current operating realities (mode, customers, economy). Regardless of the operating mode, we believe that a Gross Margin (Revenue minus Variable Expenses) of 25% is achievable for most Trucking companies (with focused effort). If you decide that this target is achievable, it provides a great framework to segment the different components of the Gross Margin calculation, and then assign responsibility for improving, to specific people (groups) AND tie a significant portion of their personal income(s) to the goal. For example, productivity is a crucial component of the revenue part of the gross margin equation. If drivers are sitting for an unreasonable amount of time at customer’s facilities, when they could their time could be spent driving, you can (and should) empower people to ensure that you are more than recapturing the expense of the lost driving time with consistent accessorial charges. Further, that person or group of people should have their income tied directly to the success of their efforts.

Step 2 – Clearly Define (and Communicate) the Difference between Performance and Bonus Pay

The best way to differentiate between Performance and Bonus pay is Habits versus Results. Performance Pay is meant to reward the proper daily and weekly habits and practices, which will eventually create long term success. Each have their place in an organization, and should be celebrated. Performance Pay is tied to productivity, and can fluctuate up or down based results. As an example, in Accounts Receivable, you can measure the lag between delivery and invoicing on a weekly basis – this is an example which you can use for Performance Pay. Conversely, achieving superior Accident and Insurance results over a period of twelve months would be an example of ‘Bonusable’ situation.

Step 3 – Stress Test the Program

This one goes both ways. Although many high performing associates have the traits of successful entrepreneurs, you can’t expect them to assume as much risk as the shareholders under a Performance Pay compensation framework. You need to show what can happen to their income when things are firing on all cylinders, but also when things fall of the tracks. Even though you want to have each associate put more ‘skin in the game’, you also want to ensure the stress of a downturn won’t drive away a valuable team member. Further, you want to make sure you stay on the right side of Federal, State and Provincial wage requirements. A realistic goal would be to get to the point where 50% of the non-driving wages are tied directly to performance.

Step 4 – Keep it Simple

Clearly identify the measures you are going to use to communicate success (or poor performance) for an associate or team. If the measures or formula becomes too complex, you will not appeal to all potential high performers. Further, do not tie compensation for an associate to something they have no control over. As an example, your Fleet Managers can help ensure compliance with your Fuel network, but you can’t expect them to control how quickly you’re getting paid by your customers.

Summary

Over the next couple weeks, we will be expanding on each of the above steps. In the meantime, I want to reinforce that a properly implemented Performace Pay program has the ability to transform your business AND the industry!

Getting your Fixed Overhead in Order

This week’s post is the last in a series of articles focused on the Golden Ratio, a concept which has proven to be a successful way to frame and segment the operating expenses of a high-performing trucking enterprise. The Golden Ratio separates your variable expenses, your admin (non-driver) wages and benefits, and finally your fixed overhead. Re-aligning your existing P&L can be a time consuming process, but the feedback from companies who have adopted our suggested reporting model has been extremely positive to date.

For many, when you start talking about financial statements, eyes start to glaze over. However, having a set of proven and transparent (and thoroughly reconciled) financial statements each month will provide a great foundation for transforming your business. Based on my experience over the past three years with all sizes of trucking companies, I can attest that very few companies are employing a common, industry-specific, Profit and Loss statement. As a result, much of the industry isn’t getting a clear picture of the health of their operations, and as a result (in some cases) may be making improper business decisions. The added benefit of utilizing a proven, industry-specific P&L, is the ability to compare against your peers in an easier fashion. Standardization is at the core of inGauge and the Best Practice Groups. That is why we freely provide a proven P&L template for any company to download and use. To download the excel version, click here.

At the bottom of the template P&L, we break down the individual components of the last piece of the Golden Ratio: Fixed Overhead. Notably absent from Fixed Overhead in this template is Admin Wages and Benefits. Many of the existing P&Ls which I have reviewed over the years contain Admin Wages and Benefits. The common rationale provided has been that Admin Overhead is fixed and does not go up or down depending on levels of business activity. Our position is that this is incorrect and harmful thinking. Although you aren’t going to immediately layoff valuable Fleet Managers or Accounting staff when economic activity slows, breaking out this component from Fixed Overhead will provide you with a quicker route to decisions to maintain profitability while you ride out a downturn. Also, it reinforces the importance of incentive-based pay structures for your Fleet Managers, something we will talk about at a later date in a series of posts.

As a reminder, the target for inGauge users and Best Practice Group members is to achieve and maintain a Fixed Overhead level of 25% of Gross Margin. In other words, after subtracting your variable expenses from your revenue, your Fixed Overhead should be approximately 25% of this calculated value. Obviously, Fixed Overhead is going to fluctuate over time (e.g. you implement a new TMS or communications platform that includes upfront costs that you don’t want to amortize), but over a rolling six-month period, this should be a consistent goal for all. How do you get your Fixed Overhead on the right track? The three biggest opportunities for improvement based on companies we have worked with are:  1) Building Rent / Maintenance/Property Taxes , 2) IT related expenses and 3) Phone/Communications.

If you own your own property, you may be setting rent levels for your operating company for tax purposes. However, if you currently rent your facility, you may have substantial tools for improvement. This can include leveraging continued low interest rates to purchase or build your own facility. Many of our clients have done just that, and amplified the benefits by moving into a different (but close) municipality to take advantage of ongoing business incentives. Further, considering a new location allows you to better match a facility with the current attributes of your business (e.g. cross-docking capabilities etc). Finally, getting your current zoning and/or property valuation reviewed by a property tax expert can result in immediate and perhaps retroactive credits.

IT-related expenses can be a massive line item, and can vary substantially from company to company. Many companies have started to take advantage of cloud-based software solutions to drastically reduce their IT spend. Moving from locally hosted email/network configurations to cloud based services such as Google @ Work or Office 365 can immediately eliminate ongoing hardware (server) expenses, and depending on the size of the company, network admin labor. You may get resistance from your IT Team initially, but you should strongly encourage the investigation of cloud-based tools, and a thorough cost-benefit analysis. This should be done regardless of the size of your organization. Further, although many TMS providers currently focus on local installs, we suspect the trend over time will be move to the cloud – which will ultimately save money for Trucking companies and TMS providers alike.

Many of the companies we work with have reported substantial savings by routinely (every 2-3 years) shopping their communication needs with other suitable providers. Both hardware and networks costs have continued to drop over the years, and the vendor will be the last one to mention opportunities to save. Like any other expense, the key function is having a process in place to systematically review usage, costs and benefits to determine if you’re getting value for the expense.

Benchmarking Your Human Capital

Over the past month, we’ve introduced and reviewed three key metrics for trucking companies to focus their attention on. These three measures work in conjunction with each other, and Jack Porter (Lead Facilitator of TCA’s Best Practice Groups) has coined the term “Golden Ratio” to define them. As a reminder, they are: 1) Gross Margin (measuring your results after subtracting your variable expenses from your top line), 2) Admin overhead as a percentage of the above Gross Margin, and 3) Fixed Overhead as a Percentage of Gross Margin. The target (or Golden Ratio) for a healthy trucking company should be 25% : 25% : 25%. If you do the math, reaching these targets (or getting close) provides a very healthy Operating Ratio, while also ensuring that your capital is deployed in the proper proportion. Obviously, there can be dramatic changes to these measures on a monthly basis (seasonality, economic ebbs and flows, year-end bonuses etc), however, over a rolling six or twelve month period, these targets should be achievable, and if they seem out of reach, it provides a compass for where to focus your operational attention.

For this post, we are going to focus our attention on the second of the two measures – Admin overhead as a percentage of gross margin. To start, to properly measure this value, some standardization needs to be applied to your financials. This is helpful internally for reporting purposes, but also externally when benchmarking your performance against other companies. First, let’s define exactly what we mean by “Admin”. Based on years of iteration and feedback, TCA’s Best Practice Groups have defined admin overhead to include the following roles in a trucking enterprise: 1) Owners, Executives, GM, 2) Sales/Marketing, 3) Operations, 4) Safety/Risk & Orientation, 5) Information Services/Technology & 6) Finance/Administration. Noticeably absent from these categories is Shop Personnel (including Shop management). For benchmarking purposes, we include Shop Wages/Benefits in the Maintenance category (so, as a result, if you are including, this will provide an immediate improvement to your admin overhead calculation).  Once you have identified, and segmented these roles into the above categories, the next step is to begin capturing the Salaries/Wages/Benefits for these roles and categories separately – ideally on your monthly P&L (we provide all inGauge users with a template P&L to use in this regard).

Now that the proper roles and categories are defined for admin overhead, it is useful to start calculating various measures to determine if you are in line with both your historical results – and that of the industry. Here are some metrics which you should be able to calculate very quickly:

    1. Driver to Non-Driver Ratio – this one is the easiest for companies to calculate. Simply take the number of active drivers and compare to the count of active admin personnel (as defined above, not including your Shop personnel). For the average Dryvan operator, this measure should be above 4:1, and closer to 5:1. Depending on the operating mode, size, Average Length of Haul, and other business-specific factors, this measure can vary dramatically. This reinforces the value of benchmarking this metric versus companies of similar operating attributes. As an analogy, you expect to generate specific revenue targets per truck per week/month/year. You should expect the same type of production/leverage from your admin personnel.
    2. Non-Driver Wages & Benefits (% of Net and Gross Revenue) – although your Driver to Non-Driver Ratio may be in line with your industry peers, that doesn’t automatically mean you don’t have a problem on Admin Overhead. The next step is to calculate your Admin Overhead (Salaries/Wages/Benefits) as percentage of Net (excluding FSC) and Gross (including FSC) Revenue. Typically this value should be around 8% (net) and 7.5% (gross) as a percentage of revenue. But again, this will vary based on your operating attributes and size.
    3. Admin Turnover – Although turnover on the admin side isn’t a pressing industry issue, calculating your turnover for admin staff is something that should be measured consistently. Similar to Driver Turnover, there are both hard and soft costs associated with recruiting and retaining a high-performing admin team. If your managers and staff are constantly training new people, you are not going to get the same degree of leverage from these people over time – which means your admin overhead will be higher than average. Maybe it is not necessary to calculate every month, but probably good idea to calculate at least once per quarter depending on your size. Also, focus on the Short Term Turnover (Admin Personnel Departed hired in last twelve months divided by the Admin Personnel hired in last twelve months). If this result is high, you could have more than a financial issue, it could point to a culture issue (which can have dramatic long term consequences).

Now that you have calculated these important measures, you need to consistently track in order to drive improvement. If you are attending this year’s addition of Workforce Builders (June 12-14 in Kansas City, Missouri), we will be running an interactive presentation/workshop on workforce benchmarking. Angela Splinter of TruckingHR will be joining us to provide her valuable insights and Best Practices based on her many years of studying the Trucking Industry’s HR trends and opportunities.

Next week, we will focus on the third key measure: Fixed Overhead – making sure you are properly segmenting your fixed expenses, and ways to improve on the final component of the Golden Ratio.

 

 

Needs and Wants

I heard a phrase the other day, and it set my mind to digging deeper into the thought. The individual I was with was talking about his wife’s shopping addiction. He said that she was a ‘want person’ and not a ‘need person’. Sometime back I actually did some research on the internet on this subject of compulsive shoppers and found that there is actually evidence that suggests that a small amount of endorphins and dopamine is released into the brain when something is obtained or purchased; a feeling of accomplishment that is felt by most of us. Unfortunately, some of us enjoy the feeling so much and it is so short lived that they get hooked on it and become compelled to have the feeling over and over again. It can be very destructive.

Hearing that phrase immediately sent me to a flash back situation. I was at a truck dealership some time ago and while there, I began talking to a driver who was out shopping for a truck. This fellow, just new to the industry as a licensed AZ driver, was determined to become an Owner Operator ASAP. As we chatted, I noticed he was eye balling a year old conventional that was tricked out the wazoo. Beside the beautiful beast was a more conservative aerodynamic truck that was obviously going to be a far cheaper  to operate and had much less ‘bling’.

Having been through the ‘bling’ time of my life when it comes to large cars, I felt compelled to impart my years of wisdom and inform the newbie in no uncertain terms what the best decision would be for him at this point in his career. I went so far as to suggest that the net profit of the more aerodynamic vehicle, with less chrome, would pocket the same net dollars in four years that it would take him to earn in five years in the bling mobile, if he was lucky.

As I have said in the past, I am no sales person. I do not have that skill and I admire those that do. I mention it because this person endured all of the things I could throw at him that were designed to shed light on this decision. I went at him with things like 20% better MPG, ease of maintenance with less bling and less unnecessary repairable gadgets, less capital expenditure, better cash flow and a lighter vehicle that will allow more payload. He looked at me and said: ‘Ya but I have a young son and I’d like to enter into some of the show and shine events with him this summer’. What could I say? I wished him well, that I hoped he would have great success as an Owner Operator and I went on my way. This person knew what they wanted; the fact that it was way more than they needed meant nothing to them.

So what type of person are you: a need or a want person? Let’s look at the famed Psychologist Abraham Maslow’s hierarchy of needs; he designed a five tiered pyramid. You start with food and shelter, then move up to things related to safety and security and then onto belonging, esteem and finally self-actualization.

It is an interesting flow of thoughts here as I overlay this line of thinking onto the current situation of driver turnover. It seems to me that many companies with high turnover struggle to simply supply what a driver of today needs in tier one.

Let’s break it down a little. According to Maslow, the base of his hierarchy pyramid is the need for food and shelter. To me, that means a steady income. With that steady income a driver buys food and shelter for his family. It’s not too complicated, if you don’t give me work or miles, I don’t stay here because you can’t satisfy my basic needs. The next level is safety. Can you provide a safe vehicle for me to drive and a safe work environment for me to work in with lanes, customers, fuel spots terminal etc.? If I don’t feel safe and secure, I’m out of here! Why stay? I have options that won’t put me in harms way, that pays the same as this or better.

If your company does not have the first two driver needs nailed down and nailed down hard, then you are likely a company that has very high turnover. I would guess that it is likely over two hundred percent! You over promise and under deliver, you don’t pay at minimum market rate and your safety record is in question. Also, your trucks are likely being pulled over regularly by DOT because of it.

It is the next few steps that I believe eludes the majority of trucking companies. The next step is Social Needs or Belonging. Does your company make folks feel like they belong to a community? How do you create that sense of community? Do you communicate through newsletters, social media etc. and what do you communicate? Do you try and involve the driver’s family? Do you have functions and opportunities for them to participate in? If you do, I’m going to guess that you feel your turnover is manageable. You feel like this because your turnover rate is at or around the published industry average.

If you’re a company that has mastered the first three steps and are also valuing your people and recognizing them on a regular basis, I’m betting that you’re on the low side of the turnover equation. If you’re past this point and actually assisting your folks to be everything they can be in their careers, lives and relationships, then you’re likely best in class. Your employees and your entire management team have built a company whose strategic advantage in the marketplace is it’s people. Congratulations to you and I’m sure that your dealing with best in class numbers; about 20% and lower would be my guess.

The basic need in driver retention is income and safety; these are the hard things. Transitioning from here to fulfilling the totality of needs, belonging, esteem, and finally self-actualization is where the game is won by best in class companies.

Increase Your Gross Margin by 58% with Only an 8% Increase in Revenue

In last week’s article, we presented a way to segment your financial statistics to provide a clearer picture of your gross margin, the key functions of your success (or under performance), and ultimately your profitability (or lack thereof).

Further, we provided a ratio which will provide a quantitative target to improve your performance. As quick review, we (TCA’s Best Practice Groups) calculate Gross Margin using the following formula:

(Linehaul Revenue no FSC + Accessorials)

MINUS

(Driver Wages & Benefits + Purchased Transportation + Net Fuel Expense + Maintenance + Equipment Financing Expense + Insurance Expense + Variable Driving Expenses)

= GROSS MARGIN

*Each of the above items can contain many things, depending on your operation. If your interested in figuring out which expense and revenue items to include, please email Chris Henry ([email protected]) to get more information on our QuickStart data survey.

Using the above formula, and two separate components of your fixed expenses (Admin or ‘Non-Driver’ Expense, and Fixed Overhead), we have developed the ratio, which we call the Golden Ratio:

The Golden Ratio

25% Gross Margin :

25% Admin as a Percentage of Gross Margin :

25% Fixed Overhead as a Percentage of Gross Margin

If you do the math, reaching these targets equates to a very healthy Operating Ratio (compared to historical industry results), and also provides a great rule of thumb for evaluating existing customers and new opportunities. For this week, and subsequent weeks, we will be focusing on ways to improve on each of the components described above.

For this week, we will be enlightening some readers on a way to increase Gross Margin by 58% with only an 8% growth in Revenue.

To start off, let’s look at the following revenue and variable statistics for a sample load:

BEFORE
1. Rate/Mile                  $1.66
2. Miles                           1,000
3. Loaded Revenue      $1,660
4. Avg. Op Cost/Mile   $1.43
5. Load Cost                   $1,430
6. Gross Profit $            $230
7. Gross Profit %           13.86%
8. Paid Deadhead          $0
9. Total Gross Profit     $230 (13.86%)

Now, the above is a pretty simplistic example of a ‘sample load’, however the purpose of this exercise is to reinforce the power of small changes. These small changes should be within the control of your Fleet Managers, and these valuable people should be incentivized to make (and test) these changes routinely with the loads they are responsible for, and within the confines of the contractual shipper terms.

In keeping with the purpose of this exercise, look how simple it is to grow your Gross Margin by 58%, with only an 8% increase in Revenue:

BEFORE                                                                 CHANGE                                      AFTER
1. Rate/Mile                   $1.66                                +8%                                                $1.79
2. Miles                            1,000                                                                                        1000
3. Loaded Revenue       $1,660                                                                                       $1,790
4. Avg. Op Cost/Mile    $1.43                                                                                         $1.43
5. Load Cost                    $1,430                                                                                      $1,430
6. Gross Profit $             $230                                                                                         $363 (+58%)
7. Gross Profit %             13.86%                                                                                     20.28%
8. Paid Deadhead           $0                                                                                              $50
9. Total Gross Profit      $230 (13.86%)                                                                       $413 (23.07%)

In review, the only differences between the first and second scenarios was: 1) A 8% increase in rate per mile, and 2) $50 of paid deadhead. All other items remained unchanged, your variable operating expense did not change (it’s the same load), but your total Gross Profit improved from 13.86% to 23.07%. On the revenue side, these are just two examples on maximizing revenue per load. There are undoubtedly additional accessorial charges that are typically not tracked or properly applied to many of your loads, which is effectively an opportunity cost you want to eliminate (or greatly reduce).

The above reinforces the value of a quality and detail-oriented Fleet Manager to maximize your revenue per load. From a strategic point of view, taking care of the pennies will result in more dollars flowing to your bottom line.

Next week, we will focus on implementing the proper processes to maximize revenue capture per load. The following week, we will discussing ways to incentivize your Fleet Managers to improve Gross Margin.