The Economy Trucker

Yesterday, our TQM group met for our monthly meeting.  Our TQM (Total Quality Management) group, consists of several people from our Truck and Freight Operations departments.  We meet monthly to increase communication between the two departments.  If Truck Ops. and Freight Ops. are working well together, then the success of our Owner-Operators is directly effected, and improved. 

Today, a representative from our freight department pointed out that the percentage of our freight that is brokered to other companies, is increasing.  The question is, why are Mercer drivers hauling less of our available freight?  This may be a surprise to some of you, but if we had to choose between moving a load with a broker, or moving a load on a Mercer truck, we choose the Mercer truck every time.  We can rely on our permanent trucks to be safe compliant, and on time!  Plus, brokering also leads to back solicitation, and we don’t need these other companies hauling our customer’s freight, and trying to back door us. 

Every driver has their reasons for passing freight.  Too much deadhead, bad destination, commodity sucks, and last but not least, it’s too cheap!  I know that we could get in a huge argument about rates.  Truth is, right now the industry may be the most competitive it has ever been.  There are an estimated 360,000 trucking companies in the country, and they all want a piece of the action.  I will leave other companies names out of this, but I will assure you that they are aggressively pursuing our customers, and they are trying to under-rate us everyday.  Should we just “Let ’em have the cheap stuff” ?  Those companies can’t make it too much longer hauling the cheap freight, can they? It’s no secret what kind of condition the Trucking industry is in right now.  I have tried to post some articles on this blog over the past couple of weeks, that show how almost every company is struggling right now.  The fact is, those companies under-cutting us, will keep hauling the cheap freight…because they have to. 

100% Owner Operator.  That statement is our claim to fame.  My idea of an O/O, is the most experienced, most compliant, safest driver on the road.  We have the ability to approach customers and tell them that we have the best of the best working for us, and assure them that we are their safest option.  Just last year, we were setting records, and customers were paying top dollar for our services.  Now they want the cheapest rate they can get.  In fact, many of our customers are shifting to computer-based load offering systems, which award their freight to the lowest bidder.  Our safety, compliance, and reliability, are low on the priority list for our shippers these days.  We are cautious about booking every load that we can, because we don’t know if it is going to be covered.  Trucking companies that have company drivers can easily book anything.  They can force dispatch, and they can quote cheaper rates.  They pay their drivers flat rates per mile, so they can make some good money off of some customers, and they can quote cheap, and break even with others.  We have to get the highest rate possible on every load we book, because if we book a load, and quote it cheap, maybe all of our drivers pass the load, and then we have to broker, or give the load back to our shipper.  I can tell you that our agents are working with the mentality of book everything.  We want to book freight, even if our rate is somewhat cheap, and have an opportunity for our contractors to be offered a load.  We also don’t want to turn down any freight from our shippers, even if it is a cheap load that goes to a bad destination.  I can almost guarantee that if we don’t cover a shippers marginal freight, they will never reward us with “good” freight. 

I am not writing this to talk you into freight that doesn’t make you money.  As an O/O, you have to keep a good handle on what your expenses are.  I talk to guys all of the time that can’t tell me what their cpm to run the truck is.  Think about that.  How can you say a load is cheap, when you don’t have a clue what your costs are?  And how can you adjust, and control your expenses, when you don’t know what they are?  Our most successful contractors here, are some of the best business people that you will ever meet.  I’m not pointing that out to belittle anyone.  I want all of our contractors to be the best.  If you don’t know what your running costs are, then I guarantee you that you are passing freight that will make you money, because you think that it won’t.  One example is the way many drivers figure deadhead into a load.  Most drivers that I have talked to take the miles of deadhead and add those miles to the load miles, and re-figure the rate.  For example, you are in Louisville, KY  and a load comes up out of Columbus, OH,  going to Charleston, SC.  The load pays $1.35 cpm, on 636 miles, which equals $858.60 to the truck.  You take 636 miles, add the 215 mile deadhead, which is 851 total miles.  Take truck pay, $858.60, and divide 851 miles, and get $1.01 cpm.  Most of you probably pass that load, right?  This formula is just not logical to me.  It doesn’t represent the actual cost to haul this load.  Take 215 miles deadhead, and say that your truck gets 6 miles per gallon, 215 divided by 6 is 36 gallons.  36 gallons x 2.50 (avg price of diesel) = $90.  So it will cost you $90 in fuel to deadhead to get that load.  Take  that $90 out of the truck pay ($858.60), and you get $768.60.  Now take $768.60 and divide by the loadedmiles (636), and you get a rate of $1.20!  I bet there are quite a few of you that would change your mind about hauling the load now.  The first formula only really focuses on the miles involved.  The second focuses on the money.  Money is all that matters.  The moral of this is, don’t talk yourself out of freight that makes you money.  You not only hurt your profit, but you also hurt our chances in covering freight with a customer that we desperately need. 

My deadhead formula is just the tip of the iceburg when it comes to figuring your actual expenses.  If you need any help at all, I know several great contractors that can help, or I can hook you up with our friends at CBS truck tax.  They can give you a month by month breakdown of all of your expenses, and show you exactly what your profit-margin is.  We want to give all of you the tools to succeed here, so never hesistate in calling Heidi, and I.  Be the best you can be!

  1. jpdubois
    May 14, 2009 at 3:30 pm

    This is by far the best blog you have written. It gives me a clear picture of what I have to deal with while sitting in a truckstop waiting for a load offering. As you personally know, this is not a one size fits all company since different operators have different needs for revenue and some can afford to be more discriminatory than others but the bottom line for all is running for minimal revenue in order to facilitate a shipper whose sole concern is price is a recipe for failure. This shipper will not be standing alongside with a check when an engine needs overhaul, tires need replacing or god forbid a driver needs time off due to illness or family concerns. I think we all understand the economic situation as it applies to trucking, and we have all reevaluated our needs and set policies which we feel will allow us to remain viable until conditions improve (maybe).
    Now it is commendable that freight department is making heroic efforts to obtain loads from current customers and new customers also, and I am proud of the job they are doing but booking loads that they “know” will end up with second rate haulers because they know we cannot haul for that rate and maintain superior standards only damages their and our reputation in the long term.
    There are currently, because of economic conditions, many times when we accept loads with minimum revenue because it will move us to what we consider a better area, and many times we refuse loads because it takes us to an area we know (or suspect) will cost us excessive time lost or has a history of low rates. The very idea of running a long distance for a load with a marginal rate is in direct contrast with the idea of success since fuel alone cannot be the deciding factor. This would be like asking all office personnel to work on Friday for no pay. Repairs, upkeep, insurance, equity are based on “all miles” and as so aptly put the bottom line has to cover the entire operation, not just the load miles. Now we understand the more loads to choose from the better the choices for the operator, but we also comprehend that the agent/broker gets his whether hauled by us or company X and his efforts should be to obtain a “fair rate” based on superior service and reliability rather than join in cutrate practices. In the long term, companies that maintain positive standards will survive while the lemmings will end up on land gulping for air.
    I have lots more to say but I am tired of typing so I will wait for later to say it.

  2. Mike & Bobbye Sue
    May 14, 2009 at 10:08 pm

    Very good feedback!

  3. chuck shaffer
    May 14, 2009 at 10:43 pm

    Jason, I have to agree with jp as ALL miles the truck is moved cost us in maintainance as well as fuel. To take your example and just take out the fuel is only part of it. EVERY mile costs ME .50 at least on 9500 miles per month. So the deadhead would really be 215 X .50 =107.50. now take that out of the rate 858.60 – 107.50 = 751.10. now the loaded miles pay 1.18. to work it to your way of looking at it. Those that look at the whole load v miles may be a little short sighted but eather way I must look at the bottom line.
    As to the companys that are cutting the rates they are spliting the cost over many trucks where I have 1 truck to make it work with. If their drivers understood what is happening to keep them loaded(and that is their BIGGEST concern) some would feel that things need to change with thier employer. Thank You for your time Chuck

  4. LRoss
    May 14, 2009 at 11:23 pm

    I will definitely agree with the above comments from “jpdubois”. If the CPM was based on “loaded” miles only, I might agree with you, Jason, but it isn’t. CPM is calculated based on actual or estimated mileage. The expenses incurred for deadhead miles is not just for fuel. It is the “CPM” or what it costs to MOVE YOUR TRUCK ANY DISTANCE.

    An example of this is: you are offered a load that pays $1,000 for 850 miles ($1.18/mi), but you have to deadhead 350 miles in order to get to the loading location. Let us assume your cost-per-mile is 69 cents. It will cost you $241.50 out of your own pocket just to drive your truck to the pick-up location (350 mi x .69), and it will cost you another $586.50 (850 mi x .69) to deliver the load, should you decide to do so. That leaves you $172 for driving 1200 miles.

    Also, I have always been told that your deadhead costs should never exceed 10% of the freight rate offered as a good “rule of thumb”.

    Even based on the above information, we have deadheaded this year more than we would like just to be able to keep moving.

  5. jeff
    May 15, 2009 at 4:09 am

    jason, theirs a website you should check out and also o/o’s. i use it all the time and i find it very usefull in determining the type of loads i take. the website is on this site you put in your exspenses like truck payment, maintnance costs , miles per gallon and so on and it gives you your cpm. then you can do a estimate trip profit on every trip and know how much your gonna make or lose. it also gives you the daily fuel prices and it uses this to determin your trip cpm. it does trip routing , road conditions, tax rates, cpm ,fuel cpm and more. the nice part is that its totally free! i would like you to check it out and give feedback on what you think. also o/o’s check it out cause its really usefull and it will help all of you even the seasoned guys.

  6. Jason Schaftlein
    May 15, 2009 at 8:30 am

    Great website Jeff! Really easy to use. It seems to lack an option of including deadhead, or stopoffs with your total miles. But it is very easy easy to use, and it doesn’t hurt that it is free too. Thanks for the link!

  7. Rick Williams
    May 15, 2009 at 10:50 am

    Good Stuff! I am glad we are discussing this issue. So many O/O’s don’t know what it cpm to operate their truck. However, we should not be pigeon holed into being expected to all haul freight for the same price. I am sure my operating cost for my truck is much more than others who do not have a truck payment. Also, there are alot of other factors for accepting freight. Such as, how much does it weigh, does it have to tarp, is it going through higher elevations, etc. Additionally, every time we go after a load that for some reason or another we don’t get to haul and DON’T get compensated for it, we have to make up that lost revenue, fuel, and wear and tare on the truck. We are ALL being effected by the current economy.

  8. Erik
    May 15, 2009 at 12:45 pm

    I am considering Leasing onto Mercer. I have gotten mostly positive feedback from o/o’s I have met. Does anyone have anything to help me make a better informed decision before I make a move? Thanks

  9. mike harvey
    May 17, 2009 at 10:00 pm

    todays trucking is changing faster than any of us can keep pace with the changing cost can’t realy be tracked as closly as in the past I have all the tools of the modern trucking co. two years ago I had a solid operation running sereral trucks Two shifts in the shop could tell you all the numbers at any point in the month. but today if I ran according to the same rules I the truck would not move the only way I have made any money is to keep the truck moving according to mercer rules of first in I take the load that past everyone dead head up to50%on aload to keep making miles that is not making money acording to the other drivers I’ve talked to. The Numbers I track is the deposit slips the only bad month I’ve had since being a mercer O/O is the one I chose what good is the numbers if theres no money in the bank and all the clerks at the T A know you by name

  10. Jason Schaftlein
    May 20, 2009 at 3:34 pm

    I appreciate all of the feedback, and I hope you all continue commenting. I have had a lot of feedback about my deadhead formula. Let me say that this is just my opinion, and if you have your own way of doing things, please continue. What I was trying to emphisize in this post was there are contractors out there that do not have a good handle on what their expenses are and how much it costs to run their truck! I feel like the more educated drivers get with their own expenses, the better decisions they can make on marginal freight, that will make them money! I just want everyone to be successful!!!

  11. Heidi VT
    May 20, 2009 at 4:00 pm

    when I analyze a trucks expenses I consider maintenace a fixed cost that is not figured as “wear and tear”. I figure the average amount spent on a truck in a given year for repairs- warranties, year model of truck mileage and so on considered, and that amount becomes a fixed cost per month to operate just like the truck payment. Depreciation of the trucks value is a seperate fixed cost as well. If you don’t spend the maintenance money, it goes into escrow because, make no mistake, the money will be spent at some point. Dead head is a cost of doing business unfortunately, one we have to manage closely

  12. jpdubois
    May 20, 2009 at 7:33 pm

    Heidi is on the right track. You take all your fixed costs and variable costs, then determine how many miles you estimate you will drive for a given period and that will give you a CPM. When deciding whether to accept a load you quickly compute the deadhead miles plus loaded miles and devide into the money and you then have a close estimate about whether you can eat that trip or not. Variable costs are basically the fuel and that is not constant. Fixed costs include items such as workman’s comp, truck insurance, cell phone etc. One way to reduce your CPM is to run more miles. Another is to reduce your fixed costs like getting rid of large payments. And another is improving fuel mileage either by improving equipment or driving habits. Maybe Heidi would be willing to work with some operators that currently have no concept of their costs to help them make better choices, because an operator who does not know what his costs are is doomed to fail.

    • Heidi VT
      May 26, 2009 at 11:19 am

      Jason and I are always willing to help someone, the most rewarding part of this job is seeing someone suceed. I hope the years I have squandered in this industry havn’t been all in vain. LOVE you JP

  13. steve
    June 5, 2009 at 1:11 pm

    I think I’m actually getting mixed info here. Thank you for your honesty btw. Good topic.

    One of the things you’re telling us is the agents are moving freight however they can.
    And we’re supposed to accept loads based on our operating costs.

    Isn’t there an inherent conflict here?
    I read it like:
    Agents accept loads no matter what the profit to us.
    Were supposed to accept loads so they don’t go to the brokerage dept.
    You can’t burn both ends of the candle!

    If operators are refusing loads because they know what thier operationg costs are, wouldn’t it make sense that the ratio between loads covered in house vs brokered would decline?

    These are very tough times for everyone, more so for the single truck operator.
    Because times are tough I’ve dh’ed up to 1000 miles just to get a load, although it’s usually more like 250 miles dh between loads. I’ve sat + sat + sat + sat, only to be offered loads, after dh, that I would not normally do.
    In an effort to just cover my expenses, I have become what I swore I never would be: and that is a cheap freight hauler! Because sticking to my operating costs was costing me lots + lots of downtime.
    Cost per mile means everything and yet nothing when you sit 5 days out of a week on average.

  14. Walt Moore
    June 16, 2009 at 1:35 am

    I just KNEW Heidi could have helped me….hi Libby!

  15. Don
    June 16, 2009 at 11:44 pm

    I have not turned down any loads in 6 mos.
    i know my cost per mile.
    when i have to pay to move a load then i will have to not only turn it down but consider other lines of work.
    if i can make a buck out of it i will take it.
    going anywhere USA.
    sitting costs me money. and time off

  16. denny
    June 13, 2010 at 8:35 am

    2009 was the really bad i didnt know if i would have made it,so i thought one day what do i need a month take home to just get by,i came up with 800 a week,so i took loads that ive turn down in the past like on friday taking a load that pays 1.61 on 400 miles over the weekend,but when that loads goes in with the one i empty out on thursday,it be 1,000 bucks for that week so im good now lets worry about next week,i was siting out in washington around 12pm local so 3pm mercer time this is on friday, there was a load15 miles from me load of lumber to sacramento three guys at the truck stop turn it down so i took it. iwasloading and my coordinator called me offerd me a load for monday going to maryland i said get it,i got back to the truck stop and one of the guys seen me leave empty and come back loaded,he ask where im going i told him and he said “i turn it down to cheap and heavy to go to ca”i said well i rather take this cheap load then sitting over the weekend not making money and beside i have a load for monday when i empty this cheap load out going back east,so thanks for turning down this load hope u get a load monday lol

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