Truckload carriers squeezed by rising operating costs increasingly are diversifying their services to capture higher profits, and they're in a hurry to do so, according to a survey by TMW Systems.
The majority of those truckload carriers are working on an accelerated schedule to develop and add new services, typically within a year, TMW said. The truckers are racing rising equipment and driver costs and federal regulations they fear will cut into revenue and profits.
TMW’s survey of more than 60 trucking companies with more than 20,000 trucks in their combined fleet found 71 percent of the carriers had operating ratios of 94 percent or higher, which means those carriers made an operating profit 6 cents or less on the dollar before taxes, interest and other charges.
The best operators in the truckload business have operating ratios below 90. Heartland Express leads the publicly owned truckload sector with a first quarter 2012 operating ratio of 77.5. Only 14 percent of the carriers surveyed by TMW had an OR of 84 percent or better, and the average OR was 93. That nearly three-quarters of the truckload carriers surveyed by TMW have ORs in the high 90s underscores the difficulty many carriers have controlling, and even understanding, their costs.
“I was really surprised by how many fleets struggled to answer some of the pretty straightforward questions and get their hands around some basic metrics,” said James Langley, vice president of business analytics at Beechwood, Ohio-based TMW, a transportation software company. When it comes to costs, “they need to have granularity,” he said. “Carriers may know their tractor cost per mile, but talk warranty recovery and it’s amazing — they’re leaving a couple of pennies per mile on the table, and that can equal millions and millions of dollars that people don’t take a second look at.”
The survey stressed the close link between vehicle utilization, driver retention and operating profit. The survey’s average revenue miles per seated truck per week was 2,230 miles. No carrier with fewer than 2,000 miles per seated truck per week had an operating ratio below 97 percent, TMW said.
“What we’re really doing with this survey is, if you can start getting people to focus on the metrics, then you can get them asking questions about what drives these things,” Langley told The Journal of Commerce.
TMW’s 2013 Transportation & Logistics Study is based on surveys conducted last October and November with carriers operating a total of more than 21,000 trucks. The study is the first of several benchmarking reports planned by the company, which offers transportation management software to truckload, less-than-truckload and private fleets, third-party logistics companies and shippers.
“We’ve got a unique opportunity because of the number of customers we have,” TMW President David Wangler said. The company has more than 2,300 customers that account for more than $70 billion in freight spending. “With this data, we can help carriers focus on the right things and take action.”
Not surprisingly, getting maximum utilization out of their tractors was respondents’ primary concern, cited by 24 percent of the carriers that participated in the survey. Managing driver constraints was the second biggest concern, cited by 19 percent of respondents. The economy placed third, at 16 percent. Government regulations ranked fourth, at 13 percent. Increasingly, regulations governing driver hours and safety are squeezing truck utilization rates and bottom lines.
“Truckload companies are struggling to stay profitable,” Wangler said. “Companies that are increasing profit margins are diversifying and using technology to drive optimization.” About 30 percent of survey respondents said they are actively diversifying, with 27 percent moving into dedicated trucking and 21 percent into brokerage, followed by warehousing, logistics services and intermodal rail.
“They’re basically in a third-party contract logistics relationship with their customer rather than being just a random over-the-road truckload carrier,” Langley said. “There’s a higher value to the customer in that relationship. They’re still moving just as much freight but it’s not with their own assets.”
But even the most diversified carriers need to maintain a profitable truckload base, Langley said. “You still need that over-the-road presence to support all these other business models,” he said.
An abridged copy of the survey results is available on TMW’s Web site. Carriers that participate in future surveys will receive detailed benchmarking data, Langley and Wangler said.
Contact William B. Cassidy at firstname.lastname@example.org and follow him at twitter.com/wbcassidy_joc.