August 30, 2004
Opinion: Get More Out of Your Assets - Not More Assets
By Ken Cranston, President, Terion, Inc.
The trucking industry just might be too busy. The Department of Transportation’s freight index has reached a 14-year high. TransCore/DAT’s index of spot market traffic hit an all-time high in March at 1,156, compared with an August 1996 base of 100. As a result, freight rates increased more than 5% in the first half of 2004.
The abundance of business has created problems in that many carriers don’t have the capacity to handle freight from current customers let alone new shippers. Non-asset-based brokers and logistics providers are scrambling to find capacity for their current customers’ expanding business.
The reasons for this situation are well known. The hours-of-service rules changes that went into effect in January reduced productivity and, therefore, equipment availability in two ways. Drivers were required to log time spent at shippers’ and receivers’ docks as on duty and chargeable against their 14 hours of daily work time. This meant that driver and equipment productivity decreased between 6% and 20%.
The other cause was the actual drop in available driving time in any 24 hours. Under the old system, drivers could legally log 16 hours of driving time on the first day of an eight-day, 70-hour period. Expect the HOS impact to continue if the rules remain in effect.
In addition, until quite recently carriers have had little incentive to invest in new trucks and trailers. From record production in 1999, sales dropped by almost half in 2001 and 2002.
The recent resurgence of equipment sales is merely replacing aged equipment and not adding new capacity. Very few carriers have the stomach or capital to invest in extra capacity until they better understand the duration or extent of the recovery.
Finally, the lack of drivers is exacerbating the capacity crunch. Carriers are reluctant to buy new equipment when they already have trucks parked along the back fence for want of qualified drivers. Only when carriers get a long-term, dedicated carriage run, where the drivers are home more than once a week, do they appear willing to add new capacity.
All of this makes it highly unlikely that carriers will rush out and buy additional rolling stock. Instead, they are trying to make the most out of their existing capacity. Companies are dropping their least-profitable shippers and reducing the number of multistop runs. In addition, they are charging detention fees and other accessorial charges and, more significantly, collecting them.
Shippers, too, are changing the way they do business, such as utilizing more drop-and-hook movements.
Finding the right solution for each carrier-shipper relationship requires accurate, timely data that can be analyzed quickly and correctly. Good data and analysis are needed so that a carrier can determine the profitability of each of its shippers. Such analysis must go beyond mere rate per mile and include such expenses as driver time wasted through waiting and trailers idled excessively in drop yards.
For example, it is estimated that a driver can spend up to one hour of precious driving time searching for trailer No. 53976 instead of No. 53967.
However, there is proven technology that can provide the information needed to get the most productivity out of a carrier’s current assets—drivers, tractors and trailers.
While most companies know the weekly revenue for each tractor and driver, many cannot say the same about their trailers. Before adding new trailers to solve the problem of live loading, carriers want to fully understand and justify how many trailers a particular shipper needs to have on the premises daily.
A shipper may need 10 trailers one day but only three the next. To provide such a shipper 10 trailers daily is wasteful and may push a particular shipper from being profitable to unprofitable, even if the rate per mile appears to be good.
However, good data will allow a fleet manager to know when a shipper is using trailers as a storage facility or if a rival carrier is utilizing his or her trailers. (Yes, it does happen.)
When shippers require live loading, carriers must provide accurate information to measure the amount of time spent at the facility. Such information must include actual trailer arrival and departure times, as well as the time it took to load and unload.
Carriers shouldn’t have to depend upon a driver entering the data or checking in with a security guard to improve the likelihood of charging and collecting detention fees.
Regardless of the momentary business climate, carriers that know their costs, focus upon key metrics and measure the productivity of all their assets — drivers, tractors and trailers — will win. Fortunately, carriers don’t have to invent tools or try unproven technologies to help them create and analyze data. Vendors have developed and deployed the technology that can meet the carriers’ data needs today.
The world-famous statistician and quality control expert W. Edwards Deming once said, “If you don’t measure it, you can’t manage it.” I’d like to add a corollary: “ . . . and you can’t thrive regardless of the business cycle.” Most of the carriers posting exceptional gains this year have taken advantage of these tools.
Terion, of Plano, Texas, provides trailer management and tracking systems.
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