Micro-carriers must understand rates and routes to make it work
Are shipper freight rates really going down this much, or are brokers taking a lot more than 15% off the top? That was a question in a discussion thread on a LinkedIn group.
There were a couple of micro-carrier owners attempting to blame their lack of reasonable revenue on the purported high percentage freight brokers take off the top of the loads. They were making statements like ‘brokers get all the money and have no investment but time.’ Or ‘the brokers are taking 50% of the money by teaming up with other brokers trying to maintain a set rate of $1.50 per mile from 7 a.m. to 6 p.m. After 6 p.m., the rate goes up to the shipper’s price minus a couple hundred bucks for their purse. When you’re wise to them, they try to get you in the crosshairs with the shipper so the shipper writes you off.’
While these statements are very inventive and, from the perspective of the trucker, seemingly true, what is the reality?
Here’s my take:
First, let me preface that I’m not saying these micro-carriers don’t understand trucks. They do. They understand how to stay on schedule; how to deliver on time; and how to traverse all kinds of challenges—from weather, road construction, traffic, regulations and many unpredictable events—to accomplish getting a load on and off the truck. But they don’t have a clue on logistic pricing or how the business actually works.
And I’m sure there are some micro-carriers that know the logistics side of the business. As an example, one micro-carrier in the thread posted the following:
‘At first I took exception to the comment that most small carriers do not know their cost per mile. Then I sat back and realized that’s probably correct when you see what some are willing to haul for! Fuel is nearly 40¢ to 50¢ per mile and people are hauling freight for under $1.50? A set of good drive tires is now $4,000 for eight, and a new truck is $150,000. I do not think you can replace either running $1.40 per mile freight continuously. Any trucker can just say no. It does not mean that carrier did not know his cost. He may have just wanted to see what the market would bear or how desperate the shipper/broker really was.’
The major problem within the ranks of micro-carrier owners (those owning fewer than five trucks) is they don’t fully understand trucking and its relationship with the logistics community as a whole. I have found many don’t have a clue on how to set a hauling rate range, how to get set up with direct shippers, and how to negotiate rates with shippers and brokers. It takes a mixture of shippers, brokers, 3PLs, and load boards to be successful in this industry. However, if a trucker doesn’t know what his profitable freight rate range is, or know how to develop profitable freight lanes where the combination of revenue between all the legs creates a profit, he’s sunk. Even when one or two legs don’t meet the carrier’s break-even point, the whole of all the loads hauled within a freight lane should create a profit.
The one area I find most disturbing with the majority of micro-carriers is they think it’s what they earn per mile that counts, and most establish a static rate per mile they think will garner success. In fact, the lower your miles, the higher your cost per mile, so the per-mile method is the quickest route to failure. And many micro-carriers allow their customers, brokers or shippers to set their hauling rates, which is another sure-fire way to fail.
Truckers need to invest some time and energy listening and learning. Of course, if you’re reading this, you’ve already made the decision to look for the best practices and knowledge. You are the exception to the ‘chip on the shoulder’ trucker and one who seeks out useful, factual information; one who engages knowledgeable folks for guidance and stays away from the CB, truck stop lounges, and many online discussions where rumor and misinformation fly.
There is a lot more to trucking than just finding freight and getting it where it needs to go. For the micro-trucker, it’s developing a plan, knowing the numbers, and establishing a profitable rate range from those figures. Next, finding a combination of specific shippers and brokers for which to haul freight, in established freight lanes, creates a consistent profit at the end of the month.
The final piece of advice in this article comes from a broker who said, “My biggest fight is with other brokers who cut the rate to get the freight with no thought to the trucker’s revenue needs. I am currently at a complete standstill as I refuse to bid low-ball rates.
“The question I have is, why would truckers haul freight that cheap? Drivers and small companies are the root of the evil. When I blew up at one competing broker, his answer was, ‘If they’re dumb enough to haul it, I’m dumb enough to book it and cash the checks.’”
The answer to nonprofitable rates is … don’t haul it! There are some of us (brokers) who try to consider what the carriers and truckers need, but if trucks haul it for cheap, my bids are junk. When a trucker is willing to haul freight for less than his costs, who is at fault?
It’s something for all of us to think about.