10 Ways to Cut
May 2012, TruckingInfo.com - Feature
Fuel. Equipment. Tires. Tolls. Costs keep rising, and rates aren't keeping up. Instead of chasing after more loads and more revenue, you may be better off taking a careful look at the cost side of the equation.
"The fastest way to significantly impact your company's bottom line profitability is not to generate more revenue; it's to cut costs," says Andy Ahern of Ahern & Associates, a transportation management consulting firm in Phoenix, Ariz.
He explains that if your profit margin is 10%, that means for every dollar your company spends, you'll have to make $10 in revenue to make up for it.
It's common for trucking companies to focus on their largest expenses, such as equipment purchasing, drivers and fuel costs. Yet there are many opportunities to save in other areas of the business.1. Track and budget
Before you can cut expenses, you must understand where your money is going. "It's amazing how many companies still don't use a budget," Ahern says.
"You need to be able to tell every time you dispatch that truck whether you've made money - based on your company's expenses, not your neighbor's."
Smaller trucking companies, especially, don't have a really good handle on their finances, he says. "They hire an accountant who does a P&L (profit and loss statement) for them once a year, but they don't know their operating ratio or their debt ratio.
"I don't care if it's 10 trucks or a thousand trucks, you need to get a P&L within five to seven working days at the close of each month and start looking at it."
If you track everything and set up a budget, it can help you eliminate small, needless expenses, Ahern says. "It's easy to blow $5 to $10 without thinking about it. The biggest culprit? Office supplies. Make sure that your employees get everything they need but not everything they want."
Don't forget about tracking inventory - and we're not just talking about parts in the shop. "If you have a lot of pencils and notepads and stuff, I guarantee a lot of that's going to be gone" at back-to-school time.2. Educate employees - and make them accountable
Joe White, CEO of Georgia-based Cost Down Consulting, points out that dispatchers/driver managers make hundreds of decisions a day that affect variable costs - yet very few know their variable costs per mile or how those decisions affect the bottom line.
White points out that a typical driver manager is running the equivalent of a million-dollar business with 40 employees - one with very thin profit margins. If you were to buy a standalone company like that, you likely would hire a business-savvy president or general manager to run it. Yet many dispatchers are former drivers, and often an existing driver manager is the one who trains them, so they're locked into the same paradigms and inefficiencies.
"Think of them as general manager or president of their own business, then think about the tools and training you need to provide them," he says.
Make sure you're setting the right type of goals. If the dispatcher's goal is 2,000 miles per driver per week and he deadheads a driver 200 miles to get that 50-mile load to make sure he's hitting that goal, is that good business? You might want to make the goal the number of billable miles instead.
The concept certainly goes beyond dispatchers. "I don't care if it's the person who controls the staples or your dispatch department," says Ahern. "If you tell them you'll pay X if they can do this, it's going to happen."
He cites the example of a $50 million company he worked with that had maintenance costs way out of line. After the company offered the maintenance director a 10% bonus of whatever costs he could cut, in six months he saved half a million dollars in operating costs. The maintenance director got a $50,000 bonus and his company had $450,000 fall to the bottom line.3. Outsource
Ahern is a big believer in outsourcing. "Trucking companies should always focus on their core business," he says, but many smaller companies are afraid to outsource things in which they have little expertise, such as human resources issues.
One example is using a professional employer organization. PEOs allow an employer to outsource employee management tasks such as employee benefits (including health insurance), payroll and workers' compensation, recruiting, risk/safety management, and training and development. It does this by hiring a client company's employees, thus becoming their employer of record for tax and insurance purposes.
PEO Advantage, one such firm that works with the trucking industry, guarantees clients a minimum of 25% cost reduction. Another is PeopLease Corp. in Charleston, S.C., which specializes in trucking.
Smaller carriers also may want to team up with a larger company in a partnership program where you haul under their authority. Ahern offers Sargent Trucking in Mars Hill, Maine, as an example. Founded by former owner-operators, Sargent will act as the back office for a small carrier, handling billing, collecting, and cargo and liability insurance. It offers partners fast payment and will even advance a portion of the load.
Ahern had a customer with 35 trucks whose insurance costs went up 50% and health insurance rose 65%. "I said, 'Why don't you go into a partnership program for auto liability and a PEO for human resources and worker's comp and all that?' He told me, 'I didn't want to lose control.' The thing is, you don't lose control; you gain control."4. Insource
Outsourcing may be the answer for some fleets, but for others, there are cost-saving opportunities in bringing some outside services in-house.
"Many companies pay large amounts of money for outside services that they could effectively and more efficiently do from within the company, such as lead generation, customer satisfaction surveys and other administrative services," says Robin Platner, who was brought into CRST to start a lead generation program and ended up doing many different projects for the company to cut costs in its brokerage division.
"Companies can benefit from reviewing their current staff's skillsets to find project managers within the company to build other tasks into their daily work schedule," Platner says.
For instance, she says, before 2009, CRST was using various outside services to generate leads. "The cost was not really as beneficial as we had hoped. When you think about paying for expenses for travel, having a project manager on site and the cost of the service when you don't have the manpower to follow up with hot leads in a timely fashion, it just doesn't add up."
At Heartland Express, the Liberty, Iowa-based truckload fleet known for running a very tight ship, they don't outsource. Instead, they make sure the people they have are operating as efficiently as possible.
"One thing we always do is try to keep our people-to-power ratio above five trucks for every non-driver employee," says President Mike Gerdin. A more typical industry number, he says, is three-to-one.
This requires people to multitask and prioritize.
"What is really important that needs to be done?" Gerdin says. "A lot of times, I think people get carried away with things that aren't benefiting their bottom line and having people in jobs that aren't really adding to the total."5. Tackle worker's comp
The best worker's comp claim is the one that never occurs, says Tad DeOrio, president of TAS Insurance Group in Kansas City, Mo., which focuses on worker's comp, owner-operator programs and other trucking needs.
"The company needs to have a goal of zero injuries," he says. "If they have the attitude that 'This is trucking, people get hurt,' they are setting themselves up" for worker's comp claims.
DeOrio says most worker's comp injuries for truckers occur during loading o