Category Archives: Costs and Cash Flow in Local Trucking

Would you like $1200 more each month or $3750 more?

As Steve Jobs famously said, “Think different.”

A local P&D company had $3750/month more in the bank after implementing new software that was just right for its operations.

The same company had cleared $1200/month more by buying a new power unit. Which is the more profitable purchase?

More money with a new truck or better technology?

More money with a new truck or better technology?

It’s relatively routine to increase a fleet:

  • You buy a new power unit. You can haul more freight than you could haul yesterday.
  • Assuming that you bill about $3K/week/driver, you should be able to bill an additional $12,375 this month, assuming that you can keep this truck as full as your other trucks.
  • If your operating ratio is 96%, you’ll have an extra $495 in your pocket this month.
  • If your operating ratio is 90%, you’ll have an extra $1237.50 in your pocket this month.

And a trucking company tripled that return with new software. Here’s how they did it:

  • ABC Cartage Company had two “billing girls,” Audrey and Gina, who were full-time. They did the rating and invoicing and A/R. Each billing girl cost $40,000/year plus benefits, so let’s say $10K/month total outlay.
  • ABC Cartage Company bought new software from JSY. It cost them $30K the first year and will cost them $15K in support the 2nd year. (Your costs may be different depending on the options you purchase.)
  • After ABC Cartage implemented JSY, they were able to get their rating and billing done in 20 hours a week, by one person. The work that had taken 80 hours went down to 20 – that’s a 75% time savings.Rating and Billing graphic 2
  • ABC was able to let one of the girls go (Gina was thrilled, since she wanted to start a family and go back to school after the baby was born), and Audrey was shifted into 50% rating/billing/AR and 50% sales support.
  • ABC’s costs went down by $60K per year.
  • ABC’s net savings after software purchase were $30K the first year and $45K the second year.
  • ABC saved $2500/mo. in the first year and $3750/mo. every year after that.
  • All that extra money flowed to the bottom line.
  • ABC earned more money on top of that savings, because Audrey helped the sales manager close some business that they hadn’t had the office muscle to follow up on before.

This is a hypothetical example, based on real-world stories from our customers. “Your results will vary,” as they say… but not by much.

So, where you will make your next investment?

Invisible Costs & Hidden Savings in the Trucking Office

Money in trashcanEveryone talks about reducing unnecessary spend in the supply chain. But almost nobody talks about the unnecessary spend in an individual trucking company’s office operations.

Which trucking office is most efficient—a firm that runs 50 trucks with 5 people in the office, 20 trucks with 8 people in the office, or 10 trucks with 5 people in the office? And why should you care?

You should care because there may be hidden savings in your operation that you may want to uncover. If you take advantage of them, that’s more money on your bottom line every week.

Trucking-company owners regularly complain to me about costs for insurance, maintenance, and so on. When I bring up office payroll, however, they often look at me funny. I get responses like these:

  • “We dispatch in Excel and bill in QuickBooks… Everyone does that, right?”
  • “The dispatcher writes everything down by hand in a book. Then he enters it into the computer. Then Tammy looks up the rate in our binder (or rating spreadsheet), calculates the rate, and tells Shari. Then Shari puts it into our accounting system. Easy enough.”

Here are the invisible costs. “Easy” is not the same as “streamlined.” Both owners above are wasting money on every order. They’re paying two or three people to enter information that could be entered once—if they had software that was a good fit with their operation. Multiplied by hundreds of orders a week, these trucking companies are paying duplicate office salaries—easily 6 figures in some offices—to have people do double-entry. It is an invisible cost because the people look busy and the work gets done.

VacuumInvisible costs suck money out every week. But are invisible costs necessary costs?

  • Are you paying 2 or 3 people to do the work of one, or 10 people to do the work of 8?
  • If one or more of those salaries flowed directly to your bottom line instead of going to your payroll account, and you still were giving great service, would that help your life?
  • If you saved that money every year for 10 years, would that be good? Could you retire early?

Office payroll is the #1 untapped opportunity  in trucking for cost savings. A business partner who can help you seize this opportunity is a valued partner indeed.

Resisting Downward Pressure on Rates

How can you keep your local P&D rates up when everyone’s beating you down?  How can you compete when the national firms enter your last-mile market with tempting lowball prices?

There is one way to do it:  with unbeatable service.

resist downward pressure on rates local trucking

Keep Your Service Up!

There’s really no other way.

If you want to stay off the slippery slope, you need tools to give you consistently unbeatable service.  We’ve got the tools for you.  The ROI is totally a no-brainer.

For a personal consultation, contact Jonathan Miller at 630-517-0705 or jmiller@jsysoftware.com.

Leveraging Technology to Accelerate Productivity and Profit

This article appeared recently in Inbound Logistics. While it focuses on tech issues for 3PL’s, the core issue is the same in local P&D, hazmat, air freight, and intermodal: how are you going to use technology to improve customer service and responsiveness, and what tools are you going to use to cut down on manual processes that introduce errors and slow things down for everyone?

http://www.inboundlogistics.com/cms/article/leveraging-technology-to-accelerate-productivity-and-profit/?goback=.gde_134135_member_219383066

Just substitute “local trucking company” for 3PL and you get it exactly right:

Services that increase a client’s productivity will help a [local trucking company] win new business, satisfy the needs of a more diverse client base, and rise above the perception of being a commoditized business….. By working even more intimately with client operations, [local trucking companies] can gain insight into other ways to help maximize/efficiency.

For example, [local trucking companies] can capitalize on clients’ expectation and need for real-time data by providing access to their own  … orders and even billing through a secure Web portal. This helps clients make informed decisions with real-time information and visibility of demand, order status, and potential/exceptions.

By offering these expanded, value-added services, [local trucking companies] can gain and retain a wider range of clients. The challenge for [local trucking companies] then becomes finding the most cost-effective technology infrastructure that can adapt to the expanded range of services it provides …  and – perhaps most importantly – correctly invoice clients for each service to ensure/profitability.

Thanks to Inbound Logistics for bringing these issues to everyone’s attention.

–Jonathan Miller, Editor

3 Ways to Make More Money in Local Trucking / P&D / Air Freight

There are three ways to make more money in local trucking and local air freight. You probably know them:

guy on pile of money

“Wanna make more money?”

  1. Get More Business
  2. Charge More
  3. Reduce Expenses

I’m going to try to persuade you right now that #3 — reducing expenses — is the single most important missed opportunity for most local trucking companies. It’s also the one over which you have by far the most control (you can do something about #3 today, unlike the other two).

1.  Get More Business

Let’s look at the first one – getting more business. Of course getting more business is a good thing.  It’s a tried and true strategy for local LTL — the logic is obvious.  Just add more customers and fill your trucks with freight, increase billings, and life is great.

The Customer Store smallBut is growing your customer base easy? As if you could say, “Sure, I’ll just go down to the Customer Store and pick out a few good ones”? Heck, no. If it were that easy, everyone would be doing it, and fewer P&D companies would be shutting down or struggling. But what I hear every day is just the opposite.

It can take years to cultivate a significant new account, especially these days. And if you’re seeking new ways to take control of your business, adding new customers is out of your control, even with the best service and the best sales team. You can’t control the economy, and you can’t control when a prospect is going to pull the trigger and give you a try in a small or big way.

So adding customers might work, but it’s not the answer for everyone. Of course, you can never stop selling. But if you’re looking to take charge of your business in a way that allows you to predictably make more money every week, there are other methods.

2.  Charge More

What about charging more?   If I raise my rates and keep my weekly expenses the same, I make more money at the end of the week.  But… most people are afraid of it.

Afraid to raise rates

“Raising rates? AAAAAHHHHH!!!”

I hear it all the time:

“Jonathan, my customers will bolt if I raise rates.”

“Jonathan, I’m losing money with my rates where they are today. How can I go higher when the one-man shop down the street does truckloads for $200?”

“Jonathan, my fuel could be higher, but I don’t want to piss people off.”

If your service is so good that you can charge more, then hey! more power to you. But for most trucking companies right now, raising rates is pie-in-the-sky. It’s just a pipe dream, that is, if there is no corresponding improvement in service.

PIck 2A side note:  At some point, when we end up working together, I’m going to make you so efficient in the office, and I’m going to enable you to give such great service, that you can justify higher rates with no complaints from your customers. But that’s a little ways down the road. In the meantime, we have to finish our three-item list.

3.  Reduce Expenses

So adding more trucks isn’t always the right tactic, and charging more is mostly not going to happen. What’s left?  Spend less. 

If you are billing the same amount every week, and spending less overall every week, then every week you have more money left over. That’s good math.

Some people glaze over when I bring this up.  “I don’t know what you’re talking about. I can’t lower costs.“ Others get annoyed. “But I can’t spend less. I can’t lower the price of fuel, and my lease payments are fixed. After drivers and fuel, there’s nothing left.”  I hear that a few times a month.

Here’s where most people stop, give up, and resign themselves to the slump.  Don’t give up!  I feel your pain – really I do – and I want to help you do something different so you can get different results in your business.

But How?
(Hint:  It doesn’t take a genius.)

Einstein

“Are you doing the same thing over and over and expecting different results?”

Albert Einstein once said that “the definition of insanity is doing the same thing over and over and expecting different results.” If Einstein is correct, then you have to do something different if you don’t want to stay stuck.  Hopefully you have an open mind about this.

So…. if we want to cut costs and are truly open to anything, what can we spend less on?

Office payroll is a relentless expense. What are we getting for it?  Sometimes we are getting redundancies.

Would you put a two-man crew on every truck? 

Most people would not.  So why do you have people do the same thing twice in the office, like entering order details in Excel and again in QuickBooks?  It’s the same sort of waste — it’s just less obvious, so we often miss it.

We can spend less on office payroll by using tools that allow us to do repetitive things right the first time, and only once.  For every ten minutes you can free up for someone in your office, that’s ten minutes they can spend doing something that actually makes you money — quoting a new job, for example. That’s ten minutes you don’t have to pay anyone any more. It adds up quickly.

Here’s the secret:  Dramatically boost the productivity that you get from the people in your office, and watch your revenue per payroll dollar go way up. 

A couple of examples show the sort of thing I encounter on a regular basis. Take a look:

  • If you’re rating by hand, you’re wasting payroll dollars.  Do you have a rating book that looks something like this?

Rate Book 5

The excess time it takes to do rating with a book like this, or paper rate sheets, is huge.

  • If you’re dispatching in Excel, you’re wasting payroll dollars.

Why?  Because you’re double-paying – you’re paying someone to enter dispatch info in Excel, and someone (usually someone else) to enter order details on an invoice every order and every invoice.

Would you put two guys on every truck?

treadmill

  • If you’re dispatching with T-cards, you’re wasting payroll dollars.   Ditto.
  • If you’re using software–however you got it–that’s a poor fit with your business, forcing your staff to double-enter data, you might as well just go flush your money down the toilet.

Why? Because double-entry leads to errors that are even more expensive to fix.

(1) It costs you office payroll time to catch and correct the error.

(2) It could cost much more if the error snowballs. If it’s a missed pickup, then you also have driver time to pay all over again.

(3) If it’s an angry customer (let’s call her Zelda) who was invoiced incorrectly, then you have to research the error, fix it and re-invoice.

(4) Then there’s perhaps the most time-consuming task of all, which is taking the time (sometimes more than one person’s time in your office) to unruffle Zelda’s feathers and salvage the customer relationship.

All of this takes office time, and all that office time costs you money. 

So double entry ends up costing you more than just double the hours. It costs you triple or quadruple, or worse.time is moneyNow given what most people in your office get paid, you may not give much thought to the benefit from ten minutes saved here or there. But here’s the other part of the secret:  when you do hundreds of orders a week and save time on every order, then something really cool happens…. a cycle gets going where your employees stop spending so much time repeating things and start spending time on things that create great service.

If you want to learn more about how this plays out in real life, shoot me an e-mail and I’ll send you a case study about how this played out at one of JSY’s customers. The time saved using our software has been unbelievable, except that it’s true. In the meantime, I encourage you to think carefully about which of the three options I’ve discussed here is best for your business. Call me at 630-517-0705 if you want to talk about it, especially if you are interested in exploring where “no more double-paying in the office” can have an impact for you.

And since this blog is intended to stimulate dialogue, feel free to post a comment on what you’ve read. I look forward to hearing from you.

Posted by Jonathan Miller, Editor

You can reach Jonathan at jmiller@jsysoftware.com or at 630-517-0705.

 

 

On-Site or In-House? Hosting Your TMS Data In the Cloud

A number of TMS providers now offer local trucking companies a variety of alternatives to the traditional in-house installation. In the more traditional setup, both the software application and your TMS data reside on a physical server in your company’s office building. For many local P&D companies, this method of hosting data in-house may still be the best one.

However, there are some other newer options for TMS hosting that you may want to consider.  They include the following:

1.   Data in the Cloud, an App on your Desktop (“Managed Hosting”)

In this scenario, you would launch your TMS by clicking on an icon on your desktop, just as if you’re launching Excel.  The TMS application appears on your screen, just as it would if your data lived on your local. The only difference from the traditional in-house model—a difference that is invisible to the user—is that your data lives offsite, hosted by your TMS provider or one of its trusted providers such as Rackspace.

2.  Data in the Cloud, App in the Cloud (an “All-Cloud TMS)

With this alternative, the TMS application itself lives “in the cloud” and is a web-based application.  You get to it by going to a website and logging in there.  You may already have experienced something like this if you use an offsite login to get access to your Exchange e-mail server.

How to Decide?

As usual, there are advantages and disadvantages to any setup. For example, some add-on TMS options (such as GPS or route optimization) require you to have an in-house TMS, so that its database can talk to your TMS’s database.  In some cases, the cloud-hosted database works just fine with third-party vendors.  Check with your current and potential future vendors and see which is the best option for you.

Happy Shopping from the Local Trucking Blog!

–The Editors

Cutting Costs in Local Trucking

There was an interesting question posed by Deborah Lockridge, editor at Heavy Duty Trucking, early this week, which sparked a discussion thread:

http://www.linkedin.com/groups/What-tips-do-you-have-134135.S.107106598?qid=44123cd7-93fa-474f-9c4e-55590cc41bbd&trk=group_most_popular-0-b-ttl&goback=.gmp_134135

While some people commented on fuel efficiency, reducing accidents caused by sloppy backing up, and so on, we feel strongly that having the right TMS is the #1 way to cut costs in local P&D, by reducing bottlenecks and redundancies in the office environment and by making drivers more productive.

If your staff never had to put people on hold to answer a POD request, how much time would that alone save you, not to mention how much your customers would appreciate it?

As one person commented in the replies:  “The wrong software is wrong, even if free, and the right TMS is golden, no matter the cost. The money spent is insignificant compared to the personnel savings and increased productivity of the drivers.”

The Editors

Credit Application for Local Trucking

Getting a signed credit application from every customer is one of the most important actions a local trucking company can do to protect itself.  What is most important is NOT the bank information, or the references.  The important part is the fine print.

Somewhere in every credit app there should be statements that:

  • The customer agrees to pay invoices within XX days
  • If not paid on time, the interest rate is XX%
  • Customer pays collection costs

If your credit app does not contain this verbiage, find one that does and copy the key sentences.

The reason this is so important is that, without this language, a court may rule that the customer never promised to pay and therefore does not have to!  Without a formal contract, the credit app is the only document wherein the customer promises to pay you.  This is very important if any collection effort is needed in the future.  If there is not a provision for interest, the court will not grant any interest!  Finally, it is very expensive to take a customer to court–and unless the customer has agreed in advance to pay for this expense, the court WILL NOT award collection expenses!

You never want a prospective customer to think about these issues, so present the document in a non-threatening way.  Say “I know you have not decided to use us, but I want to set up an account just to be ready.”  If they do not want to give a bank reference, or even customer references, NO PROBLEM!  The most important thing is the signature anyway.  We recommend wording, in big bold letters, that signing the credit app DOES NOT obligate the prospective customer to ever use the local trucking services.  Point to it when asking for them to fill out and sign the credit app.

Your local trucking business will benefit from following the simple steps above for a credit application with teeth.

HHUT: When To File, When To Pay in Local Trucking?

The Internal Revenue Service today advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return, usually due Aug. 31, will instead be due on Nov. 30, 2011.

Because the highway use tax is currently scheduled to expire on Sept. 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date. Under temporary and proposed regulations filed today in the Federal Register, the Nov. 30 filing deadline for Form 2290, Heavy Highway Vehicle Use Tax Return, for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to Nov. 1.

To aid truckers applying for state vehicle registration on or before Nov. 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year, ending on June 30, 2011. Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. A state normally may accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through Sept. 30.

For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

In general, the highway use tax applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold.

For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on Aug. 31. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July.

How to Cope with $5.00 Diesel in Local Trucking

It now costs over $200 to fill up a straight truck, and pouring 120 gallons into your twin-75 equipped tractor can cost $500.  In an earlier post we discussed fueling strategies.  If $10 is saved on labor, it is as good as $10 saved on fuel cost.  What else is there?

We are not going to list all the well known strategies for reducing fuel efficiency, such as more efficient trucks, driving slower, less idling, correct tire pressure, etc.  Many of these techniques have little benefit in the local trucking universe.  Often overlooked is what kind of diesel is being used. This is a potential money-saver for you.  Think about it.

During the winter months diesel is often blended with expensive additives to prevent ice buildup.  Sometimes standard practice starts the “additive season” too soon and ends too late.  The difference in cost can be ten cents per gallon or more.

In the warmer months, or warmer climates, biodiesel is an excellent choice.  Because of government subsidies, biodiesel is often $0.15/gallon less than plain diesel.  Biodiesel gets the same or better mileage and comes with no additional maintenance or other expense.  Look for a source, figure out the extra labor cost (if any) to get the truck to the appropriate facility, and make an informed decision.  Most wet fueling operations can provide biodiesel.  It is your tax dollars that are providing the subsidy, so you might as well get some benefit from it.

So, what is biodiesel?  Biodiesel is a blend of diesel fuel with organic materials other than ethanol, such as used cooking grease, canola oil, etc.  It is refined and cleaned before use.  Here is a link to an interesting slide show about biodiesel:

http://www.biodiesel.org/resources/sustainability/pdfs/Advance_Biofuel_Webinar_20100827.pdf

As usual:  keep doing the homework, and you can probably keep finding new places to save money.

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