Opinion: No Longer a ‘Penny Business’

Transportation Consultant

This Opinion piece appears in the Aug. 15 print edition of Transport Topics. Click here to subscribe today.

Reefer . . . fifth wheel . . . jake brake . . . dromedary box . . . double drop-deck lowboy . . . break-bulk hub . . . if you are a regular reader of these pages, you probably recognize and understand most, if not all, of these terms from the trucking vernacular.

The dictionary definition of “vernacular” is “the shoptalk or idiom of a profession or trade,” and an industry’s vernacular makes quick and to-the-point communications possible. Consider the difference between “refrigerated trailer” and “reefer.” Better yet, compare “a pivoting platform on the rear of a truck tractor used to support the front end of the trailer being towed by means of locking jaws that engage the trailer kingpin” with the two simple words “fifth wheel.”

Vernaculars can expedite commerce, provided all parties understand the lingo, but using it outside an industry may frustrate communications when being clearly understood is vitally important — particularly if money is involved.

The downside of trucking’s vernacular becomes evident when we try to explain our cost challenges in order to defend our pricing policies.

I’m a third-generation trucker. Early on, I heard trucking described as a “penny business” because all our costs came down to a few cents per mile for tires, repairs, tolls, fuel and even driver pay.

In 2011, those few cents a mile cumulatively add up to big bucks, but we have trouble conveying that to our supply-chain partners. Why? Because they speak the language of “cost per hour,” which is more common in the rest of the business world than the “cost per mile” language of trucking.

If we were to adopt “per hour” language to evaluate trucking’s costs and revenue requirements, we could provide a more relevant vision of those costs and revenue requirements to others.

After all, “per hour” isn’t a foreign concept for trucking. Consider the truck-repair business. There is extensive documentation regarding repair-time data for billing the repair. Also, there is an additional mileage charge if it’s a road call.

I was involved recently in an exercise in which operating expenses were analyzed on a per-hour basis rather than per-mile, and the numbers produced regarding costs were quite illuminating.

For example, with fuel costs at $4 per gallon, the carrier involved was spending $40 per hour for fuel. How did we arrive at that? My calculations revealed that, at 60 mph, a single truck “produced” 60 miles in one hour. With the truck getting 6 miles per gallon, it was burning 10 gallons of fuel every hour times $4 per gallon, which equals $40 per hour.

The same is true for maintenance and repairs: Multiply 8 cents per mile times 60 miles traveled per hour, and you wind up with approximately $5 per hour for that particular expense.

Fixed cost is another serious expense area for trucking operations. It is not unusual for a one-truck operation to incur fixed costs of $45,000 per year. If that $45,000 is divided by 300 working days per year (allowing for some family time) at 10 hours per day the result is another $15 per hour.

If you are keeping score, we are now at $60 per hour — and we still haven’t paid the driver.

The question of appropriate driver compensation is open to a lot of debate. I prefer to determine appropriate compensation by using market statistics: When driver turnover is at its lower levels, the driver must believe that the compensation is appropriate for his time, energy, utilization of skills, costs and the sacrifices his family makes for him to perform the job.

It seems this appropriate compensation is found mostly at near-union or unionized jobs. A figure in the vicinity of 50 cents a mile in direct pay seems to produce turnover rates of less than 15%. Fifty cents a mile times 60 mph adds another $30 per hour.

The rule I practice when pricing myself from employee to contractor is to add another 40% over what I would earn as an employee for other benefits and tax expenses to maintain a standard of living at least equal to that of an employee driver. That adds another $12 per hour — and for those keeping track, the subtotal is now $102 per hour.

We also should be pricing our services “per hour” on the revenue side because I believe that, while miles are only a “maybe,” time is a “given.” As an example, a 1,000-mile trip should be priced at “x” dollars per hour times 20 hours of driving — this rate should factor in a 50-mph average because congestion problems often will not allow a 60-mph average — plus an additional “x” dollars per hour dock delay time.

Our final total of $102 per hour for expenses is obviously very conservative because it is based on a one-truck operation and has not included such items as tolls, motels, lumpers, corporate overhead and staffing, etc. It also does not include profits sufficient to provide future capacity, attract capital and reward investors.

These very simple calculations do not, by any means, produce a complete operating cost profile. However, by adopting a different and more relevant vernacular, calculations reveal that a significant minimum cost of $102 per hour is required to keep a truck moving down the highway.

Thinking of trucking in terms of “per hour” could easily become a familiar vernacular in common with our supply chain partners, one that should lead them — and perhaps many of us — to the conclusion that trucking truly is no longer a “penny business.”

A truck driver for 40 years, the author transported cargo throughout North America, including Alaska and the Yukon. Now retired near Memphis, Tenn., he is thinking of returning to trucking.