As we approach the end of February, most truckers would acknowledge that this is a good year for the North American motor carrier industry. Business volumes remain strong, in fact stronger than they have been during the first few months of prior years. Supply and demand remain in pretty good balance. Capacity is tight as experienced drivers remain in short supply. Low diesel fuel costs are keeping this operating expense in a more manageable range than it has been in some time. For Canadian manufacturers, the eighty cent dollar is helping drive exports to the United States. Many shippers are receptive to rate increases to ensure they retain their core carriers. There hasn’t been a better time in years to improve yields.
In the past, truckers would go to their low margin accounts during the good times and seek a significant rate increase or de-market some accounts in the hope that new, more profitable accounts would be added. As economic conditions worsened and revenues declined, these same truckers would often go back to the accounts they de-marketed and then try to re-secure them. This feast or famine approach to yield management did not appreciably improve the business on a long term basis. Some companies have learned from experience that there is a better way. During these fairly buoyant times, the opportunity exists to make some significant and sustainable improvements to the bottom line of your trucking business. Here’s how.
Get an Accurate Reading on the Margins on all of your Accounts
If you haven’t invested in a good cost accounting system, now is the time to do so. As a starting point for any yield management initiative, it is critical that you don’t guess at the margins of your accounts. A good costing system will supply you with high quality estimates of the margins of your clients. The system should supply you with a list of your accounts in descending order by contribution margin by lane. There is a need to fully understand what is driving these numbers.
Which specific costs are contributing to the low margins on some accounts? Does a particular account incur too much waiting time? Is the freight difficult to load? Does the driver have to incur too many out of route miles to pick up or deliver the freight? Are the costs in line but the rates are non-compensatory? Do the rates not sufficiently cover fuel or accessorial charges or freight density? What are the factors that are producing an inadequate return on the account? Where do the rates have to be to achieve a satisfactory yield on the account? This will serve as a partial roadmap as to where improvements are required.
Plot out your Head Haul and Back Haul Yields per Mile and Empty Miles
Individual customer yields need to be evaluated in the context of the head haul and back haul lanes for which your company has freight. In which geographical areas and lanes does your company have yield management problems? What sales or pricing initiatives could be undertaken to reduce empty miles?
Engage in Senior Level Discussions with your Core Customers
Many of your core customers are well informed on the key issues in the market. They are aware of the state of the economy, the issues associated with backlog at the US west coast ports, the rise of terrorism in the world and the challenges in recruiting drivers. They are seeking stability and continuity in their supply chains. There has never been a better time to engage in a dialogue with your customers. These discussions that should be led by a senior level executive should have the following objectives:
a) Gain an understanding of your clients’ key supply chain issues and pain points.
b) Engage in a dialogue on how you can help fix his problems and reduce his supply chain costs.
c) Establish a framework for a long term partnership based on solutions, trust and mutual respect.
d) Determine what your trucking company or 3PL can do better than the competition to serve this customer.
Develop Customized Yield Improvement Plans for each Customer
To address inadequate yields on specific accounts, there is a requirement to tailor customized yield improvement plans. These plans need targets that are realistic and attainable. In some cases, the plan may take several years to achieve. These plans need to be reviewed carefully with your shippers. There has to be some buy-in from the shippers that they see your company as a desirable and preferred partner, that they recognize and acknowledge your value proposition and they wish to work collaboratively with you to reach mutually acceptable goals (e.g. improve any inefficient processes that increase costs, provide revenue certainty and yield improvements over time).
If a customer gives you a “glassy eyed” look when you have this discussion, this tells you that he hasn’t bought in to the approach and he is probably going to market with an RFP. If he does buy-in, the key is to establish metrics (measuring sticks along the way) and timelines to track progress. In early 2015, motor carriers are being provided with a unique opportunity to improve yields on their business. Going in with “heavy-handed” rate increases will probably serve to generate customer ill will. When conditions worsen, these same customers may be less inclined to work with you. By taking a more thoughtful, enlightened approach, this may serve to produce long lasting yield improvements.
To learn about how we can help your company improve the profitability of its accounts, click on www.dantranscon.com. Follow us on Twitter @DanGoodwill, or on Facebook (https://www.facebook.com/DanGoodwillAssociates ).
