Commentary: Flip side of landed cost

Service providers should think of costs on a per-hourly basis rather than a per-mile basis if they want to get at the profitability of a load.    In June 2013, American Shipper’s cover story explored the ways shippers could seek out solutions that could help them derive true total landed cost.
   The idea behind the piece was that it takes a lot of data points, not to mention elbow grease, to arrive at the actual figure. But figuring out the landed cost puzzle is rewarding—it allows shippers to make better decisions on routes, modes, transit times, and sourcing locations.
   The flip side of that, and something where really I’ve only scratched the surface, is systems that allow freight brokers and carriers in all modes to know their cost to serve a customer.
   As Randy Seals, a customer advocate for the freight brokerage and trucking backbone solutions provider McLeod Software, recently put it, it’s the difference between a broker or carrier accepting a piece of business with a decent margin, and a piece of business with a decent profit.
   Seals spoke at McLeod’s user conference in Washington in mid-September, explaining his company’s profitability analysis tool. I’ve written recently about tools that allow non-vessel-operating common carriers to assess profitability by lane, customer, and salesperson.
   Seals said the same functionality is available to North American domestic trucking companies and brokers. The key, he said, is thinking hard about what costs eat into a rate.
   “You need to include all the associated costs,” he said. “That means, payrolls, utilities, marketing, insurance, IT costs, all your overhead. You need to know what your cost per load is.”
   Seals, a former trucking company executive before he was lured into the world of software, said it would behoove service providers to think of costs on a per-hourly basis rather than a per-mile basis if they want to get at the profitability of a load rather than the margin on a load.
   Thinking in terms of how many hours it takes to secure capacity makes you think about costs a broker might never have associated with their margin decisions. And empowering this way of thinking are tools—like McLeod’s and those of all the top-end freight brokerages—that let carriers make informed decisions in minutes, not days, about whether it makes good sense to take on a piece of business.
   Not only that, but the decision is more accurate, because it’s based on numbers, not feelings. And it’s based on parameters designed to carve out true profits, not just margin.
   Watch this space—there’s a ton of activity in the profitability/cost analysis space across all the players in the supply chain. Things will only get better, faster, and more user-friendly.

This commentary was published in the October 2014 issue of American Shipper.