Owner-operators and drivers for small fleets are well-known for their fixation on trucking rates-per-mile. They congregate on Facebook discussion boards with titles like “Rate Per Mile Masters” and “Trucking: Rates and Lanes” to discuss where the highest rates are and to decry ‘cheap freight.’
Having rate-per-mile tunnel vision, though, can blind drivers to what is actually a far more significant metric – asset utilization. Asset utilization rates measure the percentage of total miles driven that are loaded or revenue-generating. Ultimately, of course, what matters most is revenue per truck per week, but there are different ways of getting there, and sitting and waiting for a high rate – or deadheading to a market with high outbound rates – isn’t always the way to do it.
Take Knight-Swift (NASDAQ: KNX), the country’s largest truckload carrier, as an example. Knight-Swift recently reported its financial results for the first quarter of 2019, and some of the operating metrics included in the release highlight the importance of asset utilization. KNX’s gross revenues dropped 5.2 percent compared to the first quarter of 2018, even though revenue per loaded mile (or rate per mile) increased 9.4 percent. Why?
Digging a little deeper into the numbers revealed that Knight-Swift’s miles per tractor were down 8.7 percent and the carrier’s percentage of empty miles increased to 12.9 percent. Despite significantly higher rates, Knight-Swift brought in less money than it did a year ago because its trucks ran fewer overall miles and ran more empty miles.
Carriers of all sizes all over the nation responded to 2018’s hot freight markets by adding capacity, which eventually crashed spot rates. The result is a soft market, with too many trucks and not enough freight to go around.
Almost every large carrier has a brokerage division – and many mid-sized carriers are building brokerages – for two reasons. A brokerage can help a carrier offer its customers more capacity, and with access to more freight, the brokerage can pick the best freight for the fleet it’s attached to and provide backhaul loads to keep the trucks full.
Small carriers and owner-operators often do not have the manpower, shipper relationships or technology to broker their own freight, so they use load boards and brokers to find freight. A good freight brokerage – especially a brokerage organized along the ‘Chicago model’ that splits shipper sales and carrier reps – can act like a small carrier’s outside sales force, pitching their capacity, expertise and service to Fortune 100 shippers with massive volumes.
“At Arrive Logistics, we teach our Carrier Sales team members to put themselves in the shoes of the small carrier,” said Justin Frees, Executive Vice President of Carrier Development at Arrive Logistics. “They work to learn as much about their small carrier customers’ businesses as possible. The only way we’ll provide premium service to our customers is to build long-term partnerships with high-quality carriers – and the only way we’ll do that is to help our partners remain efficient and profitable.”
A dedicated carrier representative takes the time to get to know small carriers and their drivers, carefully keeping track of which lanes they like to run in, the sort of freight they prefer to haul, and the facilities that treat them well. Small carriers prefer working with brokers they trust, of course, but an often overlooked fact is that freight brokers prefer working with the same carriers over and over again because it helps them cover more loads per day and be more productive.
Frees said, “Finding the absolute cheapest truck no matter what on every transaction can actually be bad for our business. We’d rather tender repeat shipments to the same carriers that we trust. Fewer ‘touches’ per load means we can go get more business while providing elite service.”
Technology has been one of the main themes in transportation and logistics over the past five years, and it plays a big part in how freight brokerages help carriers keep their trucks filled. The more loads a carrier pulls for a certain brokerage, the more information that brokerage has about the carrier – not just about the rates the carrier is willing to accept, but where its preferred origins and destinations are, how often it tries to get its drivers home, and the kind of freight suited to its equipment.
That data is collected and analyzed by a brokerage to help its carrier reps offer the best, most attractive loads to carriers, not based on what the brokerage thinks is the best freight, but based on the carrier’s actual behavior. Brokers want to make money. Best-in-class brokerages spend millions of dollars trying to automate load-matching so that they can raise their key productivity metric – loads per broker per day. But to help an individual broker cover more loads per day, the algorithm has to figure out which loads to offer which carriers – it has to know what carriers want.
That’s the key of a modern freight brokerage like Arrive Logistics: the technology it has developed to make its brokers more productive is the same technology that gives carriers the freight they want to haul into the markets they want to enter at the price they need.
“Brokers entered the marketplace to connect shippers and carriers,” explained Frees. We can’t forget that – the water level has risen with more complexity, more expectations and more players. Our team is constantly keeping a pulse on our carriers’ holistic needs and we take a lot of pride in being someone they can count on in any market.”