(PHOTO: FREIGHTWAVES STAFF PHOTOGRAPHER)
Analysts agree that freight market improvements are likely to slow in 2019, and carriers need to prepare now in order to weather the slowdown as effectively as possible. KSM Transport Advisors Director of Analytics Kirby McLinn set out to help truckload carriers do just that during his presentation at last week’s Truckload Carriers Association Profitability Program Seminar in Indianapolis, Indiana.
KSMTA is affiliated with Katz, Sapper & Miller, top 50 accounting and financial firm that has been in operation for 75 years.
McLinn’s presentation, “Your Ideal Freight Network: Optimize Your Freight Network in Any Market,” focused on helping carriers make more money by improving profitability with freight network engineering.
He said it is important for carriers to understand two things as they begin looking to improve profitability: Hope is not a strategy, and trucking is a business of pennies.
Profit begins with a revenue model, and according to McLinn’s presentation, a good model includes an optimized freight network at the top. That network feeds into P&L cost control, then a business plan, then accountability and key performance indicators, and finally, profit.
The bottom line is that companies must set the stage for profitability, and time is critical. It is almost impossible for irregular route truckload carriers to navigate without a tool, like Netwise, a process and a commitment.
“Companies have struggled for years to find the metric that best captures or reflects potential profitability,” McLinn’s presentation states. “[Possibilities include] revenue, revenue per loaded/total mile, miles per day/week/month, revenue per day/week/month and balance.”
He said it is important for companies to shift their focus to margin, not just revenue. Load optimization tool Netwise focuses on margin per day. The way MPD fits into a carrier’s freight network is referred to as yield. Better yield leads to higher profitability, and it tends to be a doppelganger for operating ratio.
Netwise defines yield as an all-encompassing metric that accounts for revenue, time, network fit and flow and both variable and direct cost. The metric aims to create a common language using math as a way to minimize the value of handicapping the value of a carrier’s freight. Yield is, in essence, the network-based margin per load per day, according to McLinn.
“Time in trucking is a perishable commodity. You cannot make up the revenue tomorrow that you squandered today,” McLinn’s presentation states. “Time is a denominator in the yield calculation.Less time equals higher yield.”
Yield and margin are relative metrics that can only be compared within the context of carrier’s network. The goal is to continually increase the yield metric, according to McLinn.
In order to build an efficient freight network and implement actionable solutions, top down support is necessary. Other crucial tools include consistent analysis and implementation, an analytical toolkit, a day-to-day champion and operations, sales, marketing and prices departments on the same page, according to McLinn. This requires companies to conquer ego, complacency and silver bullet syndrome, among other things.
McLinn’s key takeaways included that single lane profitability or margin analysis tells an incomplete story, and carriers should use data and math to monetize the relative values of customers and lanes from a network view.
When analysis is incorporated into pricing and decisions, it is possible to beat the market, according to McLinn.