I was interviewing a new client the other day and asked him what was his fuel costs per mile? He did not know. Since he was an owner-operator (running percentage) I asked him how he determined if any freight was a good enough rate to take? He just looked at me and shrugged his shoulders… a little embarrassed. He then sheepishly asked how to do that? Well, at least he asked.
Tracking costs as an operator is critical to all your success. I am not aware of one high-quality operator that can’t tell within two fuel-ups if his truck is performing “normally”. All quality operators know their running costs. However, most operators are neither “high quality” nor “low quality”. Too many operators track their fuel costs by a “gut feeling” or “intuitive guessing”. They have a mental image of what the approximate distance is that they believe a tank should take them… if it meets their estimate, they are satisfied and question nothing further. If they don’t… they may run some calculations, either roughly or exactly depending on how “off” their estimate was. Though this practice is better than nothing, it fails to contribute meaningful information to valued future choices and decisions. When rates are so low and sporadic, knowing your future costs may be the difference between survival and failure.
Fuel costs contain two variables: consumption and price. The biggest impact on cost (both positive and negative) is consumption. The operator has more control over his running costs with aggressive consumption management than with aggressive price management. It’s almost always a matter of the foot, not the head.
Hauling heavy through the mountains in winter with winter fuel (of course) will give an operator a certain fuel cost per mile. Hauling that same load in summer may provide a very different result. Operators MUST know what their approximate costs will be BEFORE accepting a load. If the numbers are calculated AFTER the load… it’s too late. Your losses are locked in. There are nearly infinite variations or combinations of experiences that need documentation.
Hauling something with high wind resistance through the prairies or from Windsor to Fort Lauderdale, FL. will produce a certain result that needs to be remembered when deciding to accept a similar load for a particular rate. Hauling empty will produce a specific cost per mile… it must be calculated into the choice of whether to stay put or travel empty, or more importantly, whether to accept that load that got you to the freight desert in the first place. To calculate if your freight pays well enough you must consider the entire loop you’re considering, not just the rate you’re getting on the first leg. Whenever an operator doesn’t know the rate for the back haul(s) they are totally at the mercy of the carrier, the carrier’s customer base and reputation. It’s the business situation of white-hot liquid TRUST… will they get you back home with a profit?
If a truck is replaced, much or most of the research must be entirely redone. It generally takes two years for the average operator to gain a clear understanding of how the equipment (truck) performs. It depends on the many variations and combinations of freight hauled, environment and topography to develop a comprehensive fuel consumption schematic. The calculations should never end. The more data you accumulate, the better the choices that can be made. Operators NEED to KNOW how well or unwell their truck is performing in consumption.
Fuel prices, as stated, produce a minor effect on running costs. That’s not to say prices don’t affect profitability or costs, of course, they do. However, on a trip from Windsor to Fort Lauderdale, choosing locations to fuel, saving (or overpaying) 20-50+ cents per gallon doesn’t impact the bottom line as much as how heavy your foot pushes on the accelerator, how often you stop and restart your travelling, how heavy your freight is, how fast you go or how much wind resistance occurs. Consumption will nearly always trump price shopping. But just because it’s of less impact doesn’t mean a good operator isn’t aware of the value of price planning your trip. Those who thrive know, the survivors learn and those who are too busy become insolvent.
Whether the operator has a fancy spreadsheet or a little blue booklet, it doesn’t matter that much… knowledge and understanding are knowledge and understanding. A good operator knows their costs to within 10% of any situation. If you don’t know… then just become a better operator… learn.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.
You can find him at www.makingyourmilescount.com or 1-877-987-9787.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: email@example.com.