KINGSTON, Ont. - One of the keys to Kriska's success has been revisiting the way it measures profitability. Like most trucking companies, Kriska used to determine profitability using the traditional r...
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KINGSTON, Ont. –One of the keys to Kriska’s success has been revisiting the way it measures profitability. Like most trucking companies, Kriska used to determine profitability using the traditional revenue-per-mile formula.
“We used revenue-per-mile until we saw what caused us to look elsewhere, when revenue-per-mile was going up and profit was going down,” Kriska president Mark Seymour said at a recent Driving for Profit seminar, hosted by KRTS Transportation Specialists and NAL Insurance and sponsored by SelecTrucks. While Seymour said the traditional revenue-per-mile equation is a good place to start when measuring profitability, “It’s not entirely right and it’s not scientific.”
Two to three years ago, Kriska set out to find a tool that would allow the carrier to measure profitability in a more sophisticated manner.
“Revenue-per-mile is not dynamic enough, it doesn’t include variable costs,” Seymour explained. “If you’re going from A to B and they pay you $500 and somebody else pays you $600, one would think the guy paying $600 is better. But that’s not true if it takes you twice as long to do the $600 transaction.”
With equipment routinely being detained by shippers and other delays encountered along the way, Seymour said Kriska needed to find a way to incorporate ‘time lost’ into the equation.
“Time has a value to it and a cost,” he said. “If it takes you twice as long to do something, it needs to be identified in the cost. Revenue-per-mile does not drill down to cost. Toronto-to- Montreal is very simple, it should take seven or eight hours to facilitate that transaction. If, thanks to the shippers at either end, it takes you four days, that needs to be calculated into the rate.”
Kriska found a software solution called Netwise, which helped the company measure ‘Yield,’ the combination of all the margins along a full truckload trip.
For instance on a run from Kingston to Boston that pays $1,500 there and $600 back, there is a positive margin on the headhaul and a negative margin on the backhaul.
The ‘yield’ focuses on the net margin after the entire trip, including subsequent deliveries.
“You need that ($600) price in the middle to generate two very positive margins on either side,”Seymour explained. “You need to minimize your negative margins, lower them, and improve your positive margins and the net effect of that is you’re improving your yield. Yield measures the combination of margins so you don’t just deal with the wide swings in rates.”
For years, the southbound trip was what generated the positive margins, with many carriers taking a hit on the backhaul. The rise of the Canadian dollar (and the fall of its US counterpart) has reversed that trend, Seymour said. However, the principle remains the same and there are times when it’s necessary to offer discount rates to get where you need to go. Seymour suggested that carriers refrain from accusing other fleets of rate-cutting when they may simply be taking a holistic approach to pricing.
“Do you know what they’re doing with their truck after (the initial delivery)?” he asked. “They need to get there to get the big margin coming back. It may appear to a competitor that we’ve priced something very undisciplined, but that’s how we price it. We may price it very low if it gets us where we need to go because from there, we’re priced very high.”
In the end, said Seymour, shifting focus from revenue-per-mile to yield, has allowed Kriska to better achieve the one item that matters most: profit.