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Cost cuts are not always the answer


Trucking will always be a competitive industry. The difference between a profit and loss is often dictated by the pennies shaved from a cost per kilometre. The final figure on a quote can mean the difference between securing freight for a backhaul and moving an empty trailer.

It’s why fleet managers focus so much of their time on cost controls.

But there is always a danger that cuts will carve too deep. Hasty decisions to slash rates often sacrifice the margins needed to make future investments, secure profits, or even cover ongoing operational demands.

Delayed investments can be equally damaging.

The road-weary trucks that do not carry monthly payments, for example, might be responsible for rising maintenance demands and unplanned downtime. They may burn more fuel than their newer counterparts, or have been over-spec’d to meet the needs of customers who no longer exist. The money not invested in something as simple as a bunk heater? That can lead to increased idling and higher fuel bills.

The aging equipment can play a role in recruiting and retention efforts as well. Every driver wants to take pride in their ride.

Some of the most damaging cost controls of all are made on the backs of drivers. Lower per-kilometre or hourly rates offer short-term savings but usually encourage the best employees to explore other career opportunities. Fleets that are able to find new candidates despite this fact are often blind to the underlying costs of high turnover.

There is no escaping the fact that new drivers need to be recruited, evaluated and prepared for the job. Each step carries a cost. Revenue opportunities can certainly be lost if a truck needs to be parked against a fence until the recruiting process is completed. Even existing customers may begin to look for another carrier if they grow tired of the ever-changing personnel and the learning curves that come with them. Fleet managers who rush to fill an empty driver’s seat have also been known to sacrifice traditional hiring criteria. This leads to a higher risk of everything from customer complaints to collisions.

The damaging cost controls are not always limited to pay packages alone. The managers who see benefits plans and wellness programs as nothing more than a cost may overlook the underlying values. These are the types of initiatives which show existing employees that they are seen as more than a number, and help them to return to work more quickly after an illness or injury.

The most effective programs also evolve to reflect the fleet’s demographic makeup. Drivers with young families, for example, might be drawn to the promise of life insurance and dental coverage, while older drivers might prize enhanced drug plans to cover maintenance medications. Wellness programs can help to control medical costs and enhance a sense of teamwork at the same time.

Investments like these are becoming more important with every passing year. We know the challenge of recruiting and retaining drivers is going to get worse.

The Conference Board of Canada reports that for-hire truck fleets will need as many as 33,000 new truck drivers as early as 2020.

To compound matters, fleets are facing new competition for the available labour pool.

Other industries are facing labour shortages of their own, and will do everything they can to recruit people who might otherwise have been sitting in a driver’s seat.

Given the need for ongoing investments, it’s important to think twice before slashing rates or surcharges in the race for business.

Surcharges, for example, help fleets to buffer themselves from factors beyond their control, such as a sudden jump in fuel prices or unexpected delays.

It may be reasonable to include two hours of loading time in a quote, but someone will need to pay for additional delays at a loading dock.

I’m not naïve. I know that customers are not going to accept higher costs without question. But rates can be justified by describing the benefits customers will enjoy.

A commitment to using newer equipment can translate into promises of increased reliability. Investments in telematics might ensure tighter controls on reefer temperatures and fewer freight losses. The promise of paying drivers competitive wages and additional benefits reinforce a commitment to safety and customer service. That means fewer delays at roadside scales, and less damaged freight.

Reasonable customers will recognize valuable investments when they see them.

Let your competitors try to compete by slashing rates.

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This month’s expert is Matt Graveline, risk services specialist with Northbridge Insurance. Matt has more than 20 years’ experience in the trucking industry as both a long haul driver and an owner/operator. Northbridge Insurance is a leading Canadian commercial insurer built on the strength of four companies with a long standing history in the marketplace and has been serving the trucking industry for more than 60 years. You can visit them at www.nbins.com.


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