This sudden surge in demand for trucking services doesn't mean that our industry's long-term challenges have vanished like Casper the Friendly Ghost. In fact, I hear the same old rhetoric about the same old problems: too few drivers, too much...
This sudden surge in demand for trucking services doesn’t mean that our industry’s long-term challenges have vanished like Casper the Friendly Ghost. In fact, I hear the same old rhetoric about the same old problems: too few drivers, too much government, not enough credit, blah, blah, blah.
I have faith that those of us left standing after the economic tsunami of the past few years can deal with the flotsam piled up on the beach. We’re a resilient bunch.
What I’m not hearing about is the trucker’s appetite-or should I say lack of appetite-for growing his business to meet the increasing demand of the market.
It’s a real catch 22. We know it’s time to ride the current toward steady growth and profits. We know that simply throwing more trucks at the market isn’t the answer. Yet we have no motive to change because finally the economics are in our favour.
So what do we do? Sometimes you have to shrink your business in order to grow your business.
FOCUS ON COST DRIVERS
There are many ways to grow in this “new normal” economy. One approach is to identify and eliminate cost drivers.
Any bean counter worth his salt will tell you that cost drivers are activities or a series of activities between companies that cause costs to be incurred. Some are necessary. Others are not.
By eliminating wasteful cost drivers, the total amount of revenue you do with a customer will go down. But the result will be a stronger margin for your business. Here are four things to focus on:
1. Operational inefficiencies: I don’t think many customers understand the “series of activities” we perform in order to get their product to market.
So educate them. Be the expert and find specific examples of inefficiencies. Spotted trailers, daily LTL service to long-haul points, and a lack of committed contracts are just a few activities that come to mind.
Imagine your customer’s surprise when he learns that the path to the best rate is through his own supply chain. Customers have more control over the rate than they think.
2. Fuel surcharges: You’re not going to eliminate fuel costs. However, explain to anyone outside the business that 35% of your revenue comes from a surcharge that’s based on fuel being $1.20 a gallon.
Wouldn’t it make more sense if today’s pricing proposals included our largest variable cost driver at a market rate with provisions for fluctuations? It’s easier said than done, but fuel costs can be managed more responsibly.
3. Waste: You have to make the green in order to worry about the green. But I’m increasingly asked by many of our best customers to prove what we’re doing to make Planet Earth a better place for our grandchildren.
The response can range from adding more fuel-efficient equipment (engines, tires, aerodynamic devices, etc.) to eliminating the gobs of unnecessary paper we produce in the course of doing business.
Identify what you’re doing to eliminate waste and how those activities contribute to your bottom line (or need to be recovered from the customer).
4. Price-shopping customers: Stop throwing resources at the crowd whose distribution strategy starts and ends with the deal of the day.
Strategically, these surges in unplanned revenue create a real expensive cost driver called win-lose relationships. Don’t encourage these “unknown” prospects by giving them better prices than a current customer. They’ll get the message, move along, and waste someone else’s time.
Eliminating cost drivers is good for your business. It’s also good for the customer.
In a recent survey by the Journal of Commerce, logistics managers said they’re bracing for a 9% increase in their transportation budgets. Yet many of us are walking in with the 14% rate increase because we know we can get it.
The time is ripe for a change. Customers may accept blanket rate increases but I don’t know many who like them. Take out cost drivers and you’ll not only grow your business, you’ll help the customer with transportation strategies where the focus is on better operations instead of the same old business-as-usual battle over rates.
You can shoot for a bigger rate and try to catch the higher wave, but working with the customer and taking out inefficiencies and waste will be a longer, more manageable, and far more satisfying ride.
Mike McCarron is the managing partner at MSM Transportation (www.shipmsm.com) in Bolton, Ont., which specializes in moving products from Canada to and from the rest of the world. He can be reached at firstname.lastname@example.org. In coming issues, Mike will continue to identify and provide insights on sales management for truck fleets.