Survival is justifiably top of mind for many carriers today, large and small. But there needs to be an orchestrated plan to survival and a focus on ensuring all areas of the operation are considered. ...
Survival is justifiably top of mind for many carriers today, large and small. But there needs to be an orchestrated plan to survival and a focus on ensuring all areas of the operation are considered. At our recent Profitability Seminar, transportation management consultant Barry Mckee outlined the many areas that need to be considered. In this excerpt, we look at his insights regarding capacity and cost control.
Size and type of equipment: Can it meet the existing requirements of your business today? Is there a sufficient ratio of power to trailers in order to service the existing needs of your customers? Remember there will be an uptick in this market at some point and you will need to be in a position to take advantage of that.
Age of fleet
Do you have a good replacement strategy? A lot of carriers are saying now is not the time to go out and buy new equipment. But the simple fact of the matter is that today is a wonderful time to be buying and leasing equipment because dealers want to move trucks. Does it make sense for your operation to have new equipment that is under warranty and allows you to address the needs of the market as it turns upwards? The longer you defer the prospect of acquiring new equipment, the further behind the curve you will be. You need to be constantly turning your fleet over. Running with old equipment doesn’t work
Today, there are some very good opportunities to hire new drivers, but more importantly, do you have a resource pool upon which you can count in order to be able to meet your customer demands today and tomorrow? Are you in a position to strengthen that team?
Depending on the jurisdictions in which you operate, they can get costly and they also have an impact on insurance rates. Have you taken a close look at the lanes you are operating in and what it costs you to run there in terms of operating costs and insurance and how that reflects on your bottom line? In a lot of cases, companies get operating authorities to cover the North American continent thinking they will want to have them available to take advantage of any opportunity that presents itself. There’s a huge cost associated with that strategy, particularly if you are going to run through Michigan or New York or Ohio or down to California. The cost of the licence is high, but the cost of insurance is even higher. Are you really needing to go to those particular jurisdictions or through those jurisdictions in order to be able to do business?
Work with your insurance company before you start to do IRP renewals. For example, if you have to run through Michigan to get to Chicago, ask them for advice in terms of how you can optimize your insurance premiums and keep costs down. Insurance companies would much rather work with you and work out a plan to help you get through the crisis than simply have you go out of business and lose the premium.
Park or not?
Does it make sense to take all the licences off the trucks not in use or does it make sense at renewal time not to renew, pending on the opportunity to put the licences back on? If you are operating in multiple jurisdictions, consider that while you can get your money back by turning your licences back in Ontario, it’s doubtful you would get your money back from jurisdictions such as Michigan or Kentucky, or Quebec for that matter. If you are thinking about parking, there is a significant amount of money that you lay out that you can’t get back. You can also insure the trucks for contingency but not road liability. Park it in the yard, leave the plate on it and it’s ready to move. Maybe you take a fleet of 15 trucks and break them into smaller fleets in terms of IRP renewals so you can stagger the renewals and help with the cashflow impact in the short term.
Costs that can be combined or eliminated: What costs could be outsourced? Can you combine one or two dispatchers? Could you outsource payroll to the banks rather than doing it in-house? Could you do bookkeeping inside? Which fixed costs could be changed to semi-fixed to variable? Maybe you put your dispatcher on an hourly basis and have your bookkeeper come in three days a week as opposed to five days on a salary.
Justify all your expenditures
That doesn’t mean you start thinking whether you should spend $98 to do this or that, but the simple fact of the matter is in a lot of cases, expenditures can be deferred or minimized depending on the commodity you need to buy or the capital purchase you need to make. Sometimes justifying your expenditures can have a magical effect on your bottom line. For example, ensure your capital purchases offer a quick return on investment. A new trailer, particularly if it’s a reefer, is expensive. What’s the justification for buying that piece of equipment and how fast are you going to get the payback?
Minimize supplies and inventories
Take tires for example. If you have a yard full of tires, because they were a good deal, you’ve got money tied up in tires that probably could be used to better advantage someplace else. Consider instead a tire plan with one of the major tire manufacturers. No matter where you run, more often than not, they can be on the spot to put a replacement tire on -and the real key is they know what you’re running and will have the right tire to install. You can also get a discount based on volume of tires purchased.
Consolidate suppliers and look for cost concessions
How many carriers have a fuel plan? How many fuel on the road instead, which is very costly? If you operate inter-jurisdictionally and you have your fuel in Ontario, the road tax in Ontario is among the highest in North America. If you are operating outside of Ontario primarily, when you file your IFTA return, more often than not you will get money back from the Ontario government. If you buy fuel in New York state, you are going to pay much less, but you are going to pay in US dollars and you are not going to get a rebate. You need to take a look at a fuel plan that emphasizes fuelling locally. If you have tractors with 150 gallon cans on each side, 300 gallons will get you to Chicago and part of the way back. So you will minimize the onroad fuel purchases. If you do have to buy fuel while on the road, don’t fill up the tank if you don’t have to. Fill up with enough to get you home. And if you do have a fuel plan in place, speak to the fuel supplier about oil and lubricants. Maybe you can buy oil or grease at a discount because the fuel supplier is getting all of your business. Those are the kinds of things that can help drive savings to your bottom line.
Use technology to reduce or eliminate wasteful clerical expense
Look at technology to see how you can expedite or streamline internal clerical processes. Make effective use of computers and e-mail. A lot of people have individual computers that don’t talk to one another very well. Get a good consultant in that can give you some advice on how to set up a local area network. You can reduce the cost of everyday technology operations simply by using a local area network. Also aim to streamline processes. For example, if you are going to be making purchases, do you have a purchase system? Does that tie into your accounting system? Or do you use an order book and someone comes in and hands it in to the accountants and they try to match it to the invoice? You can expedite purchases, you can track purchases better, you can spend less time on a daily basis matching orders with deliveries, simply by using an automated system. It’s not rocket science. You don’t need to be a genius to use it; techno peasants can do it too.
Manage your cashflow
You have a line of credit but staying on top of your accounts receivable is one of the most important things you can do on a day-to-day basis. If somebody says they are going to pay you on Friday, make sure they do pay you on Friday. If they know you are going to be on their case on Friday if they don’t get the cheque in your hands, the odds are they are going to make a really good effort to get it into your hands because they don’t want you calling and asking for money. Watch your customers. Are they starting to go slow in paying or are they sticking to the terms you originally agreed upon? If you start to see a trend towards going slow, you have to watch them because the message is that their business is not as good as it used to be, so they’re using your money to fund their business. You really don’t want to have someone using your money to subsidize their business. Be particularly careful if you are using third-party load brokers for backhaul out of the US. Know their reputation, and deal with the big guys so you know you will get paid.
Manage your own creditors
Try to negotiate some reasonable terms for accounts payable returns with your major creditors -the bankers and leasing companies and the fuel companies. Everyone is under the same pressure right now to collect money. Maybe you can say I can’t do this net 30 days -can you live with 45 if I make sure I pay you on the 45th day? Keep creditors advised of your business and how it’s going. The last thing they want to hear is, “Oh, the line has been disconnected, I wonder where my money is?” Also, set priorities -you need to pay for fuel, you need to pay withholdings to Revenue Canada, you need to pay your drivers and the bank. Set the priorities of who you need to pay first in case things start to get tighter. And meet those negotiated commitments. If you make a commitment to someone to pay, then pay it. The simple value of that is they will give you some slack if you really need a break the next time.
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