Across the country, carriers with decades of solid operational history are going bankrupt. Why?
Increasing competition and rising operational costs, e.g., insurance, driver salaries, etc. To compete in this environment, carriers are more closely tracking key performance indicators (KPIs) and working to improve them with fleet management strategies.
We’ll walk through some of the top KPIs a carrier should track, such as:
- Revenue per truck and mile
- Cost per mile
- Percent of truckload capacity utilized
- Detention/dwell time
- Empty miles
- Fuel economy
- Vehicle and trailer utilization rates
- Driver safety
We’ll start by defining two fundamental KPIs. Revenue per truck and cost per mile. Next, we’ll work our way into the supporting KPIs that help improve them.
Revenue per truck and mile
The revenue each truck generates per month is essential to understanding your fleet’s efficiency.
While revenue per mile is also an option, revenue per truck is often more telling. It incorporates the time the truck isn’t generating revenue. Such as empty miles, downtime, and idle assets.
These calculations are straightforward:
Revenue per truck = total monthly revenue / your number of trucks
Revenue per mile = total monthly revenue / miles driven
Multiple months should be used to account for seasonal changes. Ideally a year or more. Also, consider calculating by region or terminal, if applicable.
Cost per truck and mile
Tracking cost metrics is arguably even more important than revenue as they have a way of sneaking up on you if not managed closely. The two key metrics here are cost per truck and cost per mile, which are typically used for different purposes.
Cost per truck = total monthly expenses / your number of trucks
Cost per mile = total monthly expenses / miles driven
Cost per truck is used to calculate how efficiently your operation manages expenses. This metric accounts for unused capacity, downtime, etc.
Cost per mile is used to calculate the profit margin on each load and informs your bid on future loads.
Many fleets break these metrics into fixed costs and variable costs to better understand what percentage of costs can be optimized. Fixed costs include truck payments, insurance, and back-office support. While variable costs include tires, fuel, and repairs.
Multiple months should be used to account for seasonal changes. Ideally a year or more.
Let’s pivot to the metrics that help you increase your revenue per truck/mile and decrease your costs per truck/mile.
Percent of truckload capacity utilized
Less-than-truckload carriers often need to track the percentage of truckload capacity utilized. Because every trailer with extra space is a lost revenue opportunity.
Truckload capacity utilized = used trailer capacity / total trailer carrying capacity
For example, if a trailer has a total capacity of 3,000 pounds and the delivery is only 2,300 pounds, then the capacity utilization would be:
2,300 / 3,000 = 0.766 or 77%
This means that the business has legroom for an improvement of 23% through capacity utilization alone.
Realistically, it’s impossible to reach a capacity utilization of 100%. In fact, the average utilization is around 50%, which is why an average capacity utilization of 80% or more is considered efficient.
According to FreightWaves, drivers were detained on average for 2.5 hours per job in 2018. In California, the average detention time was as high as 5.5 hours.
When a truck is sitting at a shipper/receiver facility, it’s not generating revenue. Worse, it’s common for carriers to either not receive detention pay or receive a lesser amount than is owed.
Clearly, excess detention time is a significant drag on profits.
Detention time = Any agreed-upon grace period – minutes spent at a facility
While the calculation is simple, detention time is tricky to track manually. Fortunately, fleet management solutions like Motive provide automated detention time reporting by facility.
With this information, you can provide proof in detention time disputes and understand which shippers and receivers to avoid working with in the future.
Motive’s Facility Insights takes this one step further and shows you the expected wait time for each facility before accepting a load.
According to ATRI, fuel makes up 24% of a carrier’s operational costs. There are many factors that go into fuel economy. Vehicle type, vehicle condition, and driver behavior.
Fuel economy = miles driven / fuel used
While this calculation is obvious, it’s important to state as it creates a baseline for your business.
Additionally, according to the North American Council for Freight Efficiency (NACFE), the average MPG for a class 8 truck is 7.27 MPG. You can download the 2019 report on their site. In their annual “Run on Less” study to determine a target MPG for optimized fuel usage, the NACFE found a range of 8.5 MPG to 11.5 MPG.
With the metrics above in mind, you can drill down to the vehicle and driver level to get actionable data. Leading fleet management solutions will provide this breakdown for you.
With this level of detail, you can:
- Identify the vehicles underperforming your fleet-wide average and either bring them in for maintenance checks or sell them.
- Identify the drivers using too much fuel and correct behaviors such as speeding, hard acceleration, or idling.
Vehicle and trailer utilization rates
Each underutilized asset is a lost revenue opportunity. Additionally, each asset generally comes with fixed costs such as insurance, registration, and maintenance. This is why it’s important to closely monitor your utilization rate.
The place to start is by determining the average number of miles per driver for your business:
Avg. miles per driver = Total fleet miles driven / number of drivers
Then, use the average miles per driver total to determine what the “mileage capacity” is for your fleet:
Total mileage capacity = total num of vehicles * avg monthly miles per driver
The difference between the total mileage capacity and the actual mileage driven for any time period is your vehicle utilization rate.
Of course, 100% utilization isn’t the norm. But, by getting an idea of your excess capacity, you can make informed business planning decisions.
We strongly recommend using a fleet management solution to track mileage as it simplifies the process of identifying underutilized vehicles and assets:
With this information, you can:
- Redeploy underutilized assets to areas with greater revenue potential.
- Understand if it makes sense to sell some underutilized assets to decrease your costs and lease/rent during peak seasons.
While safety probably isn’t the first thing that comes to mind when you think fleet efficiency, consider this:
- A collision, on average, costs $91,000, and that number rises to $200,000 if there’s an injury
- Collisions hurt your CSA score, which can negatively impact revenue.
- The driving behaviors associated with accident risk (hard braking, speeding, hard acceleration) also increases vehicle wear and reduce fuel efficiency by 20-30%.
It’s clear that dangerous driving can impact profitability. To identify your most dangerous drivers, you want to calculate critical events per mile.
Critical events per mile = total miles driven / number of critical events
This should be measured both at a fleet-wide level and by drivers. A leading fleet management solution can automatically track this and go a step further by calculating “safety scores.”
With this information, you can easily identify the drivers who put your business at risk and intervene. Additionally, you can use this information to reward safe drivers.
What gets measured, gets managed
Transportation is a complex business with a lot of moving parts. There are many levers a carrier can pull to increase revenue and decrease expenses. But your team can only act on them if they have visibility into the opportunities for improvement.
In short, the old saying “what gets measured, gets managed” rings true. To start measuring the metrics that matter, the place to start is a leading fleet management solution.
To learn more about using data from fleet management solutions in your business, read how to use ELD data to maximize profits.