Flat rate percentage contracts seem unfair

I think the variables that Spyder points out make it kind of moot. Perception is reality. So why go to the trouble?

 

I have unlimited miles, gl & 250 cargo for under $8k... Maybe I could knock $2k off that if I had a 500 mile radius, but we're worlds apart from the $18k leasee cost difference (let alone $38k for the team).

$2k/year extra for unlimited insurance
$800/year extra for $15,000 line of credit
$800 (16 hours) for extra office hours dealing with team compliance
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Say the team costs the carrier $4000/year more? Is there anything I'm missing?

 

Let's say my name is Bradley Jacobs, I love the asset-light business model, but I've just bought an asset heavy truckload carrier with 55% driver turnover. Wouldn't I just love to sign up every team owner operator out there?

 

Doesn't mean everyone is going to beat down the doors if xpo does something out of the box like that on payscales for long haulers. They are still xpo.

 

I can't agree or disagree with your numbers, but here's 3 contracts. They don't run 52 weeks, but for ease they do here. And I used your 80/20 guideline.
1- round trip 375 miles. hook mt flat, drive 175 miles, live load, return go home, sleep in their own bed. 5 days a week. Pays $950. 80%= 760 five days = $3800 on 1875 miles. $1.086 operating cost w/o driver pay = $2006.25 net. (197,600/104k net)
2. One way 161 miles pays $700, wait over night reload return trip pays $500. Generates $3600 per 5 days. 80% = $2880. ~1150 miles @ $1.34= $1541. $1339 net. home every other day. (187.2k/69.6k net)
3. 2200 miles round- pays $3300 out and $2200 return. Leaves mon morning returns late wed/thur morn. 80% =$4400, 2200 miles @$1.02= $2244 op cost, $2156 net. (228.8k/112.1 net)

So do you want or work 5 days a week and sleep in your bed, or work 3 days and make a little more cheddar? When I was younger, I wanted to sleep in my own bed. As I got older I wanted to work less. (It could have been the spring ride Pete with a coffin, pay phones, $.75 diesel and ice cooler vs the Studio KW, with sat radio, sat tv, memory foam bed, toaster oven, weber grill, refrig, computer, printer and inter web?)

The main thing to note is that as miles per period decrease, op exp per mile increases because fixed costs are disproportionate to variable costs. And these lanes took work to develop. 2 started with broker back hauls. You just have to be relentless finding customer freight. And one thing you can count on is that sometimes they don't line up and the numbers change. Sometimes you deadhead to keep a customer schedule.

 

That and they just picked up 8700 truckers.

 

Very tough to keep a team busy unless you have team specific freight, not just long miles. Hard to keep teams together. Most teams are husband/wife (which used to mean extra coloring book in the truck for the husband, not so much any more as there are a ton of true women truckers).

Running 220,000 miles per year vs 110,000 (and you rarely get double miles for a team) is about 20 cent per mile difference in op cost excluding driver. Team rate is already higher than solo. To add another incentive would negate your idea all together. Assets are what makes this industry expensive to survive in. You don't want to turn them twice as fast.

 

Is it? I've seen where teams get a higher mileage rate, but not where o/o teams get a higher percentage. If so that takes the wind out of my sails.

 

Technically you are correct on a percentage basis of regular freight. Team freight is a higher rate than solo freight ie they want it there sooner or more consistent. I see your idea, but my perception is that runs are getting shorter. We used to have 800 mile avg length hauls. I'm not seeing those numbers as much. They used to put it in 10k's so I could look at the big boys numbers to see how we were doing.

We used to run 5 teams 5 days a week from MI to CT. It was a timing thing for the customer. I had 5 teams, 2 lots and a local guy on each end. Teams stayed on the highway. I had a local guy in PA pick 5 return customer freight and drop for the teams who d/h from CT to PA, they'd haul it back to MI and drop it and grab another load and head back. Then the local guy in MI would deliver the 5 return loads. Rinse and repeat. Good money, very high expenses. Vacations, Holidays, weather, and team breakups would create a meltdown every time.

 

Risk models are a way to apply dollar values to risk. Each risk is identified, a cost of that risk becoming real is estimated, then weighted against likelihood that it will happen and overall impact. I used them all the time in project management. My peers usually would scoff at it, calling it a waste of time. Sometimes it can be. You can get into the weeds with it, and at the end you're just refining a guess. However, when you're bidding on multi-million projects, you really can't ignore it. From a budget perspective, it could be seen as hedging potential profit. At the end of the year, or whatever period you use, if the risk never happened, that money drops to the profit line. If it did, it was there for you and moves to cover unscheduled cost.

I don't have the patience/time to work out each of your examples, so will generalize. The easiest to spot risk is with a schedule mishap. A load appointment is delayed one day. The easiest mitigation for that risk is more truck capacity. That has to be funded somewhere, and would be more expensive for a long haul in scenario A. Definitely a different value for the carrier versus their leased o/o.

Without going too deep into it, I think you are over simplifying where that $18,000 is coming from, and going to. In the easiest terms I can think of, scenario A is low risk for the o/o, higher for the carrier. The carrier has more levers to pull to mitigate that risk, depending upon their size, and will usually take those risk dollars to their profit line. The examples @glockwise posts tend to bear that out.