Let's put our heads together on a project

Discussion in 'Experienced Truckers' Advice' started by Tip, Jul 9, 2006.

  1. Tip

    Tip Tipster

    Mar 18, 2006
    Hey, guys, Tip here. I really enjoy reading all your posts. I hope I have given you some good advice, especially on how to find good trucking jobs.

    Anyway, I'm trying to figure out why the big companies, and even the not-so-big outfits, tolerate the atrocious turnover they do. I've decided to create a fictious trucking company with 10,000 trucks to analyze and, hopefully, determine if companies have any covert motives that over-rule their common sense, common sense that should be telling them "turnover is bad".

    I need some help with this little project, and I hope you guys can help me out. Let's pool our knowledge and see if my theory (companies WANT high turnover) is correct.

    For starters, what is a good estimate for the amount of profit a truck brings PER DAY? 5 dollars? 10 dollars? 30 dollars?

    Also, we'll need a good figure of what this fictitious outfit's daily fixed costs per truck would be.

    Finally, we'd need a good figure of how many drivers quit per day.

    Here's a "test run" to show you what I'm trying to do:

    1. Assume the profit per day per truck is 10 bucks
    10 x 10,000 = 100,000 ideally (all the trucks are running)

    2. Assume its daily fixed costs per truck is: 150 bucks

    3. The number of drivers that quit each day (meaning their trucks sit on the lot that day) : variable, but we'll begin at 25

    So. 25 cleaned-out trucks parked per day x 150 bucks fixed cost = 3750 in opportunity cost per day. 10,000 trucks - 25 cleaned out is a pool of 9975 to cover this opportunity cost. The true number of trucks whose profit is required to cover this cost is: 3750 / 10 or around 375 trucks. This means the leftover trucks (10,000 - 25 - 375), or 9600, are breadwinners. 9600 x 10 = 96,000 in profit per day, with 4,000 in profit lost per day.

    What is the "critical point", or the point when the number of breadwinners hits ZERO in this situation?

    Let's see if we can find it:

    75 parked trucks per day.........
    75 x 150 = 11,250 in opportunity cost
    10,000 - 75 = 9925 trucks moving
    11,250 / 10 = 1125 trucks' profits needed to cover the fixed costs
    10,000 - 75 - 1125 = 8800 trucks are breadwinners

    300 parked per day.....
    300 x 150 = 45,000 in opportunity cost
    10,000 - 300 = 9700 trucks moving
    45,000 / 10 = 4500 trucks' profits needed to cover the fixed costs
    10,000 - 300 - 4500 = 5200 trucks are breadwinners

    600 parked per day....
    600 x 150 = 90,000 in opportunity cost
    10,000 - 600 = 9400 trucks moving
    90,000 / 10 = 9,000 trucks' profits to cover the fixed costs
    10,000 - 600 - 9,000 = 400 trucks are breadwinners

    625 parked per day.....
    625 x 150 = 93,750 in opportunity cost
    10,000 - 625 = 9375 trucks moving
    93,750 / 10 = 9375 trucks' profits to cover the fixed costs
    10,000 - 610 - 9375 = 15 trucks are bread winners

    628 parked per day.....
    628 x 150 = 94,200 in opportunity cost
    10,000 - 628 = 9372 trucks moving
    94,200 / 10 = 9420 trucks' profits to cover the fixed costs
    10,000 - 628 - 9420 = -48---> No trucks are bread winners

    So, when this company reaches the point of seeing around 627 of its drivers quit out of 10,000 on a particular day, it will be simply running in place. It'll be making no profit, as the profits will be used to pay the fixed costs of all the cleaned-out trucks that are not making money that day.

    627/10,000 is around 6% of the fleet, btw.

    I know, I know. NO company has turnover that is this atrocious, sure. However, I hope this helps us all see that only a few cleaned-out trucks in a rather large fleet can affect profits enormously.

    Knowing this, why do companies tolerate high turnover? Some outfits, such as my favorite punching bag, probably have 5% of its rigs sitting idle on any given day. Obviously, my initial assumptions, such as the per-day fixed costs, are not accurate. Set me straight here, guys.
  2. Burky

    Burky Road Train Member

    Just off the top of my calculator, it looks like your annual turnover rate woiuld be somewhere around 220%, which seems to be a bit steep. Using the commonly reported numbers for Swift, of 18,000 drivers and the industry reported turnover rate of 116% that was being reported on the news last week for the past quarter, their rate only works out to be about 57 drivers daily leaving out of their fleet.

    But, since these are pure fantasy figures anyhow, you can list whatever rates for anything you like. But most companies in trucking run at an operating ratio of around 94-96%, so you might want to factor that in to your equations.

    And to assume that because a company has 5% of it's trucks parked in the lot sitting idle is an indicator solely of high turnover is wrong as well. There are sompanies that have surge times of the year, when they run more trucks than normal. And some companies have casual or part time drivers who come in only at busy times or weekends, and the company keps trucks available for that. They also keep a certain amount of trucks spare for breakdowns and other needs. If I have a breakdown, I call our shop and if it isn't fixable on the road, the hook that is taking my truck in comes out with a spare truck on it. And to do that requires a spare truck at the shop. Or I have come into the shop for a pm, and told them they can have the truck until morning if I can borrow a shop spare to deliver my load while they work on mine.

    Having spare equipment around is a cost of business that comes with size. In an ideal world, you would have exactly one tractor for each driver and one matching trailer and they would move around like figures on a chess board. But the truth is that it doesn't work that way. You need extra trailers, the number of drivers fluctuates, and the number of trucks needed to adequately handle your business has some variances as well.
  3. Tip

    Tip Tipster

    Mar 18, 2006
    Thanks for the reply, Burky. Yeah, this is just an experiment I dreamt up to see how turnover affects a company's profits. My profit figure may be in the ballpark. It may not be. My "fixed cost" figure may be in the ballpark, but it may be way off as well.

    If Swift has 116% turnover, they're doing better these days than they were back when I drove for them. I think it was 120-125% in the mid-90s.
  4. Sad_Panda

    Sad_Panda Road Train Member

    Dec 2, 2006
    One thing you'll have to add for is "trainees" Like with CRE, the "trainees" get paid $50 a day to drive a truck, but the golden kicker is the "trainer" pays CRE 37.50 to have the "trainee" on the truck. So the truck can now roll 24/7 with the company only being out the mileage for the truck. So the company makes you drive X amount of miles, then you get "upgraded" and have to drive another X amount of miles before you can drive "solo" (lease or company) In that time the truck has moved twice of what it would have rolled normal, yet the outgoing costs aren't double. Infact they aren't much more then the trucking running single (other then fuel and wear) But then that gets pulled out of the payment to the leasee of the truck.

    I've already paid back my training and schooling and everything in two months of the OTR training program, and have yet to crack $2000 income.
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