saying NO to cheap freight

If your bottom line was $1.42 general business practice would dictate that you would need to charge $1.80 and actually make a minimum profit.

 

True, true. SOP is 35% gross return plus R.O.C.E. typically set at 12% depending on when you need to retire the debt.

One major trucking headache is the truck takes away on the hub and we're paid on the book. That can be as much as a 10% variance.

.97 truck and .45 driver is low IMO. Fuel in my area is running 3.80 / gal which is .76 cpm before FSC at 5 mpg. Assuming that is true then you only have .21 for maint. plates,notes etc.

I don't add the FSC because it's a variable and can be taken away or changed at anytime. I add mine at the end of the operating quarter and it usually ends up as my quarterly profit.

JMO

 

Many shippers that do high volume seasonal work compensate brokers based on a flat fee. So they are paying a broker more than they would direct. Plus, many carriers believe they get the best rate going direct and when talking direct they don’t negotiate as much, if at all.
So a couple things happen on that higher rate from the broker. 1. They only take a portion of the fee they are given so they can move the load before someone else moves it. 2. They will quote a rate to get you to bite and will have to call the shipper to get it. 3. They will have a bonus on load volume and your load could be providing a bonus on the 20 other loads they booked that week and 4. For many reasons they may have a better rate. It is likely because they are a good broker for the shipper and when you are calling direct you are an unknown.

 

Just to add my 2 cents, I think a broker is in a slightly better position as well when negotiating a rate with a shipper. I have noticed that it is easier to get a better rate on a load moving the next day than one that moves the same day a fair amount of the time. I assume this is because the broker realizes that I am in a position to easily say no and keep looking as opposed to needed a load soon. However this backfires at times because the broker also knows they have a little time to find the moron that drives for peanuts. I guess it comes down to integrity. As far as a broker they probably have far better salesman skills than most O/O and can probably bring more to the table such as offering to run more loads per week, or offering to run the loads at the same rate during busy season or something of that sort.

 

I had a direct shipper whom my rates varied from about $2.50 to $3.50/mile. A few were even around $4/mile. I had a broker to ask me to haul one of these loads for $1.50. I laughed at the guy when he quoted me the rate. I knew where it was coming from. If I had the trucks I could have moved as many as 20 loads per week at one time. They we heavy but just strap and go. There was another situation where I got a call from a broker who wanted me to haul from an area where we were getting a lot of freight at the time. He was about $0.50/mile under what I had been getting.

On the other side, I had a broker call me on some loads that I found out later were Schneider loads. They were light weight. Schneider had a deal with other brokers to move those loads. I thought I could get a better rate from Schneider. As it turned out I was able to get a better rate from the second broker than from Schneider. This would be considered a double brokered load. Granted, this is usually not the case, but you cannot make blanket statements about rates and brokers and be correct. Each situation is different.

 

I agree. I was just addressing the point of getting a better rate from a broker vs. direct.

I have a shipper that I did a singel direct load with this year and in process of setting up a brokerage agreement with. They pay broker $.30/mile better than direct rate (or starting qouted rate). I am surprised how many brokers try to get more out of it than the $.30 and that try and cheat the shipper by asking for more on the load and they already have the $.30 above the rate the carrier took.

When the season is going they will ship 100's of loads a day with most being brokered. At any point, they have 2-3 brokers that book 70% of the loads. The ones that do the volume are content with $.10-.20/mile and the others are clueless that they have competition and look to make it all in one score.

 

While this reasoning seems sound on the surface, it is not. It is a lot more hassle and stress to wait or DH, than it is to simply go with the flow and haul the cheap ####. It takes guts and heart to make the wiser decision. I've done it both ways. Once you get past the sheer terror of running for nothing and realize the benefit it will absolutely amaze you.

IMHO it is all about the proper lane, your negotiating skills and your ability to say no. Yes there is some sitting and deadhead involved but it will pay off. Sure there will be a very few times that circumstances will dictate an otherwise bad decision to keep rolling. Just remember you usually control the circumstances that put you there.

I waited to respond to this until I could take the spreadsheet out and run some numbers through it to make this point. I have more fun with numbers than most so I spend some time crunching numbers for what-if scenarios. I want everyone to see this because I doubt many realize how much harder they run for cheap rates. Few realize they could run 26.4% less miles and hours by increasing their minimum acceptable rate per mile. I have experienced this first-hand and this is why I keep bringing out the soapbox. I went broke once because I was afraid to say no and deadhead.

These calculations I am sharing are with my business model. Exact results will vary but the general facts will not.

You can make the exact same approximate Wages and Benefits of $50,500, Return On Investment of $7,600 & Profit of $2,400 under the two following, very different scenarios:

1) You load for 2.00 CPM, run 2000 loaded miles a week plus 18% DH for a total of 2340 miles per week. Your loaded and empty miles average will be 1.71 CPM. You run 112,320 miles in a year. You log 2042 hours at 55 MPH (43 hours a week). You gross $192,067 and spend $70,353 for fuel. You escrow or spend $15,725 on repairs, maintenance and tires.

2) You load for 1.56 CPM, run 3000 loaded miles a week plus 6% DH for a total of 3180 miles per week. Your loaded and empty miles average will be 1.47 CPM. You run 152,640 miles in a year. You log 2775 hours at 55 MPH (58 hours a week). You gross $224,381 and spend $96,593 for fuel. You escrow or spend $21,370 on repairs, maintenance and tires.

These calculations include all expenses and taxes. They are based on a 48-week work year to allow for time off and repairs. The driver's wages and benefits are net after taxes. The expenses don't cover the living expenses on the road for which $5,500 of those earnings were paid. This is based on driving your own truck.

In these examples wages and benefits were adjusted to equal the same annual amount. In the first example they were about 0.450 CPM or 26.32% of gross. In the second example they were about 0.332 CPM or 22.59% of gross.

So you gross about $32,000 more hauling cheap freight and running more miles. You drive about 15 hours more a week. You spend all but $429 of the extra $32,314 on fuel, repairs, maintenance and tires.

Now just for the fun of it let's do this at 1.30 CPM for a lease operator:

3) You lease for 1.30 CPM, run 3632 miles a week plus 6% DH for a total of 3850 miles per week. Your loaded and empty miles average will be 1.30 CPM. You run 184,796 miles in a year. You log 3360 hours at 55 MPH (70 hours a week). You gross $240,235 and spend $116,942 for fuel. You escrow or spend $25,871 on repairs, maintenance and tires.

In the third scenario you are running 10 hours a day, 7 days a week to log those hours. To top this off, you can't legally run this way and no company will be able to consistently run you this hard if you could. You will earn the same wages as example 1 and 2. However there is only $2,700 Return On Investment and no Profit. So you are making about $7,300 less.

In this third example wages and benefits were about 0.274 CPM or 21.05% of gross.

In this example you gross about $48,168 more than example 1. You run 72,476 more miles. You drive about 27 hours more a week. You spent $46,589 more on fuel and $10,146 more on repairs, maintenance and tires. You spend $8,567 more on fuel, repair, maintenance and tires than you grossed over the first example (46589 + 10146 = 56735 - 48168 = 8567). So now you are robbing Peter to pay Paul. Unfortunately the only reason you even had money to rob is because you ran yourself into the dirt!

So you tell me, does it make sense to stay put or deadhead for better paying freight? Does it make sense to say no to cheap leases? It not only makes sense because it improves freight rates but also because you aren't working harder and wearing your equipment out for the same money or less. There are a number of members on this forum that operate like this and make a good living.

I've never run these calculations for two hundred trucks but obviously the mentality would change a little. Still there is no reason you can't operate this way with 1 or 20 trucks. I'm not sure what it will take to get the masses to understand this. I don't expect owners to believe me just because I say it's so. But you would think if I give you the numbers it would at least pique your interest and get you to start researching. You would think when you could read about many on this forum who operate this way it would make owners realize it is true. You would think that owners would set down and run the numbers. Who doesn't want to work less and put less wear on their equipment for the same money?

 

You make it sound like if you just sit and wait someone is going to say geez, we better pay this guy more or our load will sit and rot on the dock. Wrong...Someone else will take the load and you can sit for another day and another and another. In the meantime, while your waiting for another $.25 per mile your missing out on $300 to $400 a day in lost revenue that you could have made getting to a better area.

 

Stop being rude! Waiting is never the answer in a cheap area. Not going there or getting enough going in to turn and burn is the answer. Waiting may be the answer in a good area when being offered a cheap load.

If you don't understand don't criticize those who do and who offer sound advice. Like I said, there are a number of owner/operators with authority doing this.

If you understand math look at the information I gave you. If you don't I can't help you. I've done it both ways, what do you not understand about that statement?

I give you a well written, well thought out, one and a half page post with information and facts and the most intelligent argument you have is quit smoking crack.

 

that was on big john. Why work for free or take a loss. It dosent make sense.