saying NO to cheap freight

"What if" spreadsheet scenarios are a square peg that don't fit in to the round hole of reality. You have to adapt to the market. The market is not going to adapt your pre-determined numbers.

 

You are absolutely correct about reality and adapting!

Still any smart businessperson, at least in most businesses besides trucking, will run projections (what if scenarios) to decide exactly where to adapt in the market to be most successful. This process also eliminates the need to try something that has absolutely no potential.

In reality my figures have little value except to guide my choices. In short the point is:

1) Just because it works on paper doesn't mean it will in reality.
2) Rest assured if it doesn't work on paper it will not work in reality.

When I put something on paper that looks positive, it doesn’t mean it will work out like that, it means it has the potential to work. If you can’t make it work on paper it is destined to fail. Sure you can settle for less money and make a bad plan work, but you could have determined that on paper.

Numbers on paper are nothing more than another tool to use in the decision process. However they are one of the most important tools. If they weren’t you wouldn’t be required to have a business plan to start a real business. At the very least a business plan requires an organizational, marketing, operational and financial plan. In addition you need pro-forma financial forecasts that consist of an income statement, a balance sheet and a cash flow statement for three to five years. These financial statements come from projections.

Trucking is the only business I know where so many people put so little value on planning, projections and financial statements and just wing it. I respectfully submit that this is one of the many reasons that so many fail. Does anyone really think the mechanics of business operation magically doesn’t apply to the trucking industry?

Obviously lack of capital is the first and foremost reason for failure but lack of planning is a close second. All experienced owners will tell you that you need to manage expenses and be a businessperson first. Then some turn around and call business projections a square peg that doesn’t fit in a round hole or suggest they have no use in the real world. In trucking the MO seems to be, bring lots of cash and figure it out through trial and error. IMHO, this is not too realistic. There are many tried and proven methods that will get you where you want to go faster and for less money.

Every owner or driver on this forum hates mechanics that use the brute force method of repairing their equipment. The one where any gorilla goes in and replaces parts until the truck is fixed. This technician fails to use or have the knowledge, skills and diagnostic tools to do the job efficiently. Somebody please explain to me how this is different than purchasing equipment and trying to make money with it through trial and error.

You could get yourself some equipment and authority and $20,000 in operating capital. Then take the “save the forest plan” and do no projections. Pick four different approaches to running your operation and try them, over six months time, at a loss of $15,000 before your fourth choice works out.

On the other hand you could take the same equipment and $5,000. You could run some projections and decide that one of those four approaches is the best. In the end you still have the same $5,000.

Of course you could get lucky and pick the correct one on the second choice and only lose $5,000. Yes this is obviously an over-simplified example but it makes a valid point.

I’m not suggesting that projections and reality are the same. That is absurd. I’m suggesting it is a lot easier and cheaper to make mistakes on paper than in reality. All projections do to your options are eliminate the ones that won’t work and pick the ones that might work.

IMHO the success rate of owner/operator startups would be improved almost as much by using tried and proven business methods as it would by having more operating capital. I say this because if you bring enough money it will overcome your inexperience and mistakes until you become profitable. If you bring good business practices you will become profitable sooner and need less money to overcome less mistakes.

I know some people will never get projections and planning. Still they are successful and I salute them. I just wonder how many of those hard working people who did it without a plan might have been another successful millionaire if they had used a plan. I wish I was still a young man and knew what I do now.

 

I think one reason so few plan is because they don't know how to ask the right questions. Most people who buy or lease a truck do so more on emotion rather than planning and making a sound business decision. They buy more truck than they can afford or they buy or lease the only truck that they can get, regardless of what it really costs. I spoke to a guy who bought a truck this week and is paying over 23% interest due to his credit. He didn't want to wait to get his credit cleared. Nor did he want to wait until he could pay cash. He wanted a truck now and he bought one. On the lease purchase side, drivers will pay a higher price for the truck than is necessary. They only plan (if you can call it planning) for the best scenario. They spend as the money comes in without putting anything back for a rainy day. I doubt most even read the contract before signing. Since they do this based upon emotion, they make poor business decisions. I did get some information on a lease program earlier this week from a major carrier who does these programs. If everything they say is correct, someone such as myself with many years experience might make it work. But, their figures would not give much leeway for error. I think that it would be difficult for an inexperienced driver to make that lease work. Using their figures, I would make drivers wages before paying taxes. And I am not thinking about doing a lease purchase with a carrier. I was just curious based upon some of the conversations we have had on the subject. I have not actually looked at one of these programs in several years.

I don't think that many who buy or lease a truck consider the length or time of their committment. The one that I looked at was a 3 year committment. The lease operator would have approximately $900/week left over after everything was paid on this lease. The income stream relies on being able to get today's rates for the next 3 years. This particular carrier works on percentage. If rates drop, their weekly expenses remain the same but their income drops. I would expect that would be over looked by an inexperienced driver who would not be aware of rate fluctuations.

Using a spreadsheet to do projections can be a quick way to see if you can live with the numbers. It will also allow you to plug in different scenario's. What it will not do is make allowances for unexpected expenses such as a blown tire or other unexpected expense. The only way to effectively do projections which are close to accurate is from historical data and you need to run for at least a year for that to happen. And one thing you can be assured of in this business is that there will always be something to throw a monkey wrench into your planning.

 

Most that lease / purchase a truck have no IDEA of the business side of trucking.

They see a SHINY truck that in their mind is the ENVY of everyone on the road and fail to realize the BIG $ it costs.

 

BigJohn your scenarios and models are really well thought out and do a great job of forecasting trends and what-ifs. I've found my own to be very useful for that as well.

However, there is a bit of reality that would be terribly complex to build into a model - that is deciding on a load by load basis if it's a good deal or not. The missing piece that is difficult to establish value on is opportunity cost. My best example is playing the Florida lottery. That is, taking a premium rate to haul into a market with nearly zero reload opportunity. I've done it twice in the past month with 50% success.

The simple approach is: average the premium rate in against the DH out = an acceptable margin. That works fine if you're DH is only going to take a few hours. On the other hand, a run from Miami to somewhere else than Florida will take your truck out of service for an entire day and possibly more. So there's actually two costs to consider:
1. The obvious daily expenses that never stop, plus the DH cpm.
2. That day that you didn't create any revenue while exiting Florida (opportunity cost).

Both times I played the lottery, it was at the end of a week. Getting a reload to run through a weekend can be challenging in a good market. In Florida this time of year it's nearly impossible. By moving from an already challenging situation to one slightly worse, the lost opportunity wasn't that much.

The other benefit for me is that my home base is a day away from Miami. In the worst case, the truck is in my yard for the weekend and the driver gets downtime that I would have to route in every week or three by force anyway to avoid a mutiny and/or customer service problem. And everyone knows, when you get picky about your destination you lose valuable leverage due to your now very limited market. Nearing the end of the week, the opportunity cost of that trip home gets a lot lower.

So how'd it work out for me? The first time I hit the trifecta. I picked up a reload that was:
1. only 160 miles from the last delivery
2. paid $2/mi, with only 40 mi DH to the yard
3. Got the truck back in the yard late Friday night for driver downtime without being under cargo and having to check on it all weekend.

The last time was a Friday drive home MT. But there's a catch. On the way back, we were able to take advantage of a timely PM service at a nice discount. So there was two opportunity benefits that are hard to value on an otherwise complete, at-cost loser of a trip:
1. PM service done on time and convenient with no time pressure to get somewhere between loads and rush out to meet a pickup appointment.
2. A substantial discount we likely wouldn't have gotten otherwise when fitting a PM into a busy schedule at a convenient location.

Spreadsheet models and forecasts will give you the high level direction. When you finally make the move and start operating, you have to strategize like a championship chess player and run your business one day at a time while planning your next 10 moves at once. If you rely only on a cpm model or loaded versus MT average, you miss a lot of opportunity costs or benefits that will add up over time.

 

Given some time you should be able to do some rough calculations in your head or while you are talking to a broker or shipper as to whether a load is profitable or what rate you may need to go to a particular area. An area where freight my be good with a flat may not do so well with a reefer. Freight opportunities can move around with the change in seasons.

 

This was a great read Big John But sitting and DH will not cover fixed cost and if a carrier is strictly using the spot market it will be tough to make up the difference and having a 18% DH is to high try to keep it around 5% or below. know your cost keep expenses low and maximize profits.

 

An area where freight my be good with a flat may not do so well with a reefer. Freight opportunities can move around with the change in seasons. Really , must be why the produce haulers on the eastern seaboard start in the far South then work North as the crops cycle throgh their peak seasons every year.

 

i would rather dh before i haul 48,000# for 1.25 /mi,if you blow a tire that load was done for free. if these vultures can't move their freight,the money will be increased. i personally try to stick to military and machinery freight. if you talk to enough brokers you will figure out the ones that are not even worth calling.

 

I don't understand why anyone would run a truck for fuel money.