Match Shipper Lanes to Carrier Sweet Spots

Once the lane structures are defined, the largest and the most frequently missed savings opportunity comes from matching shipper lanes with carrier sweet spots. To succeed, the shipper must have an understanding of carrier economics. While the costs of operating a tractor trailer unit on a lane varies from carrier to carrier (based upon driver pay, maintenance, and fuel optimization), the single largest factor is the carrier’s empty miles.

One way for the shipper to avoid paying for empty miles is to invite a large number of new carriers into the bidding process and sourcing the entire shipper network at one time. While the “right” number of carriers depends on the specific situation, I typically recommend inviting one carrier for each $500,000 in spend.

Moreover, involvement from new carriers is an important element to finding the best rates. I usually recommend that one-third of all invited carriers be new to the client. This will optimize the potential for matching shipper lanes to carrier sweet spots. One company increased savings by more than 70% compared to traditional sourcing techniques. The entire project saved the client $28 million: $11 million from the introduction of new carriers to the network. An additional $9 million came from incumbent providers being awarded lanes at other locations they previously didn’t know existed.

This situation is common with shippers that source their transportation for each shipping location separately. When the entire network view is provided to carriers, they frequently find opportunities to expand into other locations and improve their partnership with the shipper.

Keeping Your Empty Miles Low

“Empty miles” are the miles driven between drop-off and pick-up of loads for which the carrier is not being paid.  Consider carriers A and B, both with an operating cost of $1.50/mile for a 500 mile lane. Carrier A, with only 10 empty miles to pick up the load, needs only $765 ((500 + 10) x $1.50) to cover its costs, while Carrier B, with 50 empty miles to pick up the load, needs $60 more, or $825 ((500+50) x $1.50) to cover its costs. That $60 per load difference ($825 minus $765) creates a 7% price advantage for Carrier A. Effective strategic transportation sourcing will maximize the use of carriers with low empty miles, such as Carrier A.

Use All Levers Simultaneously

For best results, all of the strategic sourcing levers need to be used simultaneously. To maximize savings, while improving service, requires a careful balancing of the shipper’s needs with the carrier’s capabilities. The best method for finding this optimal balance is through the use of scenario-based optimization tools. Currently, there is a number of transportation sourcing tools in the market that allow for “what-if” analysis of multiple solutions.

The lane requirements and carrier proposals are loaded into the optimization tool with a clear definition of the shipper’s needs. These needs include constraints and service requirements, such as maximum carriers per location, turnover limitations, and specific lane-level service requirements.

The optimization engine then provides the optimal award allocation and scenario analysis reports, including solution summaries (total savings, number carriers, etc.), solution details (network, lane, and carrier awards), and operational impact reports (carrier impact, turnover ratios, and carriers per location). These reports provide information the team needs to review the award scenario and identify potential changes to improve service or reduce operational risks.

At this point, it’s possible to identify new constraints or areas that should be negotiated with carriers. Once the new constraints and updated carrier proposals are loaded, optimization and scenario analysis is rerun multiple times to fine-tune the solution and find the optimal award scenario. Careful management of carrier negotiations and implementations will help realize long-term savings with minimal operational risk.

In summary, today’s transportation marketplace has created opportunities for rate reductions, and a comprehensive approach to transportation sourcing can boost these savings while improving service. The approach I outlined above leverages the market and identifies further opportunities for shippers to reduce costs by deeper collaboration with carriers. This focus on operational improvements and carrier-shipper collaboration will ensure that all opportunities are fully leveraged, delivering lasting results.

Go to Market Prepared

Sourcing your transportation spend can be a complex and emotion-filled process. Managing the process, introducing new potential providers, creating a competitive marketplace, and balancing service and price can be challenging even for the most seasoned project manager. Overcoming the challenges requires a fact-based, economics-driven, comprehensive approach.

Clearly Define Requirements and Lane Structures

The focus on reducing shipper and carrier risks is critical to the success of this approach. When a shipper’s risks are reduced, it’s easier for them to implement new carriers and changes into their network. And when carriers fully understand what’s expected of them, their risk is reduced and they can provide their most cost-effective pricing.

We recommend that shippers provide, at minimum, the following information:

Operating Profile—Information on how they conduct business with carriers, including their tender process, systems interactions, appointment scheduling, and insurance requirements

Location Profiles—Information on individual shipping and destination locations, including: working hours, loading/unloading time and requirements, trailer pool requirements, and any special service requirements.

Fuel Surcharge—The stated fuel surcharge schedule and process.

Mileage Calculation—The stated mileage calculation method such as PC*MILER Practical v.19 or Rand McNally Household Goods, or whatever mileage base they use.

Shipment Seasonality—Information on fluctuations in shipment volume by location, destination, month, and day of the week

Lane-level Requirements—Specific lane-level service requirements and volume information including average weekly volumes and potential surge volumes.

In defining lanes, shippers often pay little attention to minimizing the carrier risk of empty miles, while providing sufficient volume to create interest in the marketplace. Shippers simply create point-to-point lanes, or design lanes based on origin and destination markets, and go to market with RFPs that reflect these definitions. Such an approach creates a multitude of problems.

While point-to-point lanes reduce carrier risk by specifying the exact origin and destination points, this design also creates a large number of lanes with small volumes. The result—large and frequently complex RFP with few high-volume lanes—discourages carriers from responding and providing their best rates.

In the other extreme, shippers create origin and destination markets that are typically groupings of three-digit zip codes.  While this approach creates a smaller set of high-volume lanes, carriers are forced to price risk into their proposals (to cover potential pick-up and deliveries to undesirable locations within the large area of the markets). This design also results in many carriers providing “exception” rates that fit into the defined lane and RFP structure. Managing these responses can cause significant delays in the RFP process.

In my experience, finding a balance between the right number of lanes with attractive volumes and low-carrier risk requires a detailed analysis of lane and volume. Using state-of-the-art analysis tools and market intelligence will help ensure the best definition of lane structure.

Identifying Alternative Savings Levers

As we noted earlier, the analysis of a shipper’s transportation management practices and service requirements, combined with evaluation of the carrier market, results in the detailed sourcing strategy and identification of alternative savings levers. In practice, these two tasks are performed simultaneously.

Alternative savings levers generate additional opportunity by effectively moving lanes within the “lane complexity” and “carrier market status” matrix. These movements can take two forms:

1) Reduction in lane complexity—moving lanes from the high-complexity quadrants to the low-complexity quadrants, and 2) Creation of additional competition in the marketplace—moving lanes from a carrier’s market to a shipper’s market. The goal is to identify the best opportunities for cost savings and operational improvement.

Reduce Lane Complexity—Better transportation processes can make the shipper more carrier-friendly, which allows carriers to reduce operating costs. This reduction in operating costs, when properly executed, will result in lower rates. In order to achieve this goal, shippers need to quantify the return on investment in making the required changes.

We often find that shippers fully understand where their transportation management processes are causing additional complexities and costs for their carriers. However, they rarely have the incentive to make investments that will result in improved carrier collaboration.

A structured approach provides shippers the opportunity to quantify the benefit of changes in their practices and develop a return on their investment. For example, one company recently developed a process for integrating its sales forecasts into its transportation requirements planning. The resulting improvement in the shipper’s projected transportation demand allowed its carriers to plan appropriately—and provide additional capacity without increasing the unloaded miles and associated costs. The initiative created a true collaborative environment with the carriers that resulted in increased available capacity, improved service levels, and reduced costs.

Create Additional Competition in the Marketplace—Greater competition generates more opportunities for meeting the shipper’s needs through alternative services or modes of transportation. A competitive marketplace, which may also include non-traditional competitors, is more likely to offer price concessions.

To realize these opportunities, shippers need to fully understand the capabilities in the marketplace and their own leverage with providers.

Another company recently used the strategic sourcing strategy to move several lanes from the “bottleneck spend” category to the “open spend” category. While the company had very little leverage with existing rail providers to combat recent rate increases, its management determined that several lanes could be moved profitably from rail to truck. This analysis provided the company with the required leverage to negotiate lower rates from its existing rail providers.

The strategic sourcing approach has proven robust in many diverse situations: whether a company has high or low service requirements, operates in a carrier’s or shipper’s market, has best-in-class or traditional transportation management practices, or a combination of the above.

Trucking Economics, OR, Understanding Your Customers’ Sophisticated Approach to Transportation Spend, and How Easy You’ve Made it for them to Take Advantage of You.

Formulate Detailed Sourcing Strategies

In the mid ‘90s, when strategic sourcing practices became widely accepted across industries, many shippers attempted to apply these same practices to transportation, instead of developing transportation specific sourcing strategies and identifying alternative savings levers.

Shippers combined their spends by mode and simply took it to market. They often paid little attention to their service requirements and failed to distinguish between highly leverageable spends and spends requiring development of carrier relationships.

The results were devastating for many shippers. Deals with new carriers frequently failed and relationships with incumbent providers were significantly strained. In the end, shippers usually returned to their incumbents, accepted rate increases, and claimed that strategic sourcing simply didn’t work for transportation.

An approach to strategic transportation sourcing ensures that market forces are leveraged appropriately, while keeping the focus on service at the right price.

First, assess existing transportation management practices by applying a comprehensive Transportation Management Framework, which includes four stages of maturity.  This assessment will help identify potential opportunities in internal operations for improving service levels and reducing costs or rates. Next, perform detailed analysis of lane-level spends to determine service requirements. Lastly, assess the carrier marketplace to identify alternative modes or services. Then use these analyses to develop a detailed sourcing strategy and identify alternative savings levers.

The purpose of developing a sourcing strategy is to ensure that all savings opportunities are fully realized without disrupting service. The sourcing strategy creates customized action plans for multiple groups of lanes based on required service levels and the current transportation market for those lanes. It recognizes that many shippers’ lanes require specialized service, other lanes are near commodities, and still other lanes are somewhere in the middle.

The first step in defining a sourcing strategy is to determine which services can be sourced. We recommend a thorough evaluation of spends before deciding not to source a particular service. However, as a general rule, services that may be excluded from sourcing include long-term agreements, use of minority-owned providers, and smaller spends with significant value added services. Once the services to be sourced have been identified, individual lanes need to be classified into one of four categories based on lane complexity and carrier market status.

1. The highest savings opportunity is in “open spend,” which includes lanes with low complexity and a supplier’s market. These near-commodity lanes should attract a high ratio of new carriers to drive cost reductions.



2. The next highest savings opportunities are “bottleneck spend,” which contains lanes with low complexity and a carrier’s market. Sourcing of these lanes should be focused on assessing the market and the possible use of regional and niche providers.



3. The third area of opportunity is “leverageable spend,” representing lanes with high complexity and a shipper’s market. With incumbent providers, these lanes are focused on ensuring a fair rate for the services provided. With new providers, requirements must be clearly communicated. In addition, the shipper must have a thorough understanding of the carrier’s network and experience managing the required service levels.



4. The last area of opportunity is “protected spend,” which comprises lanes with high complexity and a carrier’s market. These lanes should be focused on ensuring service levels and maintaining incumbent providers where possible. The most common mistake in strategic transportation sourcing occurs in this area. Rather than focusing on development of existing carriers and highly qualified new providers, shippers frequently find large savings opportunities with unqualified providers and select price over service. When the new carriers fail, shippers return to their incumbents in an attempt to repair their past relationships. But these attempts often end in rate increases and the loss of negotiations leverage with the carrier.

OR, Understanding Your Customers’ Sophisticated Approach to Transportation Spend, and How Easy You’ve Made it for them to Take Advantage of You.

The trucking industry has been relatively unsophisticated regarding their understanding of Supply Chain Economics; even more so when it comes to negotiations with their shippers. The recent economic climate provided shippers with an opportunity to squeeze their carriers in a short sighted approach to cost cutting.  

They then published announcements on the profit gains they made as a result. The concept of developing and maintaining “relationships” in order to create stability and increase business went out the window when shippers started hiring MBA educated executives with manufacturing-type activity based costing analysis skills.

By understanding this new business approach, and acknowledging the advantages of cost containment, carriers will be better positioned to help their shippers develop more efficient strategies, and inform their less sophisticated shippers as to why they should be doing business together.  It has been my experience that lower rates—combined with a strategic transportation sourcing approach—can save shippers more than 10% in transportation costs.

In this 5-part discussion, I will present a proven approach to transportation sourcing that leverages the market and identifies further opportunities for shippers to reduce costs by deeper collaboration with carriers. Carriers need to understand their fixed and variable costs and compete with an informed approach, while focusing on operations solutions for increased efficiency and asset utilization.

An Overview of Strategic Sourcing Methodology

By combining fact-based analysis, scenario-based optimization tools, industry expertise, and a structured approach to improve service levels and maximize savings, carriers can take steps to understand the methodology and strategy of shippers in their portion of the supply chain.

Methodology requires operational excellence in three broad areas:

1. Balancing service and cost,

2. Formulating detailed sourcing strategies and alternative savings levers,

3. Going to market with a fact-based, economics-driven, comprehensive approach:

• Clearly defining requirements and lane structures
• Matching shipper lanes to carrier “sweet spots” to maximize savings
• Utilizing multiple levers simultaneously

In the remainder of this discussion, we explore the key elements of this methodology.

Balancing Service and Cost

After the deregulation of the transportation industry in the 1980s, many shippers saw the free marketplace as an opportunity to demand lower rates from carriers. While shippers were frequently successful in cutting rates, service levels suffered and total costs actually increased.

In addition, the adversarial nature of the shipper-carrier relationship left little room for continuous improvement and joint cost-reduction efforts. Since the late 1990s, however, shippers and carriers have understood that service and cost must be balanced and the best method to achieve lower costs is by collaborating with carriers to jointly reduce cost structures.

One approach incorporates multiple tools to evaluate the service/cost trade-off and determine the best total solution.

1. First, during the initial stage of the project, rates and service levels are benchmarked to identify opportunities and set reasonable targets.



2. Second, lane-level capacity and service requirements are clearly defined and articulated in the request for proposal (RFP), allowing carriers to fully comprehend expectations and to price appropriately.  When multiple service-level options exist, carriers are given the opportunity to price each level accordingly.



3. Third, scenario-based optimizations allow the shipper to determine the true cost of service by comparing multiple award scenarios, which take into account such variables as service levels, upside capacities, turnover ratios, the number of carriers per location, and the use of niche, regional, and national providers.

It’s important to ensure a clear definition of all the shipper’s lanes and requirements so that carriers can understand the shipper’s needs, lower their risk in pricing, provide the best rates available, and conduct scenario analysis and detailed service/cost comparisons. This approach allows shippers and carriers to collaboratively find the best total cost for shippers.

That horn blowing you don't hear is me not tooting it myself.  As a former fleet owner of 1250 tractors and 2500 trailers, I have been fortunate enough to learn from the best and put into practice the compliances, efficiencies, asset utilization, and financial controls necessary to position myself for success. Humility has been learned. If you think everything is going too well, you have overlooked something.

My definition of success and yours may differ, but making money in the trucking industry has never been rocket science, as the price and availability of that fuel for experimentation is prohibitive.  The recent past has shown that the same practices that position a carrier for Private Equity or Venture Capital acquisition are the same for operating at a profit.  Having been a CFO of a mid-sized $215 Million specialized carrier, I can count beans with the best of them.

Recently, I returned to my roots and became an "undercover" driver for a large Midwest carrier. I will share that experience at a later time, but let's just say the attention paid to safety, compliance, driver retention, and CSA 2010 initiatives is more "lip service" than actual practice - at least by this carrier. My goal was to collect current information (as I did in 2007) about the carriers that everyone recognizes, and where a large number of drivers may eventually become employed, or leave.

The subject of this missive is to entertain my dark side by taking on the masochistic activities related to the acquisition of an asset based trucking company. I was fortunate to have enjoyed Operating Ratios and Margins unheard of for a fleet with the level of competition at that time, and am bent on doing it, again.  Mostly because those who can't do it themselves are telling others how to get it done, and I like the feeling of doing something someone else can't do. Accomplishment and challenge will often walk hand-in hand.

I would like to purchase a predominantly asset based niche carrier with revenues between $50 and $160 Million. This carrier would have good maintenance and safety programs, and non-asset based service offerings like Brokerage, 3PL, Warehousing, Cross-Dock, Load Optimization, Transload, Contract Maintenance or Project Logistics capabilities. This carrier may have dedicated, contract, or private fleet capabilities, and need not be all that profitable. As most of us are aware, selling price is a factor of EBITDA - and for me, equipment condition and replacement strategies employed in recent years are essential to create value.

Since selling my fleet to a VC group in 2004 I have been actively engaged in the trucking industry as a consultant (as well as a small fleet owner) providing financial, operations, maintenance, safety, and HR solutions to companies of all sizes. All the travel has been detrimental to my usually sunny disposition-but the financial and personal rewards have been worth the inconvenience of missed connecting flights and too many pretzels.

In my experiences, there are companies who have good people but poor leadership, good equipment but large Accounts Receivable, second generation management who only know one way of running a company, and companies who have overcome, adapted, and evolved with customers and world economies. Some have taken my advice (three turnarounds in the past year); others have allowed me to set up their equipment specifications and divisions to become players in wind power, refinery and petrochemical projects.

Still others find it hard to change; they give it a cursory try before reverting to what they know after I'm gone.  Focus, Grasshoppers.  Get your advice from someone who has, can, and will get results. I had one guy who failed a safety audit and had the highest maintenance costs for his type carrier I have ever seen tell his operations guy he had a huge issue with getting BCC'd on emails. That was his issue?!  I found other issues more pressing, but egos come in all sizes and are fit for various suits of failure. I have stories that would make Ripley's shake their head.

If anyone is serious about exploring an exit strategy, we can discuss your needs and determine if it would be a viable, mutually beneficial arrangement. Financing is secured, so for you to hold paper is not a requirement. I am prepared to do (again) with my own money (again) what others say can't be done. No brokers-Principals only please.

Last year, I obtained a 3-year contract (can't be done) with an automobile manufacturer (profitable) and major vendor for that manufacturer. With a 3-year full maintenance lease, 0% deadhead, and revenues unheard of for what is usually expected for that type operation, I recently sold the small dedicated contract fleet to someone who will learn, understand, and appreciate the metrics of problem solving. I was told that .79 and .99 broker freight (all in) was a requirement of doing business today by an industry Guru who has never dispatched a truck, changed a tire, or planned asset utilization. Some things need to change-starting with where you get your advice.

The customer isn't always right, and will do their best to mess up your well laid plans, but the right PEOPLE, contracts, planning, asset utilization, MIS, and fuel optimization will go a long way to position your operation for profitability and as a potential target for a Private Equity opportunity.

Jim Buchanan has an MBA and has provided turnaround, M&A, and division set up for several companies in the past. As an all too Frequent Flyer, he is looking to become a stationary target and once again assume a leadership position in a niche fleet. As a published industry author in financial, operations, and maintenance solutions Jim has been a presenter at NTTC meetings, and positioned several SC&RA members for new divisions and project work. His privately held fleet was the largest asset based specialized carrier of its type in North America-which he planned, grew, led, and sold. 

Trucking Executives Need to Step Up to Their Responsibilities (as well as their potential)

Regardless of a person's chosen field of occupation, the quality of their life (and business) is in direct proportion to their commitment to excellence.

Character.  Sometimes it's easier not to do what we know we should; to choose the easier wrong over the harder right.  Try to be cognizant of the things you can change, as well as those you cannot. Searching for, finding, and embracing a repeatable process that's successful for your group or operation will provide you a roadmap to success.

Mentorship. By not seeking out the right advice from someone who's actually done it, you're relegating yourself, and your company, to-at best-mediocrity. Do you see your doctor for legal advice? Your interior decorator for tax advice? Go to an apple tree when you're craving an orange. Go to the tree that has the fruit you're looking for - someone who's been successful in dealing with your specific issues and can be a positive influence on your professional performance. But first, take a look at your ROI, margin, bottom line, or bank account.

There are almost as many "advice gurus" as there are books. I often wonder about those Sages standing back and slinging "should do" and "shouldn't do" coaching when they've not done it themselves. The industry is rife with advice givers who've never dispatched a truck, lead a turnaround, sold a pound of freight or led an operations team. I know of one specific instance where a "consultant" took on negotiations with a Mexican firm and made recommendations to the American counterpart to buy new equipment and supply multiples of tens of additional trailers-for a non-profitable operation. The lack of any international operations expertise, research, verification or negotiations with a Mexican service provider was a minor detail when compared to the main issue, which was a complete lack of understanding that it was crossing fees and insurance that put the operation at a loss.  Consultants that don't know what they're doing can be costly for the person or company they're advising, and devastating to them from a credibility standpoint. Yet they're able to pass themselves off as experts. Why is this?

Things change. Get over it. Get off the golf course. Get off your yacht.  Get away from the country club and exotic vacations and get into the character that made you successful in the first place. Do not succumb to the "hard times" copout.  People don't care what you've done or what you know until they know how much you care. By and large, trucking leadership wants to do well, but they're limited by the challenge (or ability) to evolve, change, and do what's necessary to overcome today's business climate and be ready for tomorrow's world economy. Everyone has a comfort zone, and operates inside of that well defined arena. Let's call it "an incarceration of getting by".  

The same character attributes and personal focus that allows professional athletes to excel also serves those in the business world well. By extending your comfort zone to embrace "a different way" (overcome, adapt), you're realizing that what you're doing now isn't working.  The thousands of trucking related organizations that have shuttered their doors in the past two years can't all be wrong, but it serves notice that "the way it's always been" isn't going to get it done in the future. The old way of running a company must evolve to the way the world dictates a company should be run, never mind that either excess or lack of capacity will favor which part of the supply chain. For companies to succeed in today's challenging business environment, managers must become leaders and the right people put in place to successfully lead the transition to a proactive and future-oriented organization.

You're in the people business. What part of the supply chain is your company? It should be the people part. Every day decisions are made not to include the best available talent to lead a company, a division, or a difficult turnaround. Why? Usually it's old ideas, perceptions, or maybe something as simple as the wrong resume format - as determined by someone in the HR department.  

Goals must be specific and measurable. For the old school among us, let's just call them Key Performance Indicators, or KPIs.  Do your top executives get "hands on"?  Do they get in the trenches; visit the driver's room? Or do they have their "people" do it for them? Executives decide what will work or not work based on what they've heard, or by what's failed them in the past. But was it the change in process that failed, or was it the people in charge of that change that failed?

Regardless of the rhetoric, or feel good statements of positive attainment, sometimes dreams end up scattered in a circle of broken shards.  It's time to return to the action that built your success, regardless of the prevailing politics or lending climate. It's time for you to take control of your destiny by finding solutions, not just talking about them.

Dare to dream. In the history of trucking, the entrepreneurial spirit in ownership has started, led, succeeded, and transitioned thousands of carriers to family that carried on the tradition. They risk more than others think is safe, care more than others think is wise, dream more than others think is practical and expect more than others think is possible.  Behind every great achievement is a dreamer of great dreams.

I recently heard someone say that there might be only one carrier in one hundred worthy of being an acquisition target. That depends, of course, on varying perspectives. If you're looking to buy or sell a trucking company you'll need to focus on the needs and goals of your specific transportation group -- to either find or create both a strategic and a financial fit.

It's not a new concept to put a failing or lackluster company on the market in a distressed industry. But there has to be a reason and you have to be smart about it. Not everyone will jump at the opportunity to purchase a challenged company. If you want to deal from a position of strength, you may want to consider timing your sale based on economic, strategic, and financial strategies that will allow for an exit strategy on your terms.

From a Strategic Perspective, what industry, niche, or potential does your company bring to the table? Are you a regional retail van fleet; a regional flatbed fleet serving the building materials sector; a specialized fleet set up to serve the Wind power, Petrochemical, or Refinery areas? Be aware that a heavy asset based transportation purchase is NOT at the top of most Capital Venture of Investment Capital lists. They prefer 3PL and Brokerage operations that are considered non-asset or asset light. Why? Take a look at the ROI. With a high variable cost situation, as the venture succeeds, so go the returns. If the venture goes through a slowdown, there are no concerns about liquidating capital assets in a market flooded with similar capital assets.

Brokerage, Logistics, and 3PL providers are realizing greater returns on those initiatives because many asset based carriers are unsophisticated about their costs, have no effective marketing initiative and often haul the freight at depressed (below cost) rates. Most TL asset based carriers are:

• purchasing trucks, trailers, bricks & mortar,
  
• participating in ineffective driver retention programs,
  
• are unaware of their costs,
  
• don't use technology effectively, if they have it at all.

Many carriers have brokerages, and in all fairness, it could be the only division that is making a significant contribution to profitability by percentage. As a Broker, with a software program, computer, and phone, I can net a higher percentage before taxes than a fleet of 100 - 500 trucks. A carrier with that capability has a profit center that can be split off or easily sold if times get worse than they are now and is therefore better positioned to be considered for VC funding. The more revenue with fewer capital assets reduces the debt-to-income ratio when combined for evaluation of operating ratio - a standard in the industry that's an indicator of profitability. It's also a tool that can be used to provide better positioning during negotiations; pricing can either be negotiated by leaving the brokerage out of the sale, or included as a value-add to enhance the overall value to the purchaser or lender.

From a Financial Perspective, what is your company's financial performance? As an investor, I'll want to know your track record. What are your projections? Do you have a business plan? Do you have contracts in place that will provide some semblance of a guarantee? If not, I would need to visit each customer to see they do business with you, and whyif they'll continue if a new owner takes over.

It's also important to determine the retention and compensation package for the Principal somewhere near the beginning of the process. Do not leave it too late in the process when it can become a potential deal breaker. I've seen it happen. A questionable deal was coming together and a third party arbitrator proposed a compensation plan that made absolutely no sense to the seller. Unfortunately, this arbitrator had no M&A experience and no hands-on trucking or legal experience, but was in a position to collect fees along the way.

At this point, there are as many valuation formulas as there are vacant trucks. I would advise that valuation determinations be based on financials, revenue, retained revenue, fixed costs, and net before tax profits. Should you consider add-backs (the funds necessary to make the deal) such as employee incentives to remain with the company? Professional services for preparation of due diligence? Broker fees?

By evaluating these strategic and financial strategies, you'll be a better fit for a larger universe of potential buyers. By combining these efforts, you can then formulate a targeted marketing strategy that will focus on:

1. Price
   
2. Potential Buyers, Including Competitors
   
3. Auction
   
4. Stock or Asset Sale
   
5. Timing of Sale
   
6. Tax, payment, and indemnification issues

Intellectual Property of the Purchase

There are several components to knowing exactly what's included in the purchase price and what it takes to purchase it. Intellectual Property such as software, domain names, works of authorship, trademarks, company name(s), customer lists, algorithms, even the way a company does business should all be investigated. For example, an employee who writes a software program that's used in daily operations - even while in the employ of the company - may actually be the owner of the software program. Does the trucking company owner, or perceived owner, have the right to transfer those properties if they are valued as part of a transfer of company ownership?

Always, always, always the best advice is to seek out experienced industry professionals for advice. Law firms engaged in this type activity on a regular basis are well positioned to assist in making sure your sale or acquisition is structured for success.

From an operations perspective, there needs to be specific priorities, mandates, and requirements. It’s necessary for carriers to focus on their primary priorities, but it’s essential they cover the details that allow them to achieve their defined goals.

The relevant and obvious elements of lane balance, asset utilization, revenue per truck, meeting service standards, and operations planning go without saying, and should continue to be a priority.

The unstated and un-prioritized elements that allow for a successful operations succession into a new age of profitability requires not a crystal ball to define revenue projections, but to be out in front of a changing world economy that will define how business is going to evolve. This doesn’t need to digress into a discussion of macro economics, but the way you do business today will not be the same way you do it in a year and a half.

When it comes to driver recruiting, orientation, and accountability, now’s the time to be putting quality over quantity. If you expect more from people, you’ll get more. You need to have your people out in front, and get the departmental attention that’s required. Is that person always right and do they spill over into areas they may not have a direct impact on? Maybe, maybe not, but their views are known whether everyone agrees with them or not. It’s about results, and that is something sorely lacking in many organizations today.

FUEL

There needs to be out in front of fuel consumption, and with 35% of fuel price variance falling under “driver habit”, programs should be in place for ALL drivers – not just the bottom 10%. It needs to be a priority. Also, you’re required to accept fuel surcharge allowances that differ from customer to customer. From my review of many policies, they vary from just plain terrible to a profit center. Fuel will return to being a greater factor, and control of deadhead (solved by better lane balance) and out of route miles (solved by monitoring and route optimization) will go a long way towards controlling fuel costs.

TIRES

It’s a given that both the initiative and the results of many maintenance departments’ tire programs are ineffective. There needs to be joint coordination and cooperation between various departments: operations, maintenance, and safety/orientation, in order to find a solution to the federally mandated DVIR requirements and an improvement in tire inspection and pressure verification. Tire costs are out of control for those fleets that don’t separate tire costs, or don’t differentiate between tractor and trailer. It’s not driver abuse but driver inattention and a lack of protocols for maintenance personnel and drivers to record tire conditions. That and the lack of a plan to reconcile the fact drivers are not performing proper DVIR. If so few are looking at tires, or checking (and recording) pressures, it only makes sense that other components are suffering as well. Unfortunately, tires are a major cost component for maintenance department budgets, so no matter how costs are assigned; it will benefit a company to find a solution to this issue.

SAFETY

Many flatbed fleets continue to have load securement issues.  Have you recently put in place an updated plan to ensure all your drivers have not only been properly trained, but also participated in a refresher program to update and reinforce the prescribed federal and company requirements? Have your drivers been certified in the Alabama Steel Coil program that can be taken online?

OPERATIONS

There needs to be a standard and consistent effort between all company terminals concerning orientation of, and accountability for, company policy, dispatch, and data entry. If that’s not in place, how will you ensure that everyone – not just in the home office – is consistently entering and planning loads? Central control and orientation is not only cost-effective, it allows for more efficient planning of loads and assigning just the right power unit for reload. Although often met with pushback, preplanning is a very effective tool when there’s more than one truck available that takes into account available hours, revenue per truck for the week, and decreased deadhead to accomplish customer service goals.

LP’s and IC’s

Not only is the failure rate of Lease Purchase drivers and Independent Contractors disconcerting, the recovery of abandoned Lease Purchase units is staggering. Have you looked at inviting in an outside company to discuss programs for your LP and IC drivers to better position them for success – to make them more aware of load choice and maintenance decisions, among other things? This is a potential solution to an identified problem that desperately needs addressing. If you find yourself faced with a higher than acceptable failure rate, I suggest a comprehensive review of your LP program to determine the main causes behind it.

Like a puzzle, each piece of a successful operation relies on the pieces that surround it. The cooperation needed to identify and solve problems and improve customer service, safety, and employee retention rates has several components. ‘Operations’ needs to take the lead in ensuring the effective participation of all departments that play a role in the company’s ability to achieve maximum asset utilization and employee retention. This is where revenue will be made or lost, so all components need to be in sync, whether they control essential areas, or not.