One of the largest concerns in today's transportation industry is profit margins. While the demand for transportation is consistently high, there is an increasing need for freight as empty miles rates are increasing as well. With this inconsistency, profit margins seem to be decreasing. What causes drops in profitability? How can it be avoided? What are digital brokers like LoadSmart doing to help?
The average marginal operational cost for motor carriers is $1.691 per mile, according to the most recent report of operational cost of trucking by the American Trucking Research Institute (ATRI). Further, the average cost of operation per hour is $66.65. Between the years 2016-2017, ATRI reported that the total average marginal costs in the trucking industry increased 6.2 percent which is more than three times the core inflation rate.
With the cost of operations increasing, there is great need for higher profitability in the industry. One of the major elements that interrupts profitability is the number of miles that trucks are driving empty.
These empty miles can be deadly to a carrier. Due to the fact that operating a Class 8 vehicle comes with a cost per mile, there is essentially money lost for each mile driven without transporting goods.
Chart: FreightWaves SONAR
This FreightWaves SONAR chart illustrates the percentage of empty miles for both company and leased dry van fleets. As of September of 2019, 15.63 percent of miles driven by dry van fleets are empty.
It goes without saying that there is plenty of freight to be transported and there are many carriers to transport it. The issue is not whether the number of carriers or the amount of fleet should grow, but rather, the lack of communication between the two.
This is where Loadsmart comes into the picture. LoadSmart is a digital freight broker that leverages technology and strategic partnerships to help connect truckload supply with demand from shippers. With Loadsmart, shippers like Kraft Heinz Co (NASDAQ: KHC) and the Coca-Cola Company (NYSE: KO) are able to quote and tender their truckload freight by integrating Loadsmart directly with their transportation management system.
This week, Loadsmart announced its new product called "Smart Match." By directly integrating with the fleet management platforms relied on by carriers, Loadsmart is able to use machine learning to programmatically match available trucks with the freight it's awarded via integrations with some of the most popular transportation management systems. Dispatchers from carriers are now able to use Smart Match to help decide the best possible load for a pick up in order to reduce empty miles and increase profit margins.
"We see a huge number of loads that are available in real time so we are able to connect the carrier with thousands of loads that are available in the closest proximity and most efficient route for the driver" reported Vice President of Product Management and Business Development at Loadsmart, Hunter Yaw.
How Does It Work?
Smart matching leverages data from carriers and their network planning tools and provides them with information on what their network needs and what matches that, according to Erik Malin, Vice President of Operations at Loadsmart.
Using algorithms to automatically match when and where a truck is available to the best possible freight, Smart Match eases the process for both the shipper and the carrier. This system was created to maximize productivity and reduce overall empty miles while providing efficient communication between both parties.
"For every available truck that we see," said Yaw, "we can consider thousands of options for every truck which massively increases the likelihood of finding the right match, adds value to carrier by reducing empty miles, and also adds value to the shipper by providing a more competitive rate. Everyone is happy."
While load matching has traditionally been to take a load and then find a truck, Smart Match inverts the problem — taking when and where trucks will be available and then finding the best possible shipments to keep those assets full. Malin explained that this tool by Loadsmart now provides carriers with a new capability to align their networks with high demand markets in a way that could support their yield.
According to Malin, tough market conditions have placed ever increasing pressure on carriers to move more with less. And with profit margins suffering, providing carriers with another tool to support profitability gives them another arrow in their quiver to see the fluctuating market conditions improve, Malin said.
"By virtue of what Smart Match does," Malin reported, "It further reduces the time and resources typically associated with aligning your fleet to the right loads and markets. By reducing these costs, we continue to be able to better support our carriers."
Image Sourced from Pixabay
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