In the last installment of The Case of the Empty Space, Nicky Hammerlane was explaining to Duke Duggon, a single-pony O/O and owner of Double D Trucking, how to price LTL and partial load freight. But Duke was under a load headed east out of Portland, Oregon, and got a winter storm weather alert for Cabbage and Deadman's Pass on I-84. To beat the storm and make his deliveries and pickups in Minnesota and Wisconsin, he had to boogie. Duke and Nicky planned to meet back in Oregon in about two weeks.
In the meantime, Nicky’s been running freight loads for his son and grandsons' company from Tacoma to northern California and back, figuring he’d be more likely to catch up with Duke if he stayed in the general area. About two weeks after their last meeting, Nicky's phone started chirping “Truckin'.”
“Duke on this end. Nicky, where you at?”
“Coming north on I-5 about Beaverton,” I answered.
“What's your schedule like? I'm cooling my heels over at the Jubitz Truck Stop. I actually have a little time, as I don't load in Vancouver until 11 tomorrow morning. So they’re doing a PM on the old girl,” Duke said.
“Be there in about 30 minutes if traffic doesn't slow me up. I don't deliver to Tacoma until tomorrow afternoon, so this is perfect,” I told him.
“See you when you get here. I’ll reserve a table in the restaurant,” Duke answered.
It was 30 minutes on the dot as I came off exit 307 and headed the half mile to the truck stop. Once again the parking gods were with me as I quickly found a pull-through parking spot. I grabbed my laptop and paperwork for another TripPak (am I having a déjà' vu?), climbed out of the truck, and headed to the restaurant. As I came in, I could see Duke in a booth back to the left of the buffet. I hung my hat on the fencepost frame of the booth and Duke and I exchanged greetings and handshakes.
“I'm all ears,” Duke said, as he pulled out a pen and yellow legal pad. “Did you want to order anything before we start?”
“Just a cup of Joe. I'll eat later.”
In traditional Jubitz fashion, the waitress was there almost before I got the words out of my mouth, with a cup and a pot of coffee. I thanked her and turned to Duke.
“Okay, here you go -- the truckers’ condensed version of dealing with LTL freight,“ I began. “Now, how do you know you’ve planned the best load? You’ve got to consider several variables in determining the best load selection strategy. Without a good load plan, all other strategies are wasted.”
Duke nodded as I paused for a sip of coffee and give him a chance to catch up his notes.
“Maximizing your equipment means knowing the capacity in both weight and cubic feet of the trailer for which you’re planning the load,” I continued. “Utilize either the weight capacity, cubic foot capacity, or both to maximize revenue. If a shipment doesn’t use all available weight and/or space, you must find other shipments to fill the void, or charge a rate as if it did take up the trailer’s full capacity.”
Duke asked, “So how do you determine this LTL or partial rate? You can't just divide it by the space it takes up and what you need in revenue, because wouldn't that leave the trucker a little short?”
I took out a pen and sketched a rectangle on his paper.
“Take a 53' x 102” trailer with an inside height of 110” and an interior width of 100”. That’s around 4,000 cubic feet of available cargo space, or 442 square feet of floor space. The simplest way is to use the square foot method to calculate your rates.”
“If the load is a dense load – in other words, it takes up the floor space but can't be stacked because of its weight – you'd max out available axle or gross weight. So then you look at a square foot rate.”
I swear, I never knew anyone could write that fast. Duke looked like a reporter at a press conference.
I continued. “If the load’s light, and you can conceivably stack it to the ceiling and not jeopardize your axle or gross weight limits, you can still use the square foot rate. For these light cubic foot loads, I recommend a decking system, as you can almost double the capacity of your trailer, which can nearly double your revenue. In other words, two truckloads in a single trailer.”
“So how do you figure a square foot rate on that?” Duke asked.
I took a deep breath. “Remember you have 442 square feet of floor space in a 53’ x 102’’ trailer. Inside, though, you’ve really only got 100 inches of width. Let's say you have a load that requires 10 feet of linear floor space, and is the width of the trailer. Divide 100 inches by 12, and you get 8.33 feet in width, times 10 feet which requires 83.333 square feet, or 84 square feet rounded up."
"And here's a tip - you should always 'round up' your numbers when doing these calculations because if you rounded to the nearest whole number and it was lower, you could end up with more freight than available space with multiple shipments. Now this 84 square feet of say, coffee mugs, in boxes on pallets – weighs 7,500 pounds, which is 19% of the total trailer floor space. Remember you divide 84 by 442 to get your percentage. That's your needed space for a shipment divided by the total square footage of the trailer."
The waitress came by with more coffee for both of us, and Duke had a chance to see where my figures had come from. Like me, it’d been a few years since he’d been in school, and not all of us paid close attention in math class.
“Now let’s work with some examples,” I went on. “Say you have a $450 per day rate, which is fixed cost plus profit margin, and 80¢ per mile operational and fuel costs for a truck load. That's 17 cents per mile for maintenance, tires and repairs on the tractor and trailer and 63 cents per mile for fuel at its current price. The shipment’s going 1,667 miles over three days.”
I reached over and turned the yellow pad so we could both see it as I wrote out the equations for him.
“Your trailer rate for a full load is going to be three days multiplied by $450, or $1,350. 80¢ per mile multiplied by 1,667 miles equals $1,333.60. Add the final figure for your per day trip rate, that’s $1,350, to your operational and fuel costs for the run, or $1,333.60, and your full load rate is $2,683. That’s the rate you’d need if the load of coffee mugs filled the entire trailer.”
There the LTL Rate equation was, nice and neat, on the page:
(3 days x $450 = $1350) + (.80 per mile X 1,667 = $1,333.60) = $2,683
Duke nodded. “Okay, Nicky. Go on.”
“Since it only requires 19% of your trailer space, we take 19% of the full truckload rate $2,683, which equals $509.77, and that becomes your Base LTL Rate for this shipment. Now add my standard Hammerlane LTL Handling Fee of 15% of the $509.77, or $76.47 times 2 for single pickup and delivery. So the LTL handling fee becomes $152.94 added to your $509.77 for a LTL hauling rate of $662.71 for a single stop, pickup and delivery of this shipment."
"Let me say here the 15% LTL fee is not set in stone, but over time it's been a good median percentage. Every trucker needs to look at his market , his customer and the difficultly of each shipment to determine what percentage works best for the situation. For each additional stop you’d add that same 15% of the Base LTL rate, or in this case, $76.47 as an extra stop fee for each additional pickup and/or delivery. This is because of the extra time required to make those extra stops."
"If you have multiple stops for this shipment, you'd calculate your Base LTL rate on the furthest destination distance from origin and include all distances to each stop along the way, then add the extra stop fee to each additional pickup and/or delivery. For comparison's sake, if you had 5 identical 84 square foot loads on the truck with one pickup and one delivery each, your total revenue would be $3,313.55 or $630.55 more than a full truckload rate.”
Duke asked, “Seems these numbers are in balance. Why?”
I responded, “The simple answer is the truckload is figured at 100% of truck space being charged for, where in LTL very seldom will you fill 100% of the truck with tonnage. In this example, we've only used 95% of the total floor space, leaving less than 3 feet at the end of the truck. With most loads being 42 or 48 inches wide, it's most likely not going to be filled. But the object is to fill the truck as much as possible and have the revenue increase to cover the additional time and effort and to increase the truck's bottom line.”
“What do I do if I have load or unload labor, tolls, or any other expenses on different shipments?” Duke asked.
I answered, “That’s when you add the cost of those expenses to the specific load responsible before multiplying the15% LTL handling fee. In a case where the toll would involve all the shipments, then divide it by the number of shipments, adding the answer to each one before calculating the15% LTL handling fees and extra stop fees.”
Duke then asked, ”What about really heavy, dense loads that take up very little space compared to their weight?”
I answered, “Take your 442 square feet and set a maximum weight per square foot of 90 pounds, which is 39,780 pounds of freight in a full trailer. In our previous example that took up 19% of your trailer; to get the ‘standard' rate it could weigh no more than 7,560 pounds and anything over that weight, because it could limit other shipments, you’d charge the shipper an excess weight fee. This is calculated by taking the weight of the shipment and dividing by the 39,780 to see what percentage of your weight capacity is required.
"Let's say the load we talked about that's 84 square feet weighed 10,000 pounds instead of 7,500 pounds. 10,000 pounds divided by 39,780 pounds is 0.25138, so round it up to the next whole percentage of your trailer's weight capacity - we replace the 19% factor in the formula with 26%. The rest of the calculations use the same formulas we've discussed. Always charge for the freight rate that is greater.”
“Is there anything else I should know about pricing LTL or partial loads?” Duke inquired.
“One thing that nearly every carrier who hauls partials does, and you need to also, is set a minimum weight and space requirement so you aren’t messing with little bitty shipments that cost more to deal with than the revenue they produce."
"I recommend from experience that minimum be no less than 50 cubic feet or 12% of your trailer space, or you may want to use 100 square feet or 23% of your trailer as a minimum. That's a decision each trucker needs to consider when doing LTL or partials. It really comes down to the markets you serve and what's available in LTL loads that can be combined going in the same direction. If you aren’t careful, you’ll be chasing your tail trying to get multiple little shipments covered.”
“Wow, I'm sure glad I took notes,” Duke said. “It’s a lot of details for someone used to hauling truckload freight. But I can tell you, just since our last meeting, I've already seen a tremendous increase in my revenue. It's already up over $3,000 per month from what it was before. I think I can improve it to an increase of almost $4,000 per month, which will be a nice addition to my bottom line."
Duke smiled, then continued. "But as I develop this new strategy, I may need to call you to fill in the details. Thanks again, Nicky – dinner’s on me, and yesterday I mailed a $1,000 check to Evergreen Habitat for Humanity.”
Follow Up: Duke contacted me a couple of more times over the next few months to help him tweak his LTL pricing structure. Ends up, he’s consistently brought in $3,600 to $4,200 more revenue per month than before he started filling his empty trailer space with LTL freight. He’s reduced his deadhead miles to a more manageable level of less than 900 miles per month. And he feels as he gains greater skill in LTL freight planning, his revenue will continue to increase and deadhead will further reduce. He's also looking into a trailer decking system so he can haul more LTL freight.
Author's Note: If you have difficultly with calculating decimals or dealing with percentages or are math-challenged, it's not recommended you try and do LTL freight as a full-time operation. Filling holes from time to time will generate more revenue to your bottom line. Also, this is a simplified formula for LTL, (believe it or not) and there may be those who disagree with it, but it did serve the author of this piece very well over nearly a quarter of a century. Remember: It's your business and you decide if it's for you.
The story you just read is true. The names and locations have been changed to protect the identities of the parties involved.
Timothy D. Brady is a speaker, business coach, and trucking industry guru. He provides training and educational presentations for small to large trucking companies, logistics organizations, and community groups. Learn more about Tim at http://www.timothybrady.com/