With all of the countless responsibilities a micro-carrier must address, why should a company with one to five trucks work on developing a well-defined freight lane?
Too many start-up Owner/Operators look for one big customer that requires they haul full time for him. Though this type of situation may seem great at first (fully loaded, no scrambling to find freight) the truck owner is in the same position he would be running lease for a trucking company, the all-eggs-in-one-basket scenario. But it’s actually worse when you’re the carrier with just one customer: At least most carriers have multiple shipping clients so if one disappeared they could move you, as a lease operator, to another run. As a carrier with your own authority, however, you’d be out of business if your one customer disappeared.
The other method many small carriers use is the broker-to-broker or load board-to-load board freight, selecting the highest-paying freight available, and hoping to find a decent load when the last one is complete. The problem with this technique is you seldom know what’s loading at the completion of each trip. Meeting revenue goals is very difficult, and you tend to get into a constant backhaul basis with many brokers.
Unlike these methods, creating a freight lane comes with many advantages, including:
- Constant Freight: You have constant freight from several different sources, utilizing the same brokers and shippers on a regular basis, traveling along the same routes week in and week out. This regularity gives you much greater control over costs, because you’ll know the truck stops with the lowest-priced fuel.
- Continuing Relationships: You establish continuing relationships with truck service and repair facilities so you are less likely to be gouged on a repair.
- Greater Revenue Control: You have greater control over your revenue by knowing what you’ll be hauling and for what rate.
- Profit From Cheap Freight: When you develop a properly constructed freight lane with the right freight, customers and rates, you can actually profit when it becomes necessary to haul some “cheap freight.”
Sound too good to be true? Let’s look at an example of how these advantages can play out.
First, most freight lanes are made up of multiple legs of different distances. For this example, we will say:
- Point A to Point B is 565 miles.
- Point B to Point C is 1335 miles
- Point C back to Point A is 1300 miles, for a total lane of 3200 miles.
Here, we’ll say the first lane is the low-rate trip. Many carriers would deadhead the 565 miles to avoid putting on any “cheap freight.” But we’re not just any carrier, so we find the most consistent freight possible out of this low freight area. Let’s say it pays 60 cents per mile, or $339. This cheap freight gets us to Point B, where we have a $2,939 load going 1335 miles to Point C, where we have our best load: $3,380 going 1300 miles back to Point A.
Remember, the total mileage is 3,200 miles. So, let’s look at the costs and profit.
Our total cost for the run including driver and owner pay is $4,680 ($1.46 cost per mile), and total revenue for the load $6,663 (2.08 per mile). Net profit for the week is $1,983 — and $339 of that profit represents the 60-cent per mile load for the first leg of the lane.
For argument’s sake, let’s say we decided to deadhead the first leg and just run empty for 565 miles, because we don’t haul cheap freight. If a five-truck operation left that 60-cent freight on the dock, they would lose $1,659 per week ($339 x 5) or about $86,000 per year of profit. Not chump change by any means.
When developing a freight lane, you must find the right mix of shippers and brokers — interspersed with load board freight — and run the lane constantly throughout the year. By doing so, you will create revenue that covers all costs and generates a profit on a regular basis.
The primary advantage of operating your trucks in specific freight lanes is you can tell where the low rate leg will be and develop your revenue in the other legs to cover the cost of it — and still be profitable. Plus, any revenue earned in the deadhead lane goes straight to your carrier’s profit line.
I’ve presented a simplistic example to prove the point, but building a lane that achieves consistent revenue is often a more complex process. Even if creating the lane is more challenging, the objective — and rewards — remain the same: reliable freight providing consistent revenue that meets or exceeds your carrier’s revenue goals.
Good loads and good roads, everyone.