Executive Briefings

Analyzing Profitability for Motor Carriers

Activity-based costing (ABC) enables motor carriers to analyze different segments of their business for profitability, says Ken Manning, president of Transportation Costing Group. But pinning profitability down precisely can be very difficult in an industry where daily changes in the weather or road conditions or traffic congestion can push a shipment into the red.

"It is very difficult for carriers to say, 'I am profitable here but not there,'" Manning says. "They have to apply some technology and do some deep analysis to be able to break that down and look, for example, at all the freight picked up on Monday vs. Thursday, or picked up from this company in Detroit vs. another customer in Dubuque. We help them break it down by developing costs for individual shipments and matching that up with the revenue that shipment earned. Then we can roll that up by whatever parameters are identified with the shipment." Identifying shipment costs is becoming easier as more carriers adopt on-board recording devices that automatically tally the amount of time spent servicing each shipment, he says.

ABC analysis enables carriers to be more strategic in their decisions, Manning says. "It is like a grocery store that has a sale on meat - it makes sense for them to do that in order to increase profits on other items in the store. A good grocery store manager, though, will know how much he lost on the meat, and that figure had better be less than what he gained on other items. It is the same for trucking companies. A carrier might lose money on freight carried for a customer in one area, but more than make it up with different freight for that customer in another area. So you don't just fire the customer -- you work to make the overall account profitable."

To view this video in its entirety, click here.

"It is very difficult for carriers to say, 'I am profitable here but not there,'" Manning says. "They have to apply some technology and do some deep analysis to be able to break that down and look, for example, at all the freight picked up on Monday vs. Thursday, or picked up from this company in Detroit vs. another customer in Dubuque. We help them break it down by developing costs for individual shipments and matching that up with the revenue that shipment earned. Then we can roll that up by whatever parameters are identified with the shipment." Identifying shipment costs is becoming easier as more carriers adopt on-board recording devices that automatically tally the amount of time spent servicing each shipment, he says.

ABC analysis enables carriers to be more strategic in their decisions, Manning says. "It is like a grocery store that has a sale on meat - it makes sense for them to do that in order to increase profits on other items in the store. A good grocery store manager, though, will know how much he lost on the meat, and that figure had better be less than what he gained on other items. It is the same for trucking companies. A carrier might lose money on freight carried for a customer in one area, but more than make it up with different freight for that customer in another area. So you don't just fire the customer -- you work to make the overall account profitable."

To view this video in its entirety, click here.