Pricing and costing are two very different issues. Recently, I met with the President of a client; he was questioning the reported profitability of a specific customer. They were invoicing at a reasonably high rate based on the lane served and the service they anticipated providing. However, as we examined the data, it turns out they were doing a number of things outside of the original service design including more trailers than expected in the pool, relaying the loads between multiple drivers, and dropping the loads for several days at a time, just to name a few (please see 'The ABCs of Profitable Fleet Management' video). No one was pretending these inefficient activities didn't cost money, each time it happened there was some reason that was believed to justify it, but when they were able to see exactly how much each incident cost and exactly how it affected the profitability, it became much clearer why the profitability was so disappointing.

Using the above examples, each additional trailer in a shipper pool requires that additional cost be allocated to the loads based on the size of the trailer pool and the trailer-days invested. Each time a load is relayed or swapped, additional non-revenue miles are incurred and typically cost driver wages, fuel, maintenance, etc. Likewise, dropping a load for any length of time results in similar cost, plus additional equipment cost for the time spent sitting in a yard.

Pricing is about how you intend to provide the service; Costing is about how you are actually moving the freight.

Knowing the actual cost of each load is critical. Without knowing the cost of moving each load, you cannot know the cost/profitability of each market, lane, or even each customer. Even more critical is to act on that knowledge. First, determine which customers, which lanes, which markets need immediate attention – this should, of course, be based on the actual profitability of that freight. Second, create an internal action plan based on how to improve the service provided, operationally (and otherwise), to reduce cost or improve profitability – this may include any number of factors such as specific lane solicitation, trailer pool management, better driver communication to reduce or eliminate swapping out loads, etc. Finally, be ready to work with the shipper to determine other means by which you may be able to reduce cost and improve profitability. Most of your customers are trying very hard to do these same things right now, most understand and can be very helpful in your efforts to improve your profitability.

It goes without saying that these are tough times. It also goes without saying that many carriers are in survival mode right now and don't really think Profitability Management is a practical effort at this point in time. However, now is in fact the most ideal time to begin to understand the actual profitability of each part of your business, to begin to maximize what you are actually doing well, to improve what can be improved, and, at the very least, to understand the rest.