Operating a trucking company is no easy task, especially as the industry continues to face certain challenges, such as driver shortage, significant competition, trade uncertainty, and government regulations. Because of this, it’s important to consider the most pivotal expenses that carriers have to bear from an operational perspective. Understanding these costs and their impact will ultimately lead to a more sustainable, profitable business model.
DRIVER COMPENSATION
Driver compensation, inclusive of wages, benefits, and bonuses, is the largest source of cost increases incurred by motor carriers. Driver wages account for $.56 CPM while benefits account for $17.2 CPM. Bonuses have recently been robust as carriers seek to entice new entrants into the industry and to retain their existing workforce.
Truck driver shortage continues to be a relevant topic in the industry, however, the changing demographics of the industry’s workforce is also a key discussion point. Approximately 60% of drivers are 45 and older with less than 5% in the 20-24 age bracket. As a large percentage of drivers near the retirement age, wages and benefits have steadily continued to increase on a year-over-year basis.
FUEL
Fuel costs rank consistently as one of the largest cost centers for carriers on an annual basis, accounting for approximately 30-40% of a carrier’s CPM. Private fleets have recently reported that per-mile fuel costs have increased by more than 8% from 37 cents to 43 cents over the year, however, this remains well below the peak fuels costs of 2008 after the Great Recession.
Fleet size is an important characteristic that can effect a carrier’s fuel costs as larger fleets are able to leverage their size in terms of diesel buying power. Therefore, fuel costs per mile decrease as fleet size increases – larger fleets spend an average of $.07 CPM less on fuel than fleets with 250 or less trucks.
EQUIPMENT
The age, type, and turnover rates of a carrier’s equipment have a direct effect on several key cost centers. Truck-tractors are held for an average of 7.6 years and are typically replaced once they’ve hit 695,000 miles.
Truck/trailer lease and purchase payments also come into effect, especially since many carriers purchase trucks and trailers in response to capacity constraints in strong economic periods. Truck/trailer payments have risen steadily for the past several years with the average cost at $.29 CPM, influenced in part by growing equipment costs.
REPAIR & MAINTENANCE
Repair and maintenance (R&M) costs have increased by more than 60% over the past year. When fleets utilize their equipment more intensively, costs go up due to wear and tear. Newer models are also more expensive due to the adoption of new technologies, which is creating costs that didn’t exist before.
Labor costs are another factor influencing the increase in R&M costs over the past decade. The industry has struggled to recruit enough diesel technicians to offset the growing demand for their labor, and it’s estimated that demand for diesel technicians will grow by 10% until 2026.
INSURANCE PREMIUMS
Both internal and external factors impact a carrier’s insurance rates and costs, which is often independent of their crash history and safety ratings. Premiums account for $7.5 CPM, based on strategies that carriers employ to balance insurance costs with operational risks. Larger fleets often self-insure or utilize high deductibles while smaller fleets will also attempt to increase per-truck deductibles.
COST BY REGION
Carriers with operations concentrated in the Southwest and Southeast reported the lowest operating costs. The highest costs are incurred by carriers in the Northeast, which has high levels of traffic congestion and major toll facilities along with the West where trip lengths are longer and traffic congestion can also be challenging.
The steady uptick in costs can largely be attributed to a strengthening economy. Driver wages/benefits continue to be the most prevalent cost center for carriers as the driver shortage exerts upward pressure on wages. When carriers are able to make smart financial decisions after taking all of these factors into consideration, their operating ratio should remain consistent.