The trucking business is a very competitive business, there are so many great truck drivers who tried to get into the trucking business and failed in that attempt.
There are statistics that 970 carriers with five or more trucks were forced to close their business in 2013. The line between profit and loss is very thin, one wrong decision can bankrupt the company.
Starting and growing a trucking company on your shoulders takes a lot of hard work and dedication. Leading your company takes a disciplined approach. You need to know how to deal with people in a business sense, to make the right decisions and to take the right actions.
Is it really profitable like people think?
If it was so easy to do, in the last few years we would not have thousands trucking companies who have lost their equipment and gone bankrupt.
The factors that directly influence the trucking industry are
- Variations of the fuel prices
- Ups and downs of production of goods
- Big competition
- Regulatory requirements
- Unpaid invoices or payment delays
Over the last few years trucking industry was in the golden years, with high profits, not so much regulation, steady fuel cost. Because of this positive income, many trucking companies were opened.
But unfortunately, the hard conditions and requirements over the past years brought low profit and led many of these companies to close their business.
According to the National Association of Small Trucking Companies (NASTC), only 15% of newly formed trucking companies will survive in their second year of operation.
The American Transportation Research Institute (ATRI) released the results of 2015 update on the rise of the trucking industry operational cost from 2008 through 2014.
What is the average profit of trucking company
The success of the trucking company depends on the profit that the company will make on the annual base. Companies that operate their trucks for many miles without a load will lose money, which means that there will face drop of the profit and increments of their expenses.
Every company has different profit, but on average base the numbers say it is 6-8 percent profit of the annual income per truck.
If the average profit for a trucking company on annual base is 7% of the gross annual income per truck and we have a total profit of $200,000 than we get
- 93% or $186,000 to cover the expenses
- and 7% or 14,000 average clear profit per truck
Like we said before, we have expenses and we should never forget about them because if we forget we might spend more that we can afford, more that we have and that can be catastrophic for your company.
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What is killing profit in trucking business
The best way to be safe is to be aware of the expenses that kill profit if you mist calculate. Having correct information’s in this field will give you the chance to make the best freight price and to lead your company in the right direction.
- Costs of fuel
- Cost of labor
- Administrative costs
- Expenses for Insurance
- Personal, Business, and Self-employment taxes
- Cost of regular vehicle maintenance
- Truck repairs
- Vehicle Registration
- Trailer Registration
- License fees
- Medical Exams
- Monthly truck and trailer payments
- Rental costs for office space
- Cost of deadhead miles …
If your expenses are higher than the income, you and your company are in a dangerous situation. When you make a freight cost strategy you need to make profit, but you also need to have a competitive price on the market. How to do that?
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To do this you need to pay attention on your cash flow and the cost of deadhead miles to make the correct calculations.
Cash Flow – You bought new trucks and you spend a lot of money on that? That is great, but if you get to the point where you cannot pay the regular expenses in the next period, you will run out of cash.
This is the point where you, with the new trucks will not be able to transport loads which means unnecessary downtime of your vehicles. This is very bad for your business, but your competition will love you for that.
If you spend a lot of money and rely on customers to pay on time to continue your freights, you may face an empty pocket and no position to keep up with your work.
As a trucking company you have to know that you should not rely on randomness. Having a slow-paying client is part of the job and by the way one of the worst enemies for every trucking company. Be prepared for everything!
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It is always a good way to have some money on the side to cover your spends like fuel, drivers, unexpected repairs in case your client pays latter.
You need to make sure that you have the money to do your work. Do not let to be caught in the corner.
Cost of deadhead miles – you are delivering a load to Chicago and you forgot to find a load from there and connect it to the truck to the back home? Well, you made a mistake that cost you money. As a company you have to learn to look step forward to pull the best of the given situation.
How to make it more profitable
In order to avoid unnecessary spending and increase the profit, trucking companies must implement a system where expenses will be minimized and totally controlled.
By having all of your company expenses in one place, you will know exactly how much money you need to run your business. Having these information’s will help you to set a minimum amount per mile to be profitable.
Here a few segments that you need to calculate, so you never undercharge a load:
1. Fixed Costs
Fixed costs are expenses that your company is having whether your trucks are on the road or they are in the parking lot.
- Vehicle Registration
- Trailer Registration
- Property leases
- Truck payment
- Health insurance …
2. Variable Costs