I graduated from high school in 1973 when the country experienced widespread fuel shortages and long lines and rationing. The shock triggered immediate shifts in consumer spending and, in the longer term, spurred automakers to build vehicles that could achieve significantly more miles per gallon. Automakers also changed their marketing to take advantage of the opportunity, and federal regulators began to focus on a national speed limit of 55 mph in an effort to save as much energy as possible – which became law in 1974 and lasted for quite some time. power, over the next decade and beyond.
Moreover, this and other fuel price shocks began to usher in the use of fuel surcharges in trucking and other modes of transportation, a practice that only increased in the years that followed. followed.
Recently, I came across a book called “Visual Intelligence: Sharpen Your Perception, Change Your Life”. Author Amy E. Herman offers readers a goal – a simple challenge to observe more and take on less. “When we go into a situation thinking it will be the same thing we have seen or done before,” she wrote, “we set up our own perceptual filter that will make any change more difficult.”
Earlier this year, we were all amazed at photos of fuel pumps shared on social media that showed the high costs of filling our tractors’ big tanks. Basically, it’s a gross cost shock – I felt the shock too, vicariously, even though I no longer have direct responsibility to pay that bill myself. Before fuel costs plummeted during the Great Recession, I well remember filling up to 280 gallons of capacity in one go and costing over $1,200, with drivers behind me wondering how I could afford it. I tried to explain that a full tank would get me nearly 2,000 miles on the road, and the rates included a hefty fuel surcharge. This information did not seem to resonate.
Although prices have fallen by some measures recently, there is evidence that the high fuel horror persists, and for good reason. The national average price remains well above what it was at this time last year: nearly 4 in 10 survey respondents here on Overdrive this week simply noted that “prices need to go down” further when asked about recent declines, as seen in the chart.
I wondered how owners thought about fuel costs versus other costs of doing business. Last year, the fuel situation was not as shocking as it has become this year, of course, but there was already enough to worry about: shortage of parts, trucks, trailers, rising costs labor and repair times. All of these were dominating discussions about trucking companies.
[Related: Parts delays appear to be the rule for repairs so far this year]
I recently asked a small group of owners what their current cost per mile is for fuel. Responses ranged from less than 50 cents per mile to over $1. Be careful when comparing your own numbers to those of others. Every owner’s fuel cost is relative to what they’re doing and with what – truck owned, trailer pulled, weights, terrain, heck even tire types, as we know. There are owners who are happy to have no payment for the truck right now, even though their mpg may be 6 and the owner with the new gear and truck rating gets 8 mpg.
About those higher mpg owners, though: remember, depending on how much the truck is paid for, they most certainly reduce variable costs and could add up to 20-30 cents profit per mile to their bottom line. net by taking advantage of the surcharge based on the average fuel consumption of a fleet. That can be a profit advantage of $20,000 to $30,000 in a year, based on a 100,000 mile run.
The point is this: when considering changes, get out of a gross revenue mindset and focus only on what can bring the most to the bottom line.
Will slowing down your top speed increase your profit?
This suggestion raises the ire of many. Still, I’ve heard from many owners recently who have taken it upon themselves to slow down. One I know decided to lower the top cruising speed more drastically – from 67 to 57 mph. This change improved the mpg from 8 to 10 mpg, and the best part is that the owner’s dedicated freight and tracks gave it time to do it without losing a single charge.
It’s not possible for everyone, I know, given the variability of freight/tracks for so many people, but there’s a lot we can all do. A few years ago I described how I learned as an owner the importance of what I will call economic efficiency. As with gallons of fuel mileage, I needed to get the most out of every dollar invested in hauling every load. The downside we all face is the inability to get enough miles to really dilute the overhead like a larger fleet can. Every owner-operator needs to find the right place for their own business.
Faced with high fixed and variable costs, we are essentially left with two options. Eliminate payments due with more miles and a bigger 1099, or limit miles and carry higher value loads for the week with a potentially higher net profit. As noted above, additional revenue above the cost of just 20 cents per mile can improve the net by $20,000 on 100,000 annual miles.
The trucking industry likes the biggest numbers possible – there’s a reason fleets use gross revenue estimates to entice owner-operators to jump into their business or sign a lease-to-own contract. trucks. However, whenever you see this, ask yourself (and certainly the fleet) which is more important: net income, profit.
Every few weeks, in my process of helping owner-operators review their numbers, we review cumulative, monthly and weekly profit and loss. My goal is to try to keep them grounded in a way that helps avoid emotional overreaction or underreaction, as the case may be. In 2021, one of these owners had a 2021 fuel cost per mile of $0.441 – his current cost per mile in 2022 to date was $0.672 on average, a difference of $0.231 per mile. Still, a second owner had been able to make significant adjustments—his 2022 fuel cost to date was just $0.073 per mile more than any ’21.
While some owner-operators’ gross fuel spend may have increased to double their historical experience, don’t measure your business’ progress in raw numbers alone. As with rate confirmations for the loads you carry, complete and accurate information is more vital now and always will be. Prepare to make informed decisions. Dissect your information, look for opportunities for improvement and, if you need help, find that unbiased third party for a clear look.
[Related: How Steve Kron took his 2001 International above 10 mpg]
Find more information on fuel cost and business management and analysis, among a myriad of other topics, in the Overdrive/ATBS-co-product “Business Partners” handbook for new and established owner-operators, a comprehensive guide to running a small trucking business. Click here to download the new 2022 edition of the Partners in Business Handbook for free.
