TRUCKLOAD TRANSPORTATION: ECONOMICS, PRICING & ANALYSIS

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Section 1 provides a general introduction into the basic components of the truckload transportation industry.  These two chapters provide the foundation for the more advanced concepts presented later in the book. 

Chapter 1:  INTRODUCTION TO TRUCKLOAD TRANSPORTATION
Chapter 1 provides a general introduction to the truckload industry.  Key topics include carrier structure and management, types of trucking operations, driver hours-of-service rules, driver turnover and an overview of truckload operating costs.  Key topics include:

• The Trucking Business Cycle
• The Carrier Organization Structure 
• Types of Trucking Operations
  • Linehaul
  • Regional
  • Shorthaul
  • Dedicated
• Mileage Types
  • Billed Miles
  • Loaded Miles
  • Empty Miles
  • Out-of-Route Miles
• Revenue Types
  • Linehaul Revenue
  • Accessorial Revenue
  • Loaded Revenue Per Mile
  • Net Revenue Per Mile
• Truckload Operating Costs
  • Variable costs including driver pay, fuel, maintenance and insurance
  • Fixed costs including tractor costs, trailer costs and overhead
• Driver Hours-of-Service Regulations
• Driver Turnover

Chapter 2:  THE TRUCKING BUSINESS MODEL
Chapter 2 provides a detailed analysis of how a trucking company generates revenues and measures profits.  The chapter provides a detailed analysis on the interaction of utilization, empty miles, length of haul and revenue per mile.  Key topics include:

• Operating Ratio Analysis and Sensitivity Analysis 
  • Utilization and Cost Per Mile
  • Length of Haul and Cost Per Mile
  • Empty Miles and Net Revenue Per Mile
  • Break-Even Utilization Analysis
• The Levels of Trucking Cost Structure
• Primary Cost Drivers for Carriers
• Activity-Based Costing
  • Designing the Cost Model
  • Applying the Cost Model
• Revenue Per Truck Per Day and Profitability

Section 2 covers all the key components of one-way pricing strategy and analysis, as well as network profitability analysis.  

Chapter 3:  INTRODUCTION TO ONE-WAY PRICING
Chapter 3 provides a general introduction to one-way pricing including lane definitions, accessorial charges, fuel surcharges and the basics of a one-way pricing agreement.  The chapter also covers the state-to-state matrix and pricing regions based on zip code definitions.  Key topics include: 

• Lane Types and Definitions
• Accessorial Charges
• Fuel Surcharges / The Fuel Peg 
• Detention Charges / Power Detention / Trailer Detention
• Sample One-Way Contract
• The Pricing Matrix

Chapter 4:  CORE CONCEPTS IN ONE-WAY PRICING
Chapter 4 covers all the basic variables and concepts considered by a carrier in the development of one-way pricing.  The chapter provides a detailed breakdown of the load cycle including dock time, transit time, buffer time and dwell time.  The chapter also includes a detailed analysis of the roles of length of haul, empty miles and utilization in the one-way pricing process.  Key topics include:

• Cycle Time
• Buffer Time
• Length of Haul and Cost Per Mile
• Empty Miles and Net Revenue Per Mile
• Profitability Optimization
• Utilization Maximization
• Revenue Per Truck Per Week / Per Day

Chapter 5:  ADVANCED CONCEPTS IN ONE-WAY PRICING
Chapter 5 covers the advanced areas of one-way pricing strategy, with particular emphasis on capacity and balance as well as backhaul and headhaul markets.  The chapter also details all the key questions a carrier must ask both internally and externally in the development of one-way pricing.  Key topics include:

• The One-Way Pricing Process
• Key Questions for Lane Pricing and Analysis
  • External Lane-Related Questions
  • Internal Carrier-Related Questions
  • External Shipper-Related Questions
• Network Capacity and Balance
• Headhaul Markets
• Backhaul Markets
• Seasonality and One-Way Pricing
• Round-Trip Pricing

Chapter 6:  NETWORK MANAGEMENT AND OPTIMIZATION
Chapter 6 covers the basic strategies used by carriers on a real-time basis to manage the network and how these tactics influence the pricing decision.  The chapter includes a detailed presentation of the linear programming optimization formulation of the basic tractor and load assignment model.  Key topics include:

• The Tractor and Load Assignment Problem
• Load Assignment Optimization Model
• Capacity and Balance Management
• Freight Solicitation
• Strategic Load Swaps
• Customer Network Diversification Concept

Chapter 7:  OPERATIONS AND PROFITABILITY ANALYSIS
Chapter 7 provides a number of detailed analysis reports for measuring key metrics in a truckload transportation network.  Sample reports cover such topics as tractor movement, empty mile analysis, revenue per mile analysis, load cycle time, and capacity and balance.  The chapter also includes an overview of carrier income statements and on-time service reports.  Key topics include:

• Fleet Level Analysis Reports
• Customer Level Analysis Reports
• Market Level Analysis Reports
• Lane Level Analysis Reports
• Carrier Income Statements
• On-Time Service Reporting

Section 3 provides highly detailed coverage of all phases of dedicated fleet pricing and analysis along with detailed analysis of how to set appropriate margins.

Chapter 8:  INTRODUCTION TO DEDICATED PRICING

Chapter 8 covers the basics of dedicated fleets including example dedicated fleet solutions, the reasons for dedicated fleets, the common dedicated contract structures, and the primary steps in the dedicated pricing and analysis process.  Key topics include:

• Common Types of Dedicated Fleets
  • High Utilization
  • Short Haul Networks
  • Multi-Stop Distribution
• Common Dedicated Contract Structures
  • Fixed-Variable
  • Over-Under
  • Utilization Scale
  • Backhaul Revenue Sharing
• The Dedicated Fleet Contract
• The Dedicated Fleet Invoice
• The Steps in Dedicated Pricing
  • Fleet Design
  • Cost Forecasting
  • Margin and Pricing

Chapter 9:  DEDICATED PRICING AND COST FORECASTING
Chapter 9 provides a detailed spreadsheet model for forecasting costs and determining pricing for a dedicated fleet proposal.  The chapter includes sample pricing for a dedicated fleet in the common contract structures of fixed-variable, over-under and utilization scale.  The chapter specifically covers methods for assigning revenues to each rate component of a fixed-variable rate structure, an over-under rate structure, and a utilization scale.  Key topics include:

• The Dedicated Pricing Spreadsheet
  • Fleet Parameters (trucks, trailers, drivers, utilization)
  • Driver Pay
  • Variable Costs
  • Fixed Costs
  • Overhead Costs
  • Pricing and Analysis
• Dedicated Fleet Pricing Example
  • Fixed-Variable Pricing Design
  • Over-Under Pricing Design
  • Utilization Scale Pricing Design
• Handling On-Site Management Costs

Chapter 10:  ESTABLISHING THE PROPER MARGIN FOR A DEDICATED FLEET
Chapter 10 provides a very detailed financial analysis of the risks and weaknesses of establishing the margin for a dedicated fleet based exclusively on a target operating ratio.  Key areas of the analysis include the impact of utilization levels and trailer-to-tractor ratios on the dedicated fleet margin decision.  The chapter then introduces a recommended approach for determining margin on an investment analysis and operating cash flow basis.  Key topics include:

• The Risks of Operating Ratio Pricing
• Critical Operating Ratio Pricing Mistakes
• The Weakness of Operating Ratio
• Utilization Sensitivity Analysis
• Trailer Ratio Sensitivity Analysis
• Investment-Based Dedicated Pricing
  • Operating Cash Flow
  • Net Present Value
  • Internal Rate of Return
• Other Considerations in Investment-Based Pricing
  • Monthly Cash Flows
  • Project Risk and Required Rates of Return
  • Pricing and Cost Inflation
  • Dual Pricing Criteria:  Operation Ratio and Internal Rate of Return

Chapter 11:  SPECIAL TOPICS IN DEDICATED PRICING
Chapter 11 covers a variety of unique considerations in dedicated pricing including backhaul revenues and the design of the driver pay structure.  The chapter also includes several methods for evaluating dedicated fleet operations including tractor utilization charts (TUC).  Key topics include:

• Estimating Backhaul Revenues
• Backhaul Revenue Sharing Process
• Customizing the Dedicated Driver Pay Program
• Analysis of Driver Pay Structure Alternatives
• Matching Driver Pay to Dedicated Revenues
• Evaluating Dedicated Fleet Performance
  • Plan vs. Actual Financial Analysis
  • Tractor Utilization Charts (TUC Charts)

Chapter 12:  SEMI-DEDICATED PRICING AND DESIGN
Chapter 12 focuses on pricing situations where the operating solution calls for a dedicated fleet but the pricing must be in a form of one-way or activity-based pricing.  The chapter includes a highly detailed analysis of a mileage band network including fleet sizing, dedicated pricing, mileage band pricing and fleet design sensitivity analysis.  Key topics include:

• Mileage Band Pricing and Design
• Slip-Seat Pricing and Design
• Converting Dedicated Pricing to One-Way Rates
• Modeling Short Haul and Mileage Band Fleet Sizes
• Hybrid Dedicated / One-Way Solutions
• Fleet Size Simulation Modeling

Section 4 includes two detailed chapters covering all areas of bid response and analysis.  Both chapters provide extensive information and strategies for designing "package" bids.

The case studies in Chapter 14 provide detailed examples of bid response analysis and strategy.  The cases cover both one-way pricing and dedicated fleet pricing. 

Chapter 13:  BID ANALYSIS AND RESPONSE
Chapter 13 summarizes the entire bid process from the perspective of both the shipper and the carrier.  The chapter covers carrier qualifications, bid summary analysis and the bid optimization and lane packaging process.  The chapter also includes a sample bid analysis from the perspective of three different carriers, a large national carrier, a regional carrier and a small local carrier.  Key topics include:

• Request for Proposal (RFP) Contents
• Carrier RFP Qualifications
• Carrier Summary Analysis of Bid Contents
• Bid Response Strategies by Carrier Type
  • Large National Carrier
  • Regional Carrier
  • Local Short Haul Carrier 
• Bid Optimization Tools and Strategies
  • Carrier Capacity Constraints
  • Shipper Carrier Selection and Business Award Constraints
• Lane Packaging in Bid Analysis
• Formatting Shipment Data in RFP's

Chapter 14:  CASE STUDIES IN BID RESPONSE ANALYSIS
Chapter 14 includes four detailed case studies in bid response analysis.  Each case study includes each step in the bid response process including preliminary analysis, follow-up questions to the shipper, solution design, pricing design and the final proposal.  Case studies include:

• Case 1:  Traditional One-Way Bid
  • Capacity and Balance Analysis
  • Network Mapping
  • Shipper Follow-up Questions
  • Lane-by-Lane Pricing Strategy
• Case 2:  One-Way Bid with Lane Packaging
  • Capacity and Balance Analysis
  • Out-and-Back Packages
  • Balanced Tour Packages
  • High-Volume Network Packages
• Case 3:  Regional Distribution Bid
  • Delivery Schedule Design
  • Fleet Sizing and Estimating Trailer Requirements
  • Dedicated Pricing and Dedicated Driver Pay Design
  • Hybrid One-Way / Dedicated Solution
• Case 4:  Dedicated Fleet with Fixed-Variable Pricing
  • Extensive Fixed-Variable Pricing Design
  • On-site Management
  • Extra Trailer Pricing
  • Implementation Schedule

Section 5 includes a variety of concepts specifically for use by shippers.  The chapter provides a detailed overview of different shipper cost metrics with particular emphasis on Cost Per Ton and transportation cost variance analysis. 

Chapter 15:  KEY CONCEPTS FOR SHIPPERS

Chapter 15 provides a variety of shipper-specific truckload analysis concepts.  The chapter includes a detailed analysis of the risks of measuring and benchmarking truckload transportation costs on a per-unit-of-product basis.  The chapter also includes a detailed approach for allocating truckload transportation costs, particularly the cost of dedicated fleets.  Key topics include:

• Shipper Transportation Cost Measurements
• Flexible Budgeting and Transportation Cost Variance Analysis
• Network Analysis with Carrier Shipment Data
• Allocating Truckload Transportation Costs
• Dedicated Fleets and Marginal Cost Analysis
• Shipper Cost Strategies for Short Haul Pricing
• Diseconomies of Scale in the Truckload Carrier Network
• Volume-Based One-Way Pricing
• Outsourcing Private Fleets to Dedicated Carriers

While this chapter is intended specifically for shippers, shippers will benefit greatly from the entire book.  By reading the entire book, shippers will develop a much deeper understanding of the truckload business model and the financial and operating challenges faced by all truckload carriers.  As a result, shippers will become better partners for carriers and improve their ability to effectively negotiate with their truckload transportation providers.

Technical Tips are included at the end of several chapters.  The tips provide truckload transportation-specific applications of many common spreadsheet and database features.

The technical tips cover many popular spreadsheet topics such as Pivot Tables, the '

"Table" feature, net present value analysis, the vlookup function and various text functions.

The tips also include advanced topics such as the application of the "Solver" feature to the load assignment problem and advanced network sensitivity analysis using a "Monte Carlo" simulation. 

The book also includes a number of technical tips at the end of certain chapters.  The tips provide truckload transportation applications of many common spreadsheet and database features.  Technical tips include:

• Basic database report design in Microsoft Access® (Ch. 7)
• Vlookup and Hlookup spreadsheet functions (Ch. 3)
• Solver / Linear Programming spreadsheet feature (Ch. 6)
• Spreadsheet design for time-based calculations (Ch. 7)
• Net Present Value and Internal Rate of Return Spreadsheet Setup (Ch. 10)
• Spreadsheet design for Monte Carlo simulation sensitivity analysis (Ch. 12)
• Sensitivity analysis using the "Table" spreadsheet feature (Ch. 12)
• Using "Pivot Tables" in spreadsheets (Ch. 13)
• Text function tips and tricks for manipulating data in spreadsheets (Ch. 13)