In the trucking industry, it is quite easy to get lost exclusively in the complexity of managing drivers. But it is important to recognize: If you do not change the loads the drivers have to move, you are not going to change the revenue. You may reduce empty miles (a bit), do a better job getting drivers home or picking up loads on time, but the major ROI is in load selection.
While managing drivers is hard, getting the right loads in the right lanes at the right price is its own juggling act. The nature of load planning is complex and poses several challenges carriers should be addressing to stay competitive.
Revenue Fluctuations are Hard to Calculate
The problem with truckload trucking is that the profitability of moving truckload shipments depends on both the profitability of the load, along with the opportunities for drivers at both the origin and destination of the load.
The graph below shows the effect of moving a load from New Jersey to southern Alabama. If we move this load, this might mean one less empty to Pittsburgh, but then one less load from Pittsburgh to Chicago.
At the same time, moving the load into southern Alabama might mean that we do not have to move a truck empty from Texas to Alabama, but now we might take a low-paying load from Texas up to Wisconsin, at which point we would then run empty to Chicago.
If we add up all of these changes, our net profit of $350 for our load from New Jersey to Alabama becomes a net overall profit of $225, which means it would be positive even if our $350 load only paid $150.
Behind all these adjustments to loaded movements is a host of operational changes required to manage the drivers to make this happen. While these can be complex, at the end of the day the primary economic driver is the impact of the changes in revenues.
Timing is Everything
It would be nice if we picked up loads the way we picked up items from a supermarket shelf, but the real world is quite different. Commitments to loads are made on a range of time scales, each with their own drawbacks.
Contracts & Commitments
The largest source of freight for most carriers comes in the form of contracts that are negotiated annually or quarterly. Carriers will make hard commitments of the price they will charge for loads in each lane, along with soft commitments for the number of loads they will move each week.
In addition to contract commitments, carriers may make advanced commitments to pick up loads that are several days in the future, typically far enough in advance that they are unable to pre-assign a driver.
It is common for carriers to avoid making commitments until they can actually pick the driver that will handle a load. This creates a problem of making load assignment decisions on the fly, or based on gut instinct and tribal knowledge.
The load acceptance system from Optimal Dynamics can plan detailed driver movements into an uncertain future. If our AI model thinks the carrier will have six or eight different drivers that could move a load, then the system can say with high confidence that the carrier will be able to cover a load.
This advance planning capability gives us more flexibility to pick loads before other carriers would be able to make such a commitment. This means we can identify the loads paying the most that actually fit our network.
Immediate Loads
Immediate loads typically have to be picked up 0-2 days into the future where a carrier is often making a commitment for a specific driver. These may be contracted loads from a major account, or spot loads from last minute requests or load boards.
Optimizing loads in the short term gives us the ability to quickly identify the best loads to cover now versus turning over to our brokerage (or returning to the shipper).
It is important to emphasize that while contracts are negotiated up to a year into the future, the actual acceptance of loads from a contract can occur as little as a few hours prior to dispatch. Carriers might hold capacity for a major account that does not tender loads until late in the afternoon for pickup the next day. Many carriers will not always have the capacity to cover all these loads.
Asset versus Brokerage
The decision of whether a load will be covered by one of a carrier’s own assets or outsourced to a brokerage (internal or external) may be made several days into the future, or at the last-minute. Having the visibility to assess the potential value in real-time and in advance are integral to making the right load assignment decisions.
Optimal Dynamics can help carriers make more informed decisions, faster. See how you can address this industry challenges with our solutions today.
