KSM & McLeod Software OPERATIONS PERFORMANCE BENCHMARKING PROJECT

AT A GLANCE

• Revenue per driver is one of the most significant metrics for carrier success. Large carriers averaged the highest at $221,829 per driver. Medium and small carriers averaged $191,759 and $199,011, respectively.

• Large carriers reported the highest rate per mile with a linehaul plus fuel surcharge rate per total mile of $2.14 compared to $1.98 and $1.84 for medium and small carriers, respectively.

• The price of fuel varied among carriers, and large carriers had significant advantages in fuel cost.

• More small carriers − 92 percent − had revenue concentrated in their top five origin states, compared to 77 percent of medium carriers and 53 percent of large carriers.

• The average fleet age was 5.38, and small carriers had the newest equipment, which averaged 4.58 years.

• Medium carriers relied on their top five customers more heavily than large and small carriers. For medium carriers, 63 percent of their revenue came from their top five customers. For large carriers, 39 percent of their revenue came from their top five customers. For small carriers, 47 percent of their business came from their top five customers.

• Large carriers did a better job of retaining drivers and have improved their turnover year over year. Large carriers had the lowest turnover at 64 percent.

• Survey respondents reported an average driver age of 50. Small companies had the oldest driver age − 57 − for company drivers. Company drivers for both large and medium carriers had an average age of 50.

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BENCHMARKING THE TRUCKING INDUSTRY: YEAR THREE EXECUTIVE SUMMARY

The U.S. economy relies on the efficient movement of freight, and motor carriers are facing higher expectations from shippers as time compressions take place within the supply chain. For all carriers, rates, productivity and revenue remain primary concerns, and carriers’ experiences can vary widely based on their size.

The third annual Katz, Sapper & Miller (KSM) & McLeod Software (McLeod) Operations Performance Benchmarking Project suveyed small, medium and large carriers to obtain insight into performance within each of these three groups.

Respondents revealed that large carriers outperformed small companies in a number of areas, including revenue per driver, rate per mile and diversification. Small carriers who responded to the survey, however, operated newer equipment.

MethodologyThis year’s study was based on data covering 215 data elements from the 2015 calendar year. Data was obtained from both users and non-users of McLeod’s LoadMaster Enterprise software, a fully integrated trucking dispatch operations management system and complete accounting software solution designed for the transportation industry. Among LoadMaster Enterprise users, respondents submitted information through an automated benchmarking project download option. Non-users submitted information via a survey questionnaire. KSM reviewed the results and clarified and anonymized the data. Carriers and their related figures were aggregated into their peer groups. The study seeks to grow in future editions in order to provide more granular observations. McLeod and KSM have made the process to participate as easy as possible, with LoadMaster Enterprise users able to simply press a button in the software interface and non-users able to answer questions and submit via a simple survey. To ensure carriers’ privacy, KSM compiles and tabulates the results confidentially.

Participant Overview This year, the comprehensive data elements were collected from 38 carriers with a total of more than 47,381 trucks. Of this truck total, 75 percent were company assets, with 25 percent owner-operator assets. All combined, these companies ran close to 5.3 billion miles, and generated more than $11.9 billion in total revenue. Carriers were broken into three categories: small carriers with fewer than 75 trucks, medium carriers with 76-300 trucks and large carriers with more than 300 trucks.

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Key Findings

Large Carriers Master RevenueSeveral factors came together enabling large carriers to be more competitive when compared to small and medium providers. Not only did the large carriers report lower operating costs, they obtained a higher rate per load and total mile. Large carriers also achieved higher revenue per driver.

Revenue per driver is one of the most significant metrics for carrier success. Large carriers secured the highest revenue per driver, averaging $221,829 per driver, while for medium and small carriers, the figures were $191,759 and $199,011 respectively [see Figure 1].

Additionally, large carriers obtained the highest rate per mile. Large carriers’ revenue per driver was primarily influenced by a higher linehaul plus fuel (LH+F) surcharge rate per total mile of $2.14. Medium and small carriers achieved a LH+F rate of $1.98 and $1.84, respectively.

Geography, direction and length of haul all factor into a carrier’s rate per mile. Overall, large carriers tended to be more disciplined in their approach to their freight network. They also typically use optimization tools to help them understand and optimize their revenue model. Small carriers tend to use optimization tools less frequently.

With small and medium carriers, shippers have more influence on what they’re willing to spend, and carriers in these size categories may not be in the position to demand a higher rate. Small carriers may also allow loyalty to shape their business decisions more so than large carriers, even when the loyalty is one-sided. However, through the use of optimization and data analysis, small and medium carriers may still be able to increase their rate per mile by $0.05 to $0.07.

Interestingly, most carriers of all sizes already possess the data that could help drive optimization. It is typically housed in their dispatch information and transportation management system, and the way that large carriers utilize the data can provide valuable best practices for the small carrier groups. Through optimization, carriers can rely on specific numbers to make strategic business decisions and identify where they can be more aggressive on pricing.

Fuel CostsLarge carriers reported a significant advantage in fuel cost with a fuel cost per total mile that was $0.06 less than medium carriers and $0.09 less than small carriers [see Figure 2].

FIGURE 1 — REVENUE PER DRIVER

50,000 100,000 150,000 200,000 250,000

.500SMALL

MEDIUM

LARGE

$199,011

$191,759

$221,829

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Technology plays an important role in helping carriers manage and minimize fuel costs. Large carriers not only have the buying power to negotiate lower fuel prices, but can also dedicate staff and resources to ensure drivers comply with buying programs.

Although this study didn’t specifically measure fuel stop compliance or evaluate the miles per gallon of tractors, it is well-known that large carriers utilize technology to improve fuel efficiency, such as fuel routing software that can direct drivers to fuel stops that offer the lowest price or previously negotiated deals. Large carriers often invest more in managing driver behavior and can identify and address drivers that need additional training to improve fuel economy. Large carriers also have dedicated people to focus on fuel strategies while small carriers typically have less manpower dedicated to monitoring compliance with fuel programs.

In this year’s study, the average fleet age was 5.38, with small carriers having the newest equipment, averaging 4.58 years. This is likely due to the small carriers catching up with their replacement cycles. In the past few years, carriers slowed down replacement of assets and many got behind their trade cycles. This may have affected the small and medium-size carriers the most, but this year’s study shows that the small and medium-size carriers have caught up in their replacement cycles.

Length of HaulThe length of haul among carriers averaged 479 miles, however, the miles varied widely based on the size of carriers. Small carriers had an average length of haul of 888 miles while medium and large carriers averaged 391 miles and 483 miles, respectively [see Figure 3].

LENGTH OF HAUL

AVERAGE DH

DH% OF LOH

LARGE CARRIERS MEDIUM CARRIERS SMALL CARRIERS

483 391 888

65 77 76

12% 17% 8%

FIGURE 2 — FUEL COST COST PER MILE

FIGURE 3 — LENGTH OF HAUL IN MILES

COST PER MILE

COST PER GALLON

MILES PER GALLON

LARGE CARRIERS MEDIUM CARRIERS SMALL CARRIERS

$0.35 $0.41 $0.44

$2.26 $2.56 $2.72

6.54 6.21 6.23

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Because of their size, small carriers have a smaller network, and may only have one large shipper within their customer base. Small carriers are more likely to operate an “out and back” network, hauling freight wherever the customer needs it and then brokering freight to work their way home.

Because large carriers have a more diversified customer base and a greater understanding of their revenue streams, they can be more selective of which freight they haul, likely choosing the most profitable lanes and length of haul. Large carriers may rely more on data analysis to strategically build density and velocity to increase profitability or market share.

Small and Medium Carriers Concentrate on Fewer Customers

DiversificationMedium carriers had the greatest reliance on fewer customers with 63 percent of their revenue coming from their top five customers. For large carriers, 39 percent of their revenue was from their top five customers, and for small carriers, 47 percent of their business came from their top five customers [see Figure 4].

Small carriers do not have the same sales and marketing programs large carriers may have, and may rely on the owner as the salesperson. This year’s study tracked the top five states for origin and destination in terms of revenue. Here again, large carriers posted numbers that reflect more diversification and less concentration with not as much of their business tied to specific geography. The majority of small carriers − 92 percent − had revenue concentrated in their top five origin states, compared to 77 percent of medium carriers and 53 percent of large carriers.

Carriers of All Sizes Work to Attract and Retain Drivers

Driver RetentionThe study showed that turnover by tenure in the first year was similar for large, medium and small carriers, averaging 71 percent. Large carriers did a better job of retaining drivers and improved their turnover year over year. In the 2015 calendar year, large carriers had the lowest turnover rate at 64 percent. Large carriers reported that they lost more drivers in the first year, but retained more of their drivers than both medium and small carriers after year one [see Figure 5A and 5B on the next page].

TOP 5 CUSTOMERS % OF REVENUE

TOP 10 CUSTOMERS % OF REVENUE

TOP 20 CUSTOMERS % OF REVENUE

LARGE CARRIERS MEDIUM CARRIERS SMALL CARRIERS

39% 63% 47%

51% 77% 55%

67% 88% 62%

FIGURE 4 — REVENUE CONCENTRATION

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CARRIERS INVEST IN NEW EQUIPMENT TO ATTRACT DRIVERSEmployment of heavy and tractor-trailer truck drivers is projected to grow 5 percent

from 2014 to 2024, and companies are starting to invest in new trucks that are more

fuel efficient and easier to drive, which can help attract drivers, the U.S. Bureau of

Labor Statistics (BLS) reported. Some new heavy trucks are equipped with automatic

transmissions, blind-spot monitoring and variable cruise control, BLS said.

TURNOVER RATE

LARGE CARRIERS MEDIUM CARRIERS SMALL CARRIERS

64% 75% 79%

FIGURE 5A — DRIVER & OWNER OPERATOR TURNOVER

FIGURE 5B — PERCENTAGE OF TURNOVER BY TENURE

SMALL

MEDIUM

LARGE

1-2 years 3-5 years 5+ years

25%

20%

15%

10%

5%

0%

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Aging DriversCarriers reported that the average age of all drivers was 50 years old, which highlights an industry issue of an aging driver population.

Small carriers had the oldest driver age of 57, while drivers for both large and medium carriers had an average age of 50. This is consistent with previous reports in which small carriers had an average driver age above that of large and medium carriers. These findings indicate that small carriers could have a greater number of empty seats to fill as their drivers retire over the next several years.

Large carriers have driver schools or partner with driving schools and may be investing more time and resources into training and attracting younger drivers. Small fleets may not make that type of investment and have drivers that have been with them for years.

This year’s report reflected similar themes identified in the prior two surveys. Ultimately the data and results prove that size does matter, particularly in rate per mile, fuel costs and asset utilization. Several factors come together to enable large carriers to be more competitive when compared to small and medium providers, such as the use of technology and a more diversified customer base. However, the gap could narrow if small carriers continue to become more efficient with their use of assets, as demonstrated in our most recent findings. There is also room for small and medium carriers to improve through network optimization, which more carriers may take advantage of to remain competitive.

Carriers reported that the average age of all drivers was 50 years old, which highlights an industry issue of an aging driver population.

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FEDERAL GOVERNMENT TURNS TO VETERANS TO MEET DRIVER SHORTAGE

The transportation sector needs to hire an additional 4.6 million workers in the next

seven years, many of those in the trucking industry, the Department of Transportation

(DOT) reported. The DOT is pursuing a number of programs to encourage military

veterans transitioning to the civilian workforce to enter the trucking industry.

To obtain a commercial driver’s license (CDL), applicants must complete a skills test.

To make it easier for U.S. military drivers to obtain their CDL, the DOT’s Federal Motor

Carrier Safety Administration (FMCSA) has granted state driver licensing agencies the

authority to substitute two years of experience safely operating military trucks for the

skills test.

The DOT is also evaluating options to lower the driving age for veterans. Currently

drivers must be 21 years or older to become an interstate commercial driver, but FMCSA

has proposed a pilot program that would allow some individuals between 18 and 21

to operate commercial motor vehicles in interstate commerce if they received heavy-

vehicle driver training from the military and are sponsored by a carrier.

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In 2013, the latest year for which numbers are available,

the U.S. transportation system moved a daily average

of about 55 million tons of freight valued at more than

$49.3 billion, the U.S. Bureau of Transportation Statistics

outlined in its report Freight Facts and Figures 2015.

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About Katz, Sapper & MillerAs one of the top 60 CPA firms in the nation, Katz, Sapper & Miller (KSM) has earned a reputation as a leader in the areas of accounting, tax and consulting services. KSM has provided tax and business consulting services to the trucking industry since its founding in 1942. Through the firm’s experience with 100-plus trucking and logistics clients throughout North America, KSM has become a national service provider to the trucking industry.

Katz, Sapper & Miller800 East 96th Street, Suite 500Indianapolis, IN 46240317.580.2000ksmcpa.com

About McLeod SoftwareSince 1985, McLeod Software has provided powerful transportation management and trucking software solutions to the trucking industry. These solutions, developed entirely by the company, are comprehensive and support integration with a broad array of complementary logistics products.

McLeod Software is the leader when it comes to software for trucking dispatch operations management, freight brokerage management, fleet management, document imaging, workflow, EDI, and business process automation solutions for trucking, freight brokerage, third-party logistics, and shipper companies in the United States.

With an established base of more than 800 active customers throughout North America, McLeod Software is dedicated solely to the transportation industry. This focus means the company has a deep understanding of the needs and intricate details involved in carrier, broker, and freight management businesses of all types.

McLeod Software2550 Acton RoadBirmingham, AL 35243877.362.5363McLeodSoftware.com

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