If you're in the drayage business, you know you're a vital link in the supply chain, facilitating the movement of goods between ports, rail heads, and distribution centers. However, being indispensable doesn't make you immune to operating costs. You might be feeling the squeeze of rising expenses and wonder how to make your business more profitable - or at least how to fight unfair charges with certain and specific tools. Don't worry---you're in the right place. This blog aims to provide an in-depth understanding of the modern operational costs - and pitfalls - involved in drayage, offering strategic tips to manage these costs more effectively.
The Landscape of Modern Drayage Operations
Let's face it, the world of drayage has never been more demanding. From low import volumes to fuel price spikes to inflation and intense competition, the costs seem to mount endlessly. Just when you thought you had it figured out, some new line item pops up on your monthly expense report or in a bill from a shipper or ocean carrier. But understanding these costs is the first step in managing them. Variables like fuel costs, often at the mercy of geopolitical tensions, can skyrocket overnight. Then there's inflation, making everything from spare parts to a cup of coffee for your driver more expensive. And let's not forget the burgeoning competition, which exerts pressure to lower your prices while your operating costs stay the same ,- especially the case in today's market where import volumes are still low; although rising month over month as supply chains level out back to norms. It's a challenging balancing act.
Fixed Costs: The Inescapable Truth
While variable costs may oscillate, fixed costs are your constant companions. These are the expenses you have to pay, come what may.
The Mighty Equipment
Take, for instance, your fleet. Those trucks and trailers are substantial investments, costing upwards of $150,000 for a new truck. More, if electric. And the costs don't end with the purchase. Each piece of equipment comes with its own set of maintenance demands and depreciation over time.
Over the last half decade, because of laws passed in CA, fleet ownership and management has become more commonplace as owner operators leave the industry or transition with their organizations to employee models.
Covering Your Bases with Insurance
Then there's insurance---another hefty line item. Whether it's liability or asset protection, you could be looking at an annual bill of around $15,000 or more. It's non-negotiable and critical for legal operation and risk mitigation. Drayage is still and likely always will be a traditional industry in the sense that it depends on people working machines - not the machines themselves - to move commerce. Because of that, insurance is always going to a present and real factor for trucking companies.
Navigating Through Licensing and Compliance
You can't ignore licensing and compliance either. These cost around $2,000 annually, but they're indispensable. Your business simply cannot function without them. These range wildly depending on the Port Complex your business operates in, but clean truck fees, special licenses, commissioner audits, etc. all offer a mounting compliance cost.
The Ever-Changing Variable Costs
Unlike fixed costs, variable costs have the decency to fluctuate, which means you have some control over them.
The Fuel Conundrum
Fuel is perhaps the most volatile of them all. One day it's $2.50 per gallon, the next it could be $3. That's a cost you have to pass on to the consumer or eat yourself, impacting your profit margins. With freight volumes still low compared to pandemic highs, carriers compete for every dollar and every load - offering competitive pricing is a must, but a variable cost like fuel - especially fuel - eat into every dollar of profit.
The Human Element: Labor
Labor, though variable, isn't entirely within your control. The size of your fleet will dictate the number of drivers you need, and their salaries, often starting at around $45,000 annually, can quickly add up.
Those Additional Charges and Fees
And then there are the extra charges: tolls, yard fees, and other incidental expenses. They might appear insignificant---say, a $20 toll here or a $15 yard fee there---but collectively, they're anything but trivial. Tracking these items - let alone paying for them - can be cumbersome without a Transportation Management System that integrates with other solutions you use to run your business.
When The Unexpected Strikes
Despite your best plans, unexpected costs like emergency repairs or delays due to port congestion can blow a hole in your budget. Whether it's a $1,000 engine repair or a $100 per hour delay charge, these unplanned expenses can be disruptive, both financially and operationally.
Strategies for Understanding Operational Costs of Drayage
Knowledge is power, and the more you know about where your money is going, the better you can manage it. A thorough cost analysis can illuminate areas for potential savings. Specialized software like a Transportation Management System, for example, can help you keep tabs on every dollar spent. Understanding hidden fees and other unforeseen costs by scrutinizing contracts and billing statements can prevent unpleasant surprises. Meanwhile, leveraging analytics can turn raw data into actionable insights for smarter decision-making. Analytics make drayage software more powerful when it can integrate with other solutions you use to run your business, like an ERP or accounting software.
Reducing Costs: It's Not As Hard As You Think
Innovation is your friend when it comes to lowering costs. Technologies like real-time route planning or dispatch optimization can reduce empty miles, increase the number of loads a driver can handle in a shift, and cut down on fuel costs. Improved container tracking can help you avoid Per Diem and detention charges - or at least fight them. Improved and electronic document management can help operators maintain important documents like Proof of Delivery or BOL. Improved customer communication in the form of automated emails or portals with live load tracking can help win business from competitors. IoT sensors can alert you to maintenance issues before they become expensive repairs. Implementing an all-in-one drayage software solution can streamline everything from billing to analytics, making your operations leaner and more efficient.
The drayOS Approach to Drayage Operations
If you're serious about taking control of your drayage operational costs, it's worth considering specialized solutions like drayOS from PortPro. This platform provides a robust set of functionalities designed to help you mitigate costs, offering everything from detailed analytics to streamlined container tracking.
What's Next?
If you're intrigued by the prospect of trimming the fat from your operational expenses, there's no better time than now to explore more about drayOS. Ready to take the next step?
Request a demo to see how drayOS can revolutionize your drayage business and significantly reduce your operational costs.
