June 2019 | Commentary | Viewpoint: Logistics & Supply Chain Analysis

Stop Calling It Backhaul

Tags: Supply Chain Management, Logistics, Supply Chain

Bill Mathews, Director, Optimization and Analytics,Supply Chain Solutions, Sphere Management Inc., 404-273-7018

A backhaul is a means of returning drivers and equipment to their origin or domicile. It's that happy place where sales can command the highest rates for haul and the customer connection is at its best.

It stands to reason, however, that one company's origin point is another company's wasteland in terms of relationships and sales coverage. But why should the value of transportation be less for the latter company? This is the mentality surrounding the backhaul. It is the reason we need to stop using that word and simply say loads.

The level of backhaul discounting is obviously market-driven for the most part. In cases where fronthaul trips are destined to weak outbound markets, fleets must make the money on the outbound trip to compensate for the weaker return market.

A problem arises when this becomes entrenched in the psyche of a company's operations personnel. Not all markets exhibit excess capacity, but somehow all backhauls become eligible for steep discounts. In many cases, companies discount backhaul rates by 40% or more. This discounting presents the shipping public with an unconscious and unrealistic view of the company's overall service value. While you may never get a great rate out of Miami, it is likely that you are losing price control in other markets.

It is a sobering fact that, even with driver shortages and capacity constraints, more than 20% of truck miles are driven empty. It may be more sobering to contemplate that the empty percentage number should possibly be higher.

One key performance indicator (KPI) that determines good trips from bad for most companies is the percent of empty miles to total distance traveled. You can make the case that this KPI is used incorrectly and can be a factor in making less-than-optimal decisions.

A good counter to the percent of empty miles is total revenue per day per truck. This KPI introduces time into the equation. It makes no sense for a company to accept a load that parks a truck for too long. Companies need to achieve a balance between these two metrics to increase profitability. This is all basic business. But companies should take a fresh look into how this plays out as it relates to getting drivers home.

One of the best ways companies can minimize the effects of hauling out of a weak market is to utilize the closest stronger market as a springboard. For example, they may have to take $1 per mile to get out of Philly, but the rates out of Pittsburgh are much better. Ideally they would take a shorter trip to Pittsburgh at depressed market rates to minimize the impact of the low rate. Once in the better market, companies can take advantage of higher rates for a greater percentage of the haul.

It often works out that a deadhead into the better market is the best option for the company's business. This may seem onerous since operations has to deal with at least two transactions instead of one, but technology exists to automate this decision process for the team and even optimize to preferred KPI. There is potential to sharply increase profitability. The cost of that increase is the backhaul mindset.

Yes, drivers need to get home on a predictable schedule and this sometimes requires fleets to make tough decisions to maintain a dependable workforce. Companies can stop depressing the overall market (and therefore driver's wages) by negotiating against themselves from the outset. The concept of backhauls taints how the value of capacity is calculated and has made some fleets lazy in their operations. Stop calling it a backhaul and get your fleets on board.