Freight network optimization helps a truckload carrier move beyond random load acceptance by identifying the combination of loads that best balances revenue, cost, and time across the entire network.
Full truckload trucking is sometimes described as a simple operation: pick up a load at point A and deliver it to point B. Few people would call trucking easy in the current environment, yet some carriers still operate as though that simplified model were sufficient.
They accept loads to scattered destinations, use brokers to find freight back toward home, and assume the operation will make money. That approach depends heavily on external supply and demand. When freight demand exceeds capacity, strong rates may produce profit. When capacity exceeds demand, the business falters.
Some owners accept those swings as an unavoidable part of trucking. Other carriers have developed practices that generate better returns and provide more protection from external changes such as falling freight rates.
The Trucking Franchise
Carriers of different sizes and in different segments have shown that it is possible to make money in a range of economic conditions. The collection of practices that lets those carriers outperform competitors can be called the Trucking Franchise.
That franchise continues to evolve as the industry responds to changing conditions. At its center is a successful revenue model, or freight network strategy.
A number of network strategies can work. What is easier to identify is what tends not to work: a long average length of haul combined with a shotgun approach to accepting loads.
Mathematical Models Shape Freight Strategy
Sophisticated freight optimization models increasingly influence successful network strategies. These programs are not new; they have existed for more than 30 years.
They were developed because truckload operations become exponentially more complex as a carrier grows. Equipment, drivers, geography, customers, timing, and freight flow interact in ways that make optimal decisions difficult without mathematical assistance.
The common objective is to find the set of load movements that maximizes revenue while minimizing cost. Algorithms vary, but most attempt to quantify the yield of each load movement. In the article, yield is described as network-based margin per load per day and is calculated from:
- Revenue, or rate
- Variable and direct costs
- Efficiency, expressed through time or velocity
Decisions the Model Can Improve
Freight network optimization can help a carrier:
- Identify toxic and franchise lanes and customers
- Understand network imbalances and the areas where freight needs to be developed
- Detect unnecessary delays while freight is in transit
- Identify pricing changes needed on current business
These are the building blocks of a deliberate freight network strategy.
Optimization Is Not Only for Strong Markets
A common misconception is that freight network optimization works only when freight is abundant and demand exceeds capacity.
The model's value does not depend on a strong market. Carriers succeed when they learn how the model works, accept what its results reveal, and consistently execute the network strategies those results support.
A carrier still has to operate within the freight market available to it. The practical discipline is to take what the market provides and then optimize it.