Highly profitable carriers develop the discipline to define their core network and decline freight that pulls scarce capacity into low-density lanes with poor overall economics.
KSMTA has observed that the desire to improve is common, but the discipline and willpower to make difficult changes are not. Fewer than 25% of the carriers asked to complete KSMTA's detailed operating questionnaire finish it. Among those that do, a recurring pattern is a company trying to be everything to everyone.
From Accumulation to Distillation
Trucking companies pass through several stages. KSMTA most often encounters them in the “distilling” phase, immediately after an accumulation phase in which the carrier has taken on a mix of contracts, lanes, customers, tractors, trailers, and operating models.
That accumulation eventually creates an opaque business. The original TMS may have outlived its usefulness, the management team may have grown with the company or reached the limit of its competence, and the owner's bank balance may be the only clear signal: if cash is rising, things must be good; if it is falling, the answer appears to be more freight.
During accumulation, the carrier may unknowingly allow customers to shape its strategy. A load accepted to help a shipper in a bind can pull the truck to the edge of the freight world. Repeated often enough, those decisions lead to higher turnover, deteriorating margins, and less pricing leverage.
The way through the distilling phase is network discipline and the willingness to say no.
Network Discipline Explained
For a truckload carrier, network discipline means managing trucks, trailers, drivers, and freight so customer demand is met while costs are minimized, assets are used well, and service and regulatory requirements are maintained.
The idea can be distilled to one progression:
Density builds efficiency. Efficiency builds velocity. Velocity builds profitability.
Repeated operation in a concentrated set of lanes allows a carrier to identify and remove pinch points. That iteration increases throughput: more freight can be delivered in the same or less time. When a carrier can transit a lane faster and more reliably than competitors, improved profit is the reward.
Power Lanes and Spider Lanes
A power lane is an origin-and-destination pair, defined with three-digit ZIP clusters or market areas, that falls in the top quartile of the carrier's lane volume. Density allows economies of scale to develop, and a disproportionate share of an OTR carrier's margin is often generated in these lanes.
A spider lane is a market-area pair in the bottom quartile by volume. Spider lanes may show strong one-way margins, but their broader network performance is often poor. A high rate outbound may be followed by weak return freight, and several additional loaded or empty moves may be required before the truck re-enters the core network.
KSMTA also compares these lanes using time, expressing revenue, cost, and margin as a function of time, such as margin per hour. Adding time usually makes the difference between power and spider lanes even clearer.
Standardize the Geography
A carrier cannot compare lanes consistently until it establishes a common geography. KSMTA uses standardized market areas so individual ZIP codes can be grouped into practical freight markets.
At least 90 days of TMS load data should be extracted with these fields:
- Origin ZIP
- Shipper name
- Destination ZIP
- Revenue
- Loaded and empty miles for each load
Each origin and destination ZIP can then be assigned to a market area. A load from ZIP cluster 612 in Rock Island, Illinois, to 688 in Kearney, Nebraska, becomes a lane from IL-CHI to NE-KEA.
Once the geography is assigned, the carrier can pivot the data by origin and destination, count loads, and divide the lanes into quartiles. The top quartile by density is the power group; the bottom quartile is the spider group.
Add a Standard Cost Profile
Volume alone does not reveal profitability. The carrier must also assign a cost to the miles associated with each load.
KSMTA calls this a Standard Cost Profile. It is derived from the general ledger and includes driver compensation, fuel, maintenance, insurance, and other variable costs. The estimated total cost of a load is calculated by multiplying the standard cost per mile by its loaded and empty miles. Subtracting that cost from revenue produces the estimated margin.
When average margins are compared across power, middle-quartile, and spider lanes, carriers will often see a direct relationship between density and profitability. The result reinforces the progression from density to efficiency, velocity, and profit.
Practice the Art of Saying No
The analysis should begin with spider lanes. For each lane and customer, the carrier should identify whether pricing, operating conditions, or freight balance can be improved.
Some customers will work with the carrier, and those changes can benefit both sides. When a lane cannot be repaired, highly profitable carriers become effective at saying no—or more accurately, “no more.” The released capacity can then be reassigned to opportunities in the carrier's power lanes.
Separating power lanes from spider lanes is one of the most valuable exercises a carrier can complete during the distilling phase. It exposes where profit is leaking and provides a practical basis for narrowing the network around freight the company can serve repeatedly and well.