The 12 Traits of Highly Profitable Trucking Companies: The Strength of Weak Ties – Using Connector Freight To Improve Network Profitability

Connector freight may look unattractive when judged as a single load, but it can improve total network profitability when it connects one strong market to another.

In business, strong ties with close customers and trusted partners matter. Weak ties—less frequent or less intimate relationships—can also create meaningful opportunity. In an irregular-route OTR network, connector freight is one of those weak ties.

Connector Freight Is Not Simply “Backhaul”

Some carriers call connector freight “backhaul,” but that term does not capture the complexity of an OTR network. Connector freight usually has poor one-way characteristics, including a low rate. Used with discipline, however, it can connect good-to-good or even great-to-great market areas.

Every carrier has islands of highly profitable freight. These key markets are areas with net positive goods production and insufficient capacity to serve it. The challenge is reaching them without breaking the economics of the trip.

A connector load can look awful in isolation and still be the glue that holds the network together. A simplistic floor such as “nothing below $X.XX per mile” may cause the carrier to reject the move, lose the next profitable load, and gradually collapse the network it is trying to protect.

Bookend Broker Freight With Shipper Freight

KSMTA clients generally earn more margin on direct-shipper loads than on broker loads when each is measured alone. In a disciplined network, broker loads should be bookended by shipper loads within the trip or tour.

Some direct shippers can serve the same connecting function. Packaging companies, for example, may provide freight that behaves like broker freight and bridges two key markets.

As a general rule of thumb, connector or broker freight should be limited to a ratio of roughly 1:3 within a trip or tour: one connector or broker load for every three direct-shipper loads.

Start With the One-Way Value

Before assessing the network effect of a load, the carrier must calculate its base one-way economics. KSMTA uses a margin-driven measure called Margin per Hour (MpH).

The first step is to subtract the direct and variable costs of the loaded and empty movements from linehaul and fuel-surcharge revenue. The result is the load's gross margin.

Time is then added. The clock begins when the truck assigned to the load becomes available on the prior empty call and continues until the empty call for the load being evaluated. Dividing margin by that transit time produces Margin per Hour.

This measure goes beyond rate per mile by recognizing that a load occupying a truck for two days is different from one producing the same margin in a few hours.

Calculate the Load's Network Value

The next question is whether the load added profit to the network or stole it from the network and the P&L. KSMTA's Network Value calculation aggregates the loaded and empty movements associated with:

• The trip into the base load's origin area
• The base load itself
• The trip out of the base load's destination area
• The expected future destination segments that follow

The article expresses the calculation as:

NV = (rp - cp + rb - cb + rs - cs + rf - cf) / (tp + tb + ts + tf)

In the formula:

• r is revenue
• c is direct and variable cost
• t is time
• p is the previous segment
• b is the base load
• s is the subsequent segment
• f is the expected future destination segment

The calculation produces a time-weighted margin for the combined segments. That index can then be aggregated by lane, customer, or the entire network.

Map One-Way Value Against Network Value

The resulting customers and lanes can be placed in a four-quadrant matrix. The horizontal axis represents one-way value, from low to high. The vertical axis represents Network Value, also from low to high. The point where the lines cross is the carrier's average for each measure.

The upper-right quadrant contains customers and lanes with both high one-way value and high Network Value. The strongest are franchise customers and lanes.

The bottom-left quadrant contains low one-way and low-network-value freight. The worst of these are toxic customers and lanes.

The bottom-right quadrant contains freight with strong one-way results that pulls the truck away from the core network and forces a series of poor choices to return.

The upper-left quadrant is connector freight: poor one-way value but high Network Value because the load links the truck to profitable freight.

A network cannot be built entirely on cheap freight. But within a clearly defined network, and with transit time included in the decision, selected subpar loads can connect profitable markets and contribute to a lower operating ratio.