Freight News:
Driver shortage problem can be solved by fixing driver utilization and trucking cost structure
The issue of driver shortage and retention has been widely discussed in the logistics industry over the past several years. However, according to Vorto CEO Priyesh Ranjan, retention challenges are just a symptom of the true issue plaguing the driver population: driver utilization inefficiency.
“On one side, the volume of shipments per shipper is extremely fragmented across all parts of America. On the other side, most fleets are extremely small and fragmented across America. Due to this hyper-fragmentation on both sides, when drivers try to find loads and connect loads, over 50% of their time in a year is spent driving empty miles or idling,” Ranjan said. “A driver utilization efficiency problem happens because of the complication of connecting and dispatching their loads.”
After dropping off a load, a driver may find a desperate return trip load or get dispatched to return back to their original destination. However, these types of loads may not be the most profitable, and the driver may end up on the losing end of a rate negotiation just to avoid running empty. What’s worse, when drivers can’t find return loads at all, high fuel, high maintenance expenses and time lost directly drain their profits.
The second issue that’s creating efficiency challenges for drivers is hidden in plain sight. According to Ranjan, it is that the cost structure for a trucker in the supply chain is too high.
“The cost structure is very convoluted because owner-operators and drivers lose money to multiple layers above them just to be able to access the fragmented freight and drive their truck,” Ranjan said.
The shipper pays a broker to find a truck to haul a shipment. The broker pays a carrier to move that freight. An owner-operator drives in trucks they own but they are often running under the authority of a different carrier that provides them dispatching, insurance and back office support. Employee drivers run in trucks owned by their carrier. Everyone down this line takes a portion of the shipper’s payment. Since the driver sits at the bottom of this chain, due to the high take rate in the chain above them, owner-operators and drivers get stuck with less money at the end. Often over 45% of the profits are taken out by the chain above them before they get to see their share of the shipment. This makes it very hard for them to even break even their costs across fuel, lease payments of their truck and trailer, and the asset maintenance expenses.
“When you have such inefficiencies of utilization rates for drivers, and you have such a convoluted and high cost structure for owner-operators [and drivers], it not only creates a driver shortage, it makes the trucking industry phenomenally unattractive for the new generation compared to other employment opportunities in America,” Ranjan said.
For small carriers and owner-operators, a crowded cost structure, coupled with a high number of unloaded miles, can make the regular cost of doing business very high. This is the experience of much of the industry: Over 97% of fleets in the U.S. operate with 20 trucks or fewer, and 92% of fleets are six trucks or fewer, according to the American Trucking Associations.
It’s not just owner-operators and drivers who are on the losing end. Due to these driving inefficiencies and too many people in this cost structure, shippers have to pay high rates to move their shipments. The challenge becomes finding a solution to streamline shipper demand planning, carrier procurement and driver dispatching.
The way to create a winning situation for all is not by hiring more drivers but, according to Ranjan, by increasing driver utilization and reducing the trucking cost structure.
This is the focus of Vorto, a fully automated software supply chain company, through its partnership with 5F. With the 5F-Superhighway Platform, owner-operators can run under their own authority or under 5F’s authority to have access to a network of dedicated shippers to maximize profits and reduce empty miles.
“The AI platform creates a superhighway by mixing different types of payloads and asset types for each driver. This maximizes drivers’ driving time, reduces their idle time and reduces the deadhead miles they have, so they can make a competitive living compared to other employment opportunities in America,” Ranjan said.
Since the platform is focused on increasing the utilization rate of the driver, it completely removes the need for rate negotiation for each individual load — a system in which someone always gets the short end of the stick — so that owner-operators can make above-market income due to more strategic and increased use of their drive time.
To reduce the cost structure in trucking the owner-operators can earn up to 92.5% of each load, according to 5F’s website. They get paid for free the next day, and also reduce additional operational costs through 5F’s fuel card, asset maintenance network and a relay network of trailers and trucks that they can lease all across America.
“When this is done, it creates a lucrative business for the trucker. That further allows us to reduce the line haul for the shipper, which creates a win-win situation for both,” Ranjan said.
Shippers and brokers can benefit from 5F by utilizing the capacity of over 6,000 owner-operators and drivers, making it the largest fully automated logistics platform of cross-industry drivers and assets across the U.S. Its advanced software automates shipper demand planning, driver dispatching, asset matching and driver payments.
“We have been able to move the same volume with 66% fewer trucks, which has allowed us to increase the earnings of owner-operators by 40% to 70% because of driver utilization efficiency and cost structure reduction, as well as reduce the cost for Shippers by up to 48%,” Ranjan said.
Using the app, thousands of users have been able to scale their businesses, with drivers becoming owner-operators and owner-operators growing their businesses to become owners of multiple trucks.
Source: freightwaves - Driver shortage problem can be solved by fixing driver utilization and trucking cost structure
Editor: Jenny Glasscock