Guest editorial
Jerry Spelic PartnerShip
Moving freight is getting more difficult, and therefore, more expensive. If you’ve ever had sticker shock from a freight quote, you’re not alone. There are a lot of cost factors that go into the price you pay to move freight, so we want to explain them so you can be an informed shipper and ship smarter.
Every LTL or truckload freight shipment has fixed and variable costs calculated into the rate you pay to ship your freight. Let’s start by looking at the fixed costs.
Fixed costs
- Truck payment. Owned or leased, drivers and operators have the expense of their equipment (trucks and trailers) to consider when quoting your freight. On average, truck payments are 16% of the cost of moving freight.
- Insurance. Federal Motor Carrier Safety Administration requires individual owner-operators to carry a minimum of $750,000 to $5 million in liability coverage. On average, liability and damage insurance can cost between $6,000–8,000 per year, with newly-granted authorities typically paying between $10,000 and $16,000 their first year. Truck insurance accounts for 5% of the cost of freight shipping.
- Driver salary. This is the largest operating cost of moving freight. Commercial truck driver salaries are based on the distance driven, and although drivers spend a lot of time in traffic, at the dock being loaded or unloaded, etc., their operating costs are only derived from miles traveled. Driver pay and benefits account for 43% of operational costs.
- Office and overhead. This fixed cost includes a building lease or mortgage, electric, phones, internet, computers and office support.
- Permits and licenses. Permits and license plate costs account for 1% of operational costs.
Variable costs
- Fuel. The second largest operating cost of moving freight is diesel fuel. A commercial truck can easily consume 20,000 gallons per year, accounting for 21% of operational costs.
- Tires. Retreaded truck tires are less expensive than new tires and cost on average $250. Annual tire expense accounts for roughly 2% of operational costs.
- Maintenance and repairs. Trucks need constant maintenance and occasionally break down. Issues with air lines and hoses, alternators, wiring and brakes are all common in commercial trucks, and can total 10% of operational costs.
- Meals. The truck isn’t the only part of LTL and truckload freight shipping that needs fuel.
- Tolls. With nearly 5,000 miles of toll roads in the U.S., chances are your freight will traverse at least one of them, and this will be factored into your cost. On average, tolls add $2,500 a year — 2% of the total cost of freight shipping.
- Coffee. Did you know truck stops sell more coffee than convenience stores? The average commercial truck driver spends more than $600 a year on coffee. Its effect on cost is negligible, but we thought it was interesting.
- Profit. Remember, freight carriers are in business to make a profit.
Miscellaneous items
- Electronic logging devices. These have decreased driver productivity approximately 15%. When drivers spend less time driving, transit times increase and drivers move fewer loads, which pushes costs up.
- Telematics services. Such as vehicle and trailer GPS tracking.
- Driver turnover. Not just the cost of recruiting and training, but also the opportunity cost of empty trucks not hauling freight because they have no drivers.
- Finding loads to move. This can take up a sizable chunk of every day. Each hour spent not driving loaded miles is an hour a driver isn’t making money.
The bottom line is a lot of factors go into the cost you pay for LTL or truckload freight shipping. The costs listed here are conservative and probably on the low end, so yours may be higher.
The struggle is real: moving freight is getting more difficult and more expensive. By shedding light on the costs that go into each and every LTL or truckload freight move, we hope you’re better informed so you don’t experience sticker shock next time you get a freight quote.
PartnerShip can help NTEA member companies save on inbound, outbound, small and large shipments through its NTEA Shipping Program, a free member benefit. To speak with a specialist or learn more, call 800-599-2902, email sales@PartnerShip.com or visit ntea.com/partnerships.