Affected by fuel prices? How can you survive?

Transport companies face many challenges that can compromise their profitability. In an era where fuel prices are highly volatile and constantly fluctuate to reach new records, understanding and analyzing profitability variables is essential to business survival. Fortunately, at Mallette, our team of professional chartered accountants has the transportation expertise to help businesses in this complex industry become and stay profitable, regardless of the economic situation. Read on to find out what our experts have to say.

When the price of petrol dictates your finances

Frédéric is discouraged. He has just seen his company's transport costs rise by 30%. The price of petrol has just reached an all-time high. He didn't really want to increase his prices, but now he has no choice. But how much room for manoeuvre does it really have? What are his competitors doing? What are his other options?

Are you the owner or manager of a transport company and are you faced with this type of situation? Do you wonder about the profitability of a customer, an order or a journey? What's more, what can you do to increase the profitability of a transport company, despite the recent rises in petrol prices? It's both simple and complex. Mallette, a firm of chartered professional accountants with expertise in transport, can answer this question and help you stay profitable, despite everything.

Transport company : how to remain profitable despite the different profitability variables?

The principle is simple because the model is based on four variables to be controlled, but the application is not so obvious. To make a transport company profitable, you need to prioritise these four variables: fixed costs, volume, performance and price.

1. Reduce your fixed costs

The aim here is to reduce the transport company's operating costs as much as possible, without affecting its performance or volume. For example, you might be tempted to buy used trucks and trailers to reduce depreciation and interest costs, but you might find that maintenance and fuel costs increase.

Unfortunately, you have little control over fixed costs. Even if you wanted to cut the costs of rent, insurance, vehicle registration and building maintenance, the savings generated would not be significant. In fact, in your context, the items that require particular attention are: administrative salaries, professional fees, advertising, promotion, donations and sponsorships, and truck maintenance costs. The questions you need to ask yourself are: could I operate efficiently with fewer office staff? Are my marketing efforts translating into an annual increase in sales? Are my mechanics performing well? Should I outsource this activity instead? Is there effective monitoring of parts warranties? Am I optimising the replacement times for tyres, brakes and other critical parts? Replacing a part too quickly generates significant maintenance costs, but waiting until the truck breaks down is even more costly.

2. Increase your volume

As far as volume is concerned, the idea is to sell as many kilometres as possible in order to spread the fixed costs per kilometre. For example, let's assume that your company has annual fixed costs of $700,000 for a normal volume of 600,000 kilometres. The fixed cost per kilometre would then be $1.17/km. Now imagine that, for the same fixed costs, you could sell an additional 200,000 km, and the fixed cost per kilometre would fall to $0.88/km. Want to increase your profits? Sell as many trips as possible! Easy to suggest, but not so easy to implement because your sales volume depends on two major factors: the number of trucks and trailers available and the number of drivers available.

In fact, your fleet of trucks and trailers is limited not only by your financial capacity, but also by the number of truck drivers available. The transport industry is currently facing a shortage of truck drivers, which means that even if you had the opportunity to double your sales, it will be very difficult, and your success will depend on your ability to recruit and retain employees. This is an important issue not to be overlooked, which is why you need to implement strategies to attract and retain quality human resources.

3. Improve the performance of your transport.

Have you managed to increase your sales volume? Well done! However, your transports must be efficient and profitable. Because if you accept deliveries and come back each time with an empty trailer, you won't be profitable.

In your context, performance means optimising the routes of your various transports to avoid returning with an empty trailer. This is where the work of the dispatchers becomes vital. If you can find a return journey for every trip you sell, it pays off! Performance also means: avoiding toll booths, choosing the best time to avoid traffic jams, reducing waiting times for loading and unloading, reducing lorry fuel consumption through better driver behaviour or by acquiring newer lorries.

Since truck drivers have a direct impact on fuel consumption, don't hesitate to train your employees so that they understand the importance of their driving style on the company's costs. Some hauliers even go so far as to give bonuses by measuring sudden braking and departures, the length of time the engine idles, compliance with speed limits, etc.

4. Getting your price right

Now that you have your overheads, volume and performance under control, you need to get your pricing right too. Want to make more profit? It's simple: you have to sell for more than your transport costs. But do you really know how much your transport costs? Have you taken into account petrol costs, tolls, your driver's salary and all the fixed costs of the business? If so, you're one of the few people who have a good grasp of your costs.

Even if you have relatively little room for manoeuvre when it comes to price, you need to analyse the profitability of each trip, by identifying your direct costs, adding fixed costs and, above all, taking into account whether or not there is any income generated by a return journey with a full trailer. Once the cost of the journey is known, you can then calculate it by mile, kilogram, cubic foot or any other pricing strategy.

Over the years, Mallette's chartered professional accountants have helped a multitude of transport companies set up high-performance cost calculation tools that make it possible to analyse the cost of transport based on the number of pick-up points, the number of destination points, the distance to be travelled, the truck's performance based on litres per 100 km, and so on. Once the real cost is known, it is then possible, and even easy, to negotiate prices with customers.

Is your company currently experiencing significant cost increases? You absolutely must adapt to this new reality. As we mentioned earlier, your options are few, but you need to analyse each strategy carefully. The companies that will come out on top are those that have put in place effective costing tools that enable them to make strategic and profitable decisions. But it's not always easy to do this analysis in-house. That's where Mallette comes in!

Contact our team of chartered professional accountants whose expertise in the transport sector will help you achieve your objectives and, above all, survive adverse economic changes, whatever they may be!