Margin Call

Dead running is often considered a necessary evil for many fleets unable to schedule backloads for their assets. FleetSeer is a new tool that enables greater visibility across truck movements to improve profitability on problem routes so that the margins, as McColl’s Transport discovered, can be better balanced.

FleetSeer, the brainchild of Harvey Lee and Mark Szabo, provides revenue monitoring, pricing with data-driven cost estimates and the ability to identify loss-making work.

These solutions were all sought after by McColl’s Transport, a leading business in the competitive milk tanker segment where the fundamentals don’t change, even while changes are visited upon operations almost daily, sometimes with little warning.

To better determine the profitability of its trucks, and it possesses well over 130 prime movers, McColl’s approached data-driven transport solutions provider, FleetSeer to delve into one of its established systems.

Using machine learning, FleetSeer gathered data on individual trucks based on an hour-by-hour and day-by-day basis. Good prices, based on accurate estimates of cost, can prevent low-margin business from ever showing up in the first place.

“What happens is that we can either do some pricing with a bunch of optimistic assumptions in it, or we can get a solid understanding of what the actual costs are likely to be and hopefully come to an agreement,” says Simon Thornton, McColl’s Transport CEO.

“That’s the visibility they have provided us: pricing with intelligence behind it.”

FleetSeer integrates with a variety of data sources to drive new analytical capabilities for businesses by simplifying and then communicating the complexities inherent in transport operations.

Operational data that is collected, for example from the transport management system, is usually aimed at invoicing the job, rather than tracking the costs. Since dead running is an overhead, it is rarely tracked by basic operational systems, and invariably becomes an invisible cost according to Harvey Lee, FleetSeer Chief Executive Officer.

“A key insight here is that before FleetSeer, it was very difficult, if not impossible, to really pinpoint where and when the dead running was occurring,” he says.

“Schedulers might have pithy insights into their own patch of operations, but the knowledge is not kept in a structured dataset allowing others such as price managers to use it to make accurate decisions.”

For McColl’s that was demonstrated in combining data from sources previously not in alignment and filling gaps in observations.

Having access to very good near-term historical data is key according to Simon.

A Volvo FM 540 in Victoria’s western district.

“Knowing what happened in the past week can help you to see where you went down the wrong track, whether it’s a job with super high margin or super low margin,” he says.

“That alone can allow you take the necessary and timely corrective action.”

A business that, for instance, relies on a few 60 per cent margin jobs and some zero per cent margin jobs averaging out to north of 30 per cent, can encounter a problem, according to Simon.

“Ideally you want everything in a tight band,” Simon says. “That way, you’re not making it all incredibly attractive for someone else to pick off the good ones but also, so you don’t have potholes all over the place with the bad ones.”

He adds, “The biggest thing we can do is identify those potholes and stop doing those runs.”

Adaptations are necessary especially in milk tanker transportation. Heavy rain in one region might increase production. Vehicles therefore need to be redeployed.

A job originating in Melbourne and destined for Ballarat would, on the balance of numbers, require a Melbourne-based truck, meaning it would be loaded out of Ballarat and return home empty.

That’s not a deal breaker. But what happens when the customer calls and there is no truck available in Melbourne on the day? McColl’s in that situation, as Simon explains, would send a truck from Geelong.

“Suddenly you’ve got these extra kilometres in there,” he says. “Something that might have had an acceptable margin suddenly doesn’t. And so FleetSeer is able to identify all the runs that we are doing on a run-by-run basis and consolidate that to see trends over months so that we know how closely the jobs that we are doing match up to the way that we process them.”

At any one time every transport company has a high quantity of trucks running around. Some of these are profitable while others are not.

“You just hope at the end of the day that the ones that made money made more than the others lost,” says Simon.

“With FleetSeer we can see where those potholes are and even if all we do is avoid the bad ones and keep going with the bits that make money, then life is pretty good.”

McColl’s, when all is said and done, already knows which routes make money above the operational average.

A consistent pricing process is applied but it’s often a process as reliant on luck as it is good management.

For instance, when an extra backload suddenly becomes available. In that case McColl’s is dealing with a big margin for which it becomes very conscious of and naturally protective.

“Losing either the up leg or back leg suddenly becomes a concern,” says Simon. “We’ve got to be very careful somebody doesn’t come and pick off one half of it and find the things that used to make money don’t make money anymore.”

The volume of backloads can fluctuate from week to week.

Commitments made because of regular backloads that were factored into the original task and, when removed from the inventory, can mean costly dead running just to honour the agreement.

“The question for us is about what do we originally assume in the pricing and whether a diversion from that is an option.” says Simon. “The FleetSeer system has helped us identify where these anomalies are.”

B-double tanker en route to a farm for McColl’s Transport.

Most of McColl’s work is not contracted to individual tanker allocation or locked at a particular price point.

They’ll agree to prices with their customers but if there is a leak somewhere that doesn’t work for them, they’ll make it known to the customer that the leg in question, given it no longer has a backload, can’t be serviced at the same price.

If, per chance, another backload becomes available McColl’s is happy to go back to the original price. By being able to quickly identify these problem areas, running up big losses can be avoided.

Working with FleetSeer in these instances encourages better strategic decision-making.

“Everyone talks about sustainability but mainly when they’re talking about that they’re talking about reducing CO² in the environment,” says Simon.

“There’s another component to sustainability, which is to have businesses that can keep making enough of a return on their assets so that they can still come back and do it again tomorrow. Lots of transport companies have failed that test unfortunately. Is it because they couldn’t choose the right trucks to do the work in? Is it because they couldn’t hire the right drivers or find enough drivers? Probably not. Mostly it will be some commercial thing often lost in the noise in the bigger business.”

FleetSeer can be compared to a CT scan according to Simon. As a commercial diagnostic tool, it helps fleets to flush out the hidden malignancies they might feel but overlook.

“There aren’t that many people who are that smart and good with data and are prepared to work in the transport industry to make a living,” he says.

“Mostly the people with that kind of data size move in the financial markets and make a fortune there. The guys at FleetSeer, for one reason or another, have chosen to be in the transport market, and we find it very helpful.”

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