5 Freight Benchmarking Best Practices

Seth HolmFreight Market Blog

Freight Benchmarking

Freight benchmarking is one of the most important tasks any company can undertake. If you do not know how you compare to your peers, then you are driving in the dark in many ways. Belonging to a benchmarking group eliminates a company’s desire to keep the status quo. The external data and metrics from a peer group not only helps a company identify areas of improvement, but also how to recognize and understand strengths. 

#1 Freight Benchmarking Best Practice – Common or Standardized Metrics 

Operating ratio for one company might not be calculated in the same way as another. All expense line items must be exactly the same and adjustments need to be made where applicable. Companies can use benchmarking across common and standardized metrics to assess their performance relative to the competition and compared to industry leaders to assess where their operational metrics are lacking, need improvement, and where they are doing a good job. For example, a carrier can use metrics such as revenue per truck per week and gross fuel expense as a percentage of revenue to discover whether it is running an efficient operation or where there is a meaningful difference from competitors (either better or worse). Where the deviation is significant and the comparison is made on an apples-to-apples basis, analysis and work must be done. If a transportation company consistently finds itself in the lower percentile ranks of its industry, there is a problem.

#2 Freight Benchmarking Best Practice – Sample Size – This metric needs to be statistically relevant and representative of the industry. For a sample to be statistically significant, there must be at least 30 data points. The larger and longer the length of the data set for comparative purposes, the better. Given that trucking can be highly seasonal and performance can swing wildly from year to year depending on the interaction of supply and demand, it is important to have sound, comprehensive data as the basis of benchmarking analysis.

#3 Freight Benchmarking Best Practice – Relevant lanes/modes – Make sure you are benchmarking against the same business models and similar size carriers. If a carrier compares itself to another carrier operating in a different region, with different trailer types, on different lanes, with a different customer set in different industries, with a vastly different fleet size or compares contract rates with spot rates, these are faulty comparisons and any analytical judgments are rendered null. For example, for a multi-modal transportation company, comparing itself to a pure-play truckload carrier makes little sense.

#4 Freight Benchmarking Best Practice – Actionable metrics– Make sure the key metrics you are benchmarking are in your company’s control to change based on your individual business model. This is often overlooked when companies participate in benchmarking groups. Some metrics, for instance, need to be combined with others to create actionable metrics. A prime example of this is with an absolute number like total revenue. For total revenue to be actionable a company needs to understand the per unit ratio, like revenue per driver per week, that drives the total revenue number. With this ratio, a fleet can compare where it can improve on this on a per unit basis. 

#5 Freight Benchmarking Best Practice – Extended visibility – While your benchmarked metrics might be actionable, it is important to share these metrics with your company so action can be taken. All too often benchmark metrics are not widely shared with all the stakeholders in the company. If these metrics are not shared, then employees will not know where performance needs to improve or be able to identify the reasons why performance is above and beyond their peers in other areas. 

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