How to Build a Successful Truck Driving Company

How to Build a Successful Truck Driving Company

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How to Build a Successful Truck Driving Company

Introduction

Numerous statistics cover the vital importance logistics and freight as an industry has on national economies. However, little research segments the various sub-industries in logistics and freight such as trucking. The trucking industry in its aspects gives an accurate measure of developed economies. For instance, the industry covers seventy percent of freight transportation in the United States. In this, operating a successful trucking organization demands strategic thought from management in order to create viable solutions to overcome challenges, meet expectations and leverage forecasts. Deregulation of the trucking industry means novel regulatory effects, economic challenges and opportunities. The most crucial element in the operation of a trucking organization is the management of truck drivers. Aside from other vital supply chain components, truck drivers determine the carrying capacity of a carrier operator. Successful trucking entails customer-oriented service, effective cost control and recruitment of quality drivers.

Analysis of the Truck Driving Industry:  Trends and Major Issues

Industry Forecast

According to Todd & Murray (2010), the trucking industry under the demands of recovering economies anticipates increments in truckloads for the next two decades until 2030. According to the American Trucking Association (ATA) (2016), total revenue coming from the shipping sector has increased from 65% to 81% because of increasing activity in trucking in 2010 to 2016. In addition, the industry is set to increase freight rates as from October 2016 (American Trucking Association, 2016). In terms of energy costs, the United States Energy Information Administration (EIA) reports of continued low energy costs. Diesel prices will fetch $2.87 per gallon as the maximum value (American Trucking Association, 2016). The trend in diesel costs is associated with American producers of shale oil increasing their oil output.

As a function of meeting the growth in freight and logistics, the capacity of local trucking is set to reach its threshold before 2020 unless there is effective response. One of the proposed solutions is increase in rates while another is bilateral agreements between shippers and trucking companies to privatize fleets and synchronize scheduling (American Trucking Association, 2016). However, there is expected fluctuation in tonnage as consumer demand for services and products change in accordance to season changes (American Trucking Association, 2016). Tonnage indexes rise by around 15 percent at year-end as compared to the ten percent fall mid-year (American Trucking Association, 2016). In terms of revenue, the U.S Freight Transportation Forecast to 2026 outlines profit jumps for the industry. Revenues in trucking are estimated to jump to $1.52 trillion by 2026 presenting an appealing argument for private entrepreneurs to penetrate the market (American Trucking Association, 2016). The top 50 trucking companies in the U.S over the last five years record an average of ten percent increment in total revenue.

Understanding of operational costs in trucking is important because unlike in retail or manufacturing, the larger portion of expenses is marginal in nature. In meaning, costs are incremental in nature with the standard expense defined as ‘truck one mile’ or the cost of operating a truck for one mile (Todd & Murray, 2010). As from the industry forecast, marginal costs are expected to decrease. Fragmentation of costs illustrates that basis of the decline is lower driver benefits and wages and internal cost reduction strategies. Example of an external factor is reduced fuel prices and increment in mean truck speeds (Todd & Murray, 2010). The trucking industry still benefits from the deflationary implications of the recession period. In this, there are lower loan interest rates and prices for truck components.

Truck Driver Shortages, Turnover and Retention

Shortage of truck drivers remains to be the dominant issue in the trucking industry over the last two decades (Costello, 2015). The first shortage was reported in 1997, a time when the driver gap was roughly 20, 000 (Costello, 2015). However, due to the 2008 recession, the driver shortage was balanced with plummeted industry volumes (Costello, 2015). With recovering industry volumes, driver shortages were reported in 2011. By 2014, required truckers had risen to 38000 (Costello, 2015). Many factors contribute to the shortage. One of the major factors is the average age of the present trucker. The average age of a driver in the trucking industry is 49 meaning the individual is beyond his peak performance years and nears retirement (Costello, 2015). The trucking industry has a history of struggling to attract younger populations to act as drivers. In addition, there is an alarming gender disparity with women representing only 6% of truckers (Costello, 2015). Another contributing factor is that 40% of contemporary drivers come from minority communities. In this, they are attributed with high turnover rates because of temporary living conditions. Therefore, the challenge is not only in sourcing drivers, but also in retaining their services.

Driver turnover is the primary factor affecting organizational effectiveness as according to the 2016 report by the ATA (American Trucking Association, 2016). With the number of retiring drivers superseding that of entering persons, an increasing supply-demand gap develops (Costello, 2015). Unfortunately, the gap is worsened by the good growth of the larger freight and logistics industry. The supply demand gap results in the unavailability of experienced and quality drivers (Costello, 2015). The workforce predicament necessitates a trucking company to have a competitive human resource structure. Trend in the transportation industry and other commercial sectors is that operational solutions be an in-company function (Costello, 2015). In meaning, solutions are bred from the inside of an organization in order to meet its unique demands and cover the differentiation marketing strategy.

Strategies for Building a Successful Truck Driving Company

Over the years, changes in freight and logistics have seen companies transition from self-managed operational models to multi-party frameworks. Freight networks focus on global operations because of contractual logistics between multinational shippers, air carriers and truckers (Gunasekaran & Ngai, 2013). Such operational models illustrate that success of a trucking organization arises from leaning operations using a regional scale. Success from a macro perspective arises from effective customer-oriented service, reduction of operational costs, capital investment and response to demand fluctuations. Below are broken down strategies covering specific managerial operations aimed at meeting the four success criteria.

Supply Chain Management

When it comes to the management of the trucking supply chain, the objective is to ascertain development of a high value proposition. In this, minor goals include averting operational delays, application of inaccurate information, high product damage scores and incomplete services (Gunasekaran & Ngai, 2013). These are objectives attained through:

Strategic Planning: Trucking companies experience difficulty when it comes to sourcing of capital, skills and resources. In addition, trucking lags behind in integration of technology compared to other freight and logistics segments (Gunasekaran & Ngai, 2013). However, small companies tend to be more innovative and creative. As a function of averting the planning challenges, strategic alliances are imperative for success (Gunasekaran & Ngai, 2013). As argued in precedent section, bilateral agreements facilitate long-term survival due to increased core competencies and increased access to market opportunities. Integration of shared information systems supports such business strategies by providing market data and information on the logistics infrastructure.

Capacity Planning: A trucking organization should respond effectively to increasing capacity demands and fluctuations. Capacity in trucking entails four areas namely human resources, warehousing, transport fleet and equipment handling technology (Harrison & Pierce, 2010). As a function of mitigating operational costs and maximizing capacity utilization, outsourcing and aggregate planning is a common strategy for trucking companies (Gunasekaran & Ngai, 2013). If the organization has adequate levels of all four areas, assimilation of computer-aided management methods such as linear programming is important for optimizing scheduling and waiting lines (Gunasekaran & Ngai, 2013). Digitalized capacity planning increases the value proposition of the supply chain by mitigating delays and product damages. In addition, digitalization is one of the primary approaches in mitigation of investments in human resource.

Inventory Management: Inventory management is the core of all logistics management operations because all other functions revolve around the inventory design. In trucking, inventory management entails picking the correct product in proper quantity and delivering it at the right time to the accurate destination in a competitive manner. To be successful in inventory management, an organization focuses on demand for products that move along its supply chain (Gunasekaran & Ngai, 2013). Secondly, location analysis is imperative for ‘smooth management’ of inventories. Operational locations should be adjacent to shipping ports and along major road networks in order to increase access to freight products (Lynn, 2014). Thirdly, there is need for ever-present response to break downs in the value chain. This function entails the presence of emergency services and additional fleet to act as substitutes to problematic trucks and equipment. Automation is the modern day solution to inventory management.

Information Management: Logistics companies are global leaders when it comes to collection, analysis and utilization of market data and valuation of supply chains (Harrison & Pierce, 2010). Information management entails the collection and presentation of information concerning segregate activities in the supply chain with the objective of improving performance. The successful trucking company has an effective information system, which measures and controls individual operations in the logistics chain (Lynn, 2014). Information management leverages technologies such as shareware and groupware for data warehousing and data mining functions (Lynn, 2014). The information system must comprise of Artificial Intelligence (AI), Internet, expert systems and Enterprise Resource Planning (ERP) technologies.

The Driver Management System

Driver management must entail strategies that respond to the present shortages in the workforce market, ascertain retention of the employees. In addition, management must ascertain identification of quality drivers while cover continuous skill improvement. Truck drivers are at the core of trucking as they determine service optimization, quality and overall productivity.

The Hiring Process: Hiring should be expedited in order to shorten the supply-demand gap for experienced drivers (Outridge, 2012). In order to simplify the hiring process, the trucking organization builds healthy relationships with expert driving schools and private security organizations. In this, one quickly identifies qualified drivers with the desired skills and behaviors to drive large trucks, ascertain road safety and secure transportation of client goods (Outridge, 2012). Best practice is to hire locally and perform personal orientations over the operational premises, functions and standards.

Training of Truck Drivers: Performance improvement is a continuous process as a function of improving service delivery quality (Lynn, 2014). Most trucking companies link with professional driving schools to include training programs for truck drivers with respect to their level of experience and changes in road regulations (Lynn, 2014). It is equally important to engage in truck safety seminars because trucks act as soft targets for illegal practices such as small banditry and smuggling (Lynn, 2014). While training decreases the risks in road accidents, safety seminars provide information vital for positive behavioral reinforcement. This enables truck drivers to respond effectively to illegal activity, handle goods and interact with consumers.

Compensation and Benefits: In response to the high turnover rate in the trucking industry, it is imperative to offer competitive salaries, annual wage increments, incorporate profit sharing policies and considerate pay systems. In this, employees share in company profits and get pay increments due to their level of commitment thus developing the perception that they are valued by the organization (Lynn, 2014). Benefits include provision of flexible health programs, pension plans, vacation time and family programs. When it comes to the working environment, employees should be active in planning, route scheduling and plotting of career growth.

Dispatcher Effectiveness: Dispatchers are important in driver retention because they determine the ability of an organization to respond to driver concerns (Lynn, 2014). Effective dispatching lowers voluntary turnover amongst drivers. In order to ascertain effective dispatching, communication needs to exhibit openness, continuity and share ability (Lynn, 2014). Dispatcher training should entail driver problem diagnosis, solution identification, solicitation of driver feedback and information channeling.

Other Success Strategies

Green Freight: Green operations are strategic functions that not only mitigate overall operational costs but also enhances effectiveness of corporate branding under tenets of corporate responsibility (Outridge, 2012). Under green strategies, packaging must maximize utilization of cube spaces (Outridge, 2012). Secondly, management should adopt the most carbon-efficient truck brands, driving modes and route channels (Outridge, 2012). Collaborations must be made with suppliers and consumers in order to identify cost saving opportunities such as avoidance of busy transport channels (Outridge, 2012). The organization must have a freight sustainability metric, which is reviewed frequently in order to ensure improvement of the performance baseline. Green freight entails reduction of carbon emissions through use of alternative energy sources and reduction of energy consumption.

Cost Reduction in Repair and Maintenance: According to ATA (2016), 30% of truck repairs arise from vehicle abuse and improper use. Truck drivers unfamiliar with proper driving modes and truck handling do not save on fuel and shorten the gap between garage stops and overall life span of the vehicle (American Trucking Association, 2016). For success, a trucking company should have an internal maintenance department that educates and trains on proper truck handling and accountability (Harrison & Pierce, 2010). Repair outsourcing is otherwise the better cost effective approach to fleet maintenance.

Conclusion

The successful trucking organization bases the design of its operations on customer requirements while it implements the plan through quality and skilled personnel. Operational scaling focuses on individual regions while internal management oversees two key areas, which are the physical supply chain and human resource management. Effective control of the supply chain revolves around automation in capacity planning, inventory management and information management. Information is the single most important managerial resource for optimizing the supply chain of a trucking company. On the other hand, effective HRM entails advanced and local hiring procedures, personnel empowerment through training and education and satisfaction through competitive salary and benefit packages. Emotional attachment to the organization is achieved though inclusion of drivers in planning and presence of a shared and open communication platform. One can only be successful by covering the three-macro functions namely customer-oriented production, reduction of operational costs and capital investment and response to market fluctuations.

 

 

 

References

American Trucking Association (2016). Investigative Report: Trucking Industry Forecast. Trucking. Retrieved from http://www.trucking.org/ATA%20Docs/News%20and%20Information/Reports%20Trends%20and%20Statistics/

Costello, Bob. (2015). Truck Driver Shortage Analysis. Tulsa: American Trucking Association.

Gunasekaran, A. & Ngai. E. (2013). The Successful Management of a Small Logistics Company. International Journal of Physical Distribution & Logistics Management, 33 (9), 825-842.

Harrison, D. & Pierce, J. (2010). Examining Driver Turnover and Retention in the Trucking Industry. Center for Intermodal Freight Transportation Studies. 32 (11), 1-88.

Lynn, J. (2014). Start Your Own Freight Brokerage Business: Your Step-By-Step Guide to Success. Irvine, Calif.: Entrepreneur Press.

Outridge, Bruce. (2012). Running by the Mile. San Francisco: Lulu publishers.

Todd, T. & Murray, D. (2010). An Analysis of the Operational Costs of Trucking. The TRB Annual Meeting Reports, 1-17.

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