Industry Voices: What trucking can learn from the airlines

[kscarbel2]

Jim Park - Today's Trucking / March 17, 2015

For-hire trucking could learn a few things from the airlines, because they have finally figured out how to make money in a deregulated environment.

Love 'em or hate 'em, commercial airlines are the most time- and cost-effective way -- even comfortable if you compare an Airbus A320 to a cattle truck -- of moving people back and forth across the country. While passengers may be unhappy with being nickeled-and-dimed to death, they are paying the endless list of fees and surcharges, and the airlines are racking up record revenue increases.

The Associated Press reports that U.S.-based airlines hauled in $3.4 billion in baggage fees in 2010, a 24-percent increase over 2009. By the end of the third quarter 2011, 17 major U.S. airlines had collected $2.6 billion for checking luggage. Not bad for something that used to be free.

Rather than face an uprising over fare increases, the airlines downloaded the problem to the passengers, who must now duke it out in the cabin to see who gets their humongous suitcase into the overhead luggage bin first.

The airlines are actually a great example of how to recover otherwise lost revenue by tacking on fees and surcharges where they are warranted. Want a beer? Seven bucks. A sandwich? Eight bucks. You won't get a free lunch anywhere else, so why should you expect one on an airplane?

The airlines use a complex pricing system called "yield management," which is rather concisely defined by Wikipedia, as the process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profits from a fixed, perishable resource (such as airline seats or hotel room reservations).

The term was coined by Robert Crandall, former chairman and CEO of American Airlines, who called it, "the single most important technical development in transportation management since we entered deregulation."

Back in the days when the Interstate Commerce Commission actually enforced tariffs, trucking had the luxury of charging customers based on a menu of service offerings. Today, flat-rate pricing is the norm -- especially when dealing with freight brokers -- and that limits our ability to charge for certain services, or to recovers costs incurred in providing such services.

You Want it When?

I'll grant that there are differences between an aircraft in scheduled service leaving the gate with unsold seats -- that's lost revenue -- and a truck running down the road for an agreed-to flat rate. But when you consider all we do that's above and beyond getting freight from one loading dock to another, I think we're leaving a lot of money on the table too.

There are the obvious examples such as inadequate fuel surcharges and unbilled detention time, but what about things like cancelled loads, deliveries to remote destinations, day-of-the-week or time-of-day load/unload premiums? You know delivering in Los Angeles on a Friday means a weekend layover. How might you convince your customer to load a few days early so you can deliver on Wednesday? Charging a premium for delivering on a day, or time of day, that limits your reloading potential would be a good way of influencing the customer's decision.

Ever had a load cancelled once the truck is en-route to the pick up? The driver has begun his or her workday and has started the 14-hour duty cycle. Diverting or sitting that truck is going to cost the driver and the carrier something. Why shouldn't the customer pay for its lack of foresight?

Weight is another big issue. In the truckload world, a load is a load. A to B = X dollars. If you're dragging a van around, it doesn't matter how many boxes are stuffed into the trailer, what matters to the carrier is weight. How many carriers (and brokers, for that matter) charge a flat rate for a truckload whether the weight is 10,000 pounds or 50,000? Weight sure matters to the guy paying for the fuel. The customer should pay accordingly.

Tons of other extras spring quickly to mind that carriers could and should be billing for, such as driver load or unload, special handling, destinations where reloads are difficult, scheduled appointments, team service, temperature-controlled service, multiple-drop, re-consigned loads, weekend deliveries, residential deliveries, security fees, paperwork preparation, scale tickets ... The list of possibilities is a long one indeed.

Many carriers are now charging what have come to be known as accessorial charges, but many are not. I hear carriers that do levy accessorial charges are having varying degrees of success at collecting those charges, but that's another story.

My question is, why would you not charge extra fees for legitimate services? It apparently hasn't hurt the airlines.

Shippers would still have choices if motor carriers were to charge for everything they do. Shippers that choose to move trucks in and out promptly would not have to pay delay fees. Shippers that insist on 3 a.m. delivery appointment should have to pay for the lost time between the delivery and a potential reload during normal business hours. Loads that deliver to out-of-the-way locations should pay a location charge to cover the deadhead miles back to civilization.

We can offer our customers choices too. Pay me now, upfront, or pay me later when I've finished tallying up all the extra charges for things I had to do to get your load delivered. If trucking adopted the airline pricing model, I think $3.4 billion in recovered revenue would be drop in a bucket.

There's a great description of Yield Management in this article on Wikipedia, if you care to dig a little deeper into the mechanics of this revenue preservation tool.

[grayhair]

Yeah but one seems to me one big difference, the number of competitors. If you want to fly from DFW to LAX nonstop you have your choice of about 4 airlines, all of whom closely monitor each others fares and who have shareholders to satisfy by making a profit. If you want to ship something by motor freight from TX to CA you have your choice of literally hundreds of carriers. Isn't pricing at the mercy of your cheapest or most desperate competitor? Not in the industry, just an outsider's impression of the situation.

[BC Mack]

ksc

a better comparison for truckers would be with the 'air cargo' industry, not the 'airline' industry....

outside of the big players with their own fleets, FedEx etc, bottom feeding is the norm when bidding on contracts, and the only way to lower your bid is to cut costs...

density is the same issue, bigger aircraft carrying less weight due to Amazon et al, cost of equipment just went up to move the volume but the tariff per flight never changed..

as with trucking, these third tier carriers cut on maintence costs by farming work out to contract mro's and dispose of their own facilities... contract pilots paid by the hour with no future, 90 day leases of aircraft operated on wet/damp lease from lower cost foreign countries.. all legal.

take a look at recent crashes, tired pilots, deadheading halfway across the country to fly a few legs, sleeping in rv's near LAX.. all for a career as a pilot as someone told them "there's a shortage of pilots coming soon"... and paid peanuts, same ones you pay $5 for now.

heck, even your own government is allowing a Kazak airline to operate out of Miami on local flights... (compare this to recent changes to Mexican trucks operating within Nafta)... ok, so you got an airbase to use on the way to Afganistan... fair trade?.

I spent 20 years in the airline industry and am still a watcher.... I agree with you that the airlines charge passengers surcharges for what used to be included in their fares, but if you compare today's fare to pre 78 Reagan fares you will see how cheap flying is today... heck, it's cheaper to fly than taking the bus... Southwest created that model..!!!

your point is valid, but the airlines figure that more people want to fly and capacity is becoming an issue, load factors are constantly over 90% due to load management and after years of a "race to the bottom" the loads are getting better so they now realise that they can charge more for their product because the customer will pay, there is no alternate.

not enough passengers turn up for a flight to make it economical.. heck, call it a mechanical and put them on the next flight, give them a free sandwich but look at the fuel we saved the shareholders..!!! sound familiar?

yes... it's the same industry as trucking but they've got wings... and the same issues prevail, parcels or people it's just they've got "self loading freight"...

BC Mack... a Canadian, with the same issues as yoose guys.

[Ezrider]

the biggest accessory charges that should be paid are tonu and detention time. iv had these in a contract in black and white and they will still try to dodge paying it any way they can. both cost you money and should never go unpaid.

[grayhair]

And don't forget the huge amount of money the airlines spend these days to maximize revenue per mile. Tons of historic data on cancellations, standbys, ratios, 1st class seat sales when coach is full, business travelers vs. tourists. Hell, they can accurately forecast how many people will fly from Philly to Vegas on the 2nd Sunday before Father's Day. And how many passengers won't show. Massive data bases, behavioral scientists, statisticians. The result of this is that there can be several hundred different fares on any given flight. And even so, despite their efforts, dozens of airlines have gone bankrupt over the last 30 years. Capitalism at its best I suppose...