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The first quarter has just come to an end. While it will still take some time for numbers to come in, we can recap on the topics we covered in January.
For your Friday afternoon enjoyment, we have compiled some fascinating stories only truck drivers would experience! We would love to hear your stories from the road!
If there’s one question we hear from our freight broker agents time and again, it’s “how can I get my profits up?” It’s a good question, and we’re here to provide some resources to help out.
Being a freight brokerage business owner means you’re always learning new ways you could run your business. Not to be confused with implementing each and every new entrepreneurial method into your business; there’s not one perfect way to run a business. But there are really good ideas and tricks out there by others who succeeded in the startup phase, who are willing to share those ideas and tricks, and some of those are worth testing. This is one of them.
Mike Michalowicz was recommended to me years ago. You might not recognize the name, but you’ve probably heard of the book The Toilet Paper Entrepreneur. That book has been mentioned by (what feels like) dozens of entrepreneurs as their favorite helpful book on the Entrepreneur on Fire podcast. That book might be Michalowicz’s most popular work, but his most famous piece should be Profit First.
If you’re an established freight broker, skip The Toilet Paper Entrepreneur. If you’re looking to improve the profit margins in your established business, Profit First should be at the top of your reading list. Much like Dave Ramsey is the mastermind behind The Total Money Makeover (also recommended by Michalowicz for personal finance management, and I personally endorse it, too), Mike Michalowicz just gets how to run a financially healthy business.
Mike Michalowicz repeatedly gives this same advice over and over: it’s not about being cheap; it’s about being frugal. Cheap doesn’t get us anywhere—we can make bad purchasing decisions trying to be cheap. Being frugal assures we’re investing our valuable operating expenses exactly where they need to be to benefit the business and your profits.
Want to learn how LDI can help you increase profits today? Let’s talk.
How To Make a Profit…
According to the book, the Generally Accepted Accounting Principles formula for determining a business’s profit is:
Sales – Expenses = Profit
Michalowicz saw (and personally experienced) that this method has the potential to ruin entrepreneurs.
There’s this thing called Parkinson’s Law. It’s technically a book written by C. Northcote Parkinson, but generally speaking, it’s his theory that a demand for a resource will increase to meet the available supply—“work expands so as to fill the time available for its completion”. If we have 2 weeks to do a project, it’ll take 2 weeks. If we have 8 weeks, it’ll take 8. Michalowicz takes this even further: if we have $1,000 to do something, it will cost $1,000. But if we only have $800 to do something, we’ll find a way to get it done with just $800. The best way to accomplish this is to reduce the supply for our demand to require.
…Without Really Trying
The Profit First Formula to determine business profits is:
Sales – Profit = Expenses
While the entire book is worth the investment and read, here’s a breakdown of how your business can bring in profit every month according to the Profit First Method:
Set Up Multiple Bank Accounts
Much like how you’ve set up a personal checking account and personal savings account, do this for your business as well. Have 3 checking accounts, as some banks might penalize you for withdrawing from saving accounts as often as you will need to touch each one of these accounts. The accounts are nicknamed Income, Owner’s Pay, and Operating Expenses (OpEx).
All revenue will be deposited directly into the Income account.
Next, you’ll have to do something you might not have expected. To avoid the temptation of touching some money altogether, Michalowicz recommends opening two savings accounts at a completely different banks. These accounts are nicknamed Profit and Taxes.
Establish Your Target Allocation Percentages (TAPs)
Now to allocate funds to each of those accounts. Rather than choosing based on monetary numbers, which is probably our first instinct, base allocations on percentages. A recommended TAPs chart is available on Michalowicz’s website, and we’ll use those numbers here.
(But your business might not be in any shape to immediately contribute 5% of the total revenue to the Profit account, what then? That’s where the book will come in handy, as he has an entire section with other numbers and examples of businesses who had to take painful baby steps to get to this point.)
For now, we’ll use the publically available recommended TAPs for this example:
As mentioned before, all revenue goes into the Income checking account.
Regardless of how much your firm makes, the recommended allocation for Taxes is 15 percent across the board. Talk to your accountant to make certain you’re square with taxes, just to be certain.
A Word About Taxes
Setting up a Taxes account and regularly allocating funds to it is crucial—particularly for our agents. Since LDI does not withhold taxes when we pay our agents, every freight broker should be setting aside some revenue for the government come tax time. Tax allocation escapes many entrepreneurs and self-employed contractors attention throughout the year, and panic sets in at tax time as there’s sometimes not enough money in the account to pay the government. Implementing this step alone has turned a lot of business owner’s lives around for the better! So, no matter what allocations you follow below, absolutely prioritize the 15 percent (or what your accountant tells you) to a savings account for taxes.
Back to TAPs
For the remaining percentages, say your freight brokerage firm brings in less than $250,000/year. Twice a month, from your Income account, send 50 percent to Owner’s Pay, 30 percent to OpEx, and then 5 percent to the Profit savings account at the other bank.
If your freight company makes between a quarter to half a million in yearly revenue, the TAPs move to 35 percent Owner’s Pay, 40 percent OpEx, and 10 percent Profit.
Regularly hitting between half a million and a million in yearly revenue? Those percentages switch again to 20 percent Owner’s Pay, 50 percent OpEx, and 15 percent Profit.
See what’s happening here? When you see all the revenue come into the Income account and accumulate, you get excited! Look at all that cash! We have an emotional reaction to those numbers.
Then, twice a month (Michalowicz recommends predetermined days practically written in stone), distribute those funds to the other accounts. Twice a month on the exact same days, you’ll send those allocated percentages into your other accounts.
All bills and expenses are going to come out of the OpEx checking account. When an expense comes up that you “need,” look at the OpEx account, not your Income account. The only money moving out of your Income account is going directly into other accounts.
Here Parkinson’s Law goes into play—you’ve shrunk the available funds for operating expenses. There’s not an arbitrary number to play with anymore, there’s only 30 (or 40 or 50) percent of your total revenue to work with. You’ll now find alternative ways to accomplish the ends, or you’ll realize you didn’t need that expense anyways.
Now, this is a severely watered down Reader’s Digest version of how to allocate funds. I’m leaving out a lot. For the actual step-by-step process of how to make these TAPs work for you, check out this Profit First Overview available from Michalowicz’s website. Confused as to how to use it? All the info is in the book.
Also, I’m basing this entire write up on the first edition of the audiobook. A second, new and improved edition has been released since I downloaded it from Audible. The second edition is possibly even better and more helpful, so that could be worth checking out! If you read the second edition and the info is a little different, that’s probably why.
And Now You Have Profits Without Really Trying
Hope this brief overview to Profit First has given you enough information to know if you want to purchase it for yourself! The book is engaging, inspiring, and short. The audiobook is narrated by Mike himself, and he loves to go off on side stories about personal experiences and gives extra examples in the moment (you’ll know when this happens because he’ll finish with, “Ok, back to the book”). It’s almost like a podcast rather than an audiobook, which is fun.
For more pointers on how to effectively run your freight brokerage, and tips to help increase your profits, contact our LDI business developers at 1-800-554-3734.
The New Year is loaded with all kinds of new and shifting developments. It almost feels like a gamble to report the news lest the information is no longer relevant in a few weeks. But for the moment, here’s what we have.
United States – Mexico – Canada Agreement (USMCA)
November 30, 2018 marked the official agreement between the United States, Mexico, and Canada on a new trade policy when leaders of all three countries signed off on it at the G-20 Summit in South America. The renegotiation of the North American Free Trade Agreement (NAFTA) has added a few new chapters addressing digital trade, anti-corruption, and good regulatory practices to protect small and medium-sized enterprises. Since NAFTA originally went into effect in 1994, it was undeniably in desperate need of modernization. Today’s technological advancements and developments have been identified and addressed fairly extensively to protect intellectual property in each country.
As far as transportation goes, there’s unanimous agreement that this new agreement is a good thing. For the most part, it’s very similar to the existing NAFTA, but the updated text aims to streamline transportation standards. Primarily, it’s aiming to implement more technology to expedite shipping and transportation procedures. The expectation is that the USMCA should translate into faster shipping times and relieve some pressure currently placed on logistic companies that cross international borders.
The only major concern associated with this otherwise good news is Section 232 of the Trade Expansion Act of 1962—the 25 percent tariff on steel and the 10 percent tariff on aluminum. The Motor and Equipment Manufacturers Association claims that this piece of the agreement chokes the United States’ ability to invest in more manufacturing and workforce development, which then affects the transportation industry. Many are calling on the Trump administration to include language to exempt Mexico and Canada from Section 232 to keep those channels open and running.
While there’s no other language that concerns supply chain experts, everyone is still well aware that unforeseen issues could arise once USMCA officially goes into effect. That won’t happen until the agreement goes through the Trade Promotion Authority procedures and Congress signs off on the bill.
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China and the United States
As of December 1, 2018, President Trump and President Xi of China came to a verbal agreement that brought cautious relief to those following the situation. Trump and Xi have agreed to try to come to a compromise regarding treatment of intellectual property and technology transfer issues by March 2, 2019. A new compromise will then allow for renegotiation of tariff rates for both countries. Until then, the U.S. has paused the tariff increase for the New Year and will keep the 10 percent rate, and China has promised to begin purchasing from the U.S. agriculture sector. Considering the fact that China was our main export for soybeans in 2017, it is a welcomed relief, but we’ll believe it when the orders come through. We might be able to expect to see China source the US for pork, as outbreaks of African Swine flu are hitting their herds hard. That is still an unknown, but should agricultural exports pick up, that will help relieve serious economic pressures on small farms and rural communities.
Effects of ELD Mandate
Speaking of unknown effects until implementation, the ELD Mandate has been in effect for a year now and we pretty much saw real-life consequences as early as Q1.
Earlier this year the load-to-truck ratios were significantly higher than the previous year. Tie that into the trucker shortage, and it means a lot of freight was sitting around waiting to be moved. This forced shippers to up their rates, which they then passed that cost along to consumers. The last half of this year did see a down-turn from load-to-truck ratios, but consumers shouldn’t expect price decreases.
A few companies who raised prices are familiar names: Amazon increased their Prime membership due to hiked shipping costs. Grocery store name brands like Hormel Foods, General Mills, Tyson Foods, Betty Croker, Haagen-Dazs and PepsiCo have all raised their prices, and others such as Hershey, Procter & Gamble, and Mondelez are slated to raise their prices as well.
The ELD Mandate also messed with paychecks. Drivers aren’t willing to sit around for more than 2 hours to be unloaded while miles are money and their time window is limited. This has created a new culture of drivers/carriers who purposefully avoid specific chains or manufacturers who are notoriously disrespectful drivers’ time. While comfortable lounges are nice, all the free soda and available showers don’t make up for eating into 5 hours of a shift.
The ELD Mandate has had some positive influence. Since the data is now digital, truckers are able to prove beyond doubt that they’ve been kept waiting at warehouses and are now more likely to receive compensation. And about 60 percent of drivers do believe the safety implications the mandate was intended to enable have been reached.
The other 40 percent feel like safety measures are getting worse, with drivers plowing on through bad weather, driving while exhausted for every last available minute, and speeding to cover more miles. ELD actually has reported that following long unloading detainments, drivers do drive an average of 3.5 miles faster. Clearly, some adjustments need to be made.
There has been talk that rather than repeal the ELD Mandate, the Federal Motor Carrier Safety Administration revisit and update the Hours-of-Service (HOS) of Drivers Rule. Ideally, the 30-minute break rule will be nixed, and drivers will be allowed “to use multiple off-duty periods of three hours or longer in lieu of having 10 consecutive hours off-duty.” Since nearly 75 percent of drivers reported they’re detained at a warehouse for longer than 2 hours at least once a week, this should help make that time work as breaks rather than count against drivers allotted driving window. The public call for concerns has closed, and we should have more information about the results of what might happen to HOS later in 2019.
The restrictions the ELD Mandate has placed is overall not so terrible. In fact, the limitations it’s put on shipping goods in a timely manner has brought about the biggest positive of 2018:
Increased Pay for Drivers
The pay for over-the-road drivers has not been great, with the United States averaging about a $40,000 salary. The shortage of drivers and the restrictions of the ELD Mandate has caused some companies to drive up sign-on bonuses as much as $6 grand and increase salaries.
Unfortunately, even with these salary increases, when adjusted for inflation, drivers are still making about 50 percent less than they were in the 1970s. But it looks like we can expect these pay increases to continue as long as the ELD Mandate stays in effect. For those who are going into truck driving, or intend to stay in the game for a few more years, they should experience some better compensation. The US is already short about 60,000 truckers, and ForeignPolicy expects that in less than a decade that number will be about 174,000.
2019 will hopefully provide us with some happier numbers about salaries. Maybe the future of over the road truck drivers will be as attractive as it once was.
Stay Tuned to LDI’s Blog Feed
We’ll be revisiting these topics and surely much more each quarter throughout 2019 to update you on the state of affairs in transportation.
The end of Q1 will undoubtedly have some interesting tariff updates with China and some real-time transportation data about the US/Mexico/Canada border.
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Stay up to date with the world of trucking by tuning into these renowned podcasts.
Podcasts are perfect for over-the-road entertainment. Truckers know this, but podcasts are ideal for anyone with a 20 to 30 minute work commute (brokers and dispatchers, looking at you). Lunch breaks are a good time to catch an episode, or, my favorite, the time it takes to get in a nice cardio work out. I love music, but occasionally, I need to learn something new.
Sometimes the branches of logistics can feel disconnected from each other. Brokers, drivers, and dispatchers all live in very different environments, but podcasts can bring us back together. Learn about something new going on in your truckers’ world, and keep up with what your truckers are talking about right now.
Here’s a list of some of the most popular trucking podcasts out there today. The first few are specifically about trucking, so they tie us all together. Each podcast has a spin that makes it a winner, so read about each one and check out the websites to sample an episode or two. If you’re looking to expand your podcast playlist and want to keep up on what’s important to your drivers, add these podcasts to your Stitcher list:
This podcast works for everyone in logistics. Buck Ballard and his son Don Ballard are both truckers who love talking about trucking, topics truckers find interesting, and offer some trucking business advice. They keep the content pretty fresh with a new episode released each week, so they aren’t scraping the bottom of the barrel for anything to talk about, and forethought is put into each episode. The Trucking Podcast has a website what expands on the details of each episode. Whenever the Ballards publish an episode that resonates with you, you can visit the website and read more about the topic.
Host Todd McCann is a 20-year trucking veteran who talks about his own insights and views on truck driving. He releases one episode a month that lasts about an hour and a half, so these episodes come at you slowly, but they’re fun to listen to. Trucker Dump makes the list on all the best trucker podcasts, and once you listen, you’ll get it. While it’s geared towards truck drivers, it doesn’t hurt for everyone else to be tuned in. Why? McCann gives a trucker’s personal experience about shippers/receivers, customer experiences, and more. This kind of information provides insight on how others are running their businesses, sometimes inefficiently. That can prompt you to do an audit on your own business when he hits on a certain topic that could relate to you. When you find that topic, go to his website, click on the episode, and the content is right there for you to review.
This is a trucking podcast for truck drivers released every Friday morning. This is a trucking culture kind of podcast: the hosts are funny, they talk about the industry, and vent about issues and frustrations truckers face every day. TalkCDL brings current attention to safety issues, emerging technology, and evolving rules and regulations. If you have any kind of question about what’s going on in the life of a trucker, these hosts have covered it.
How to listen: Apple Podcasts
Shifting gears a bit, this serial fiction podcast makes the trucker lists because it blends the world of trucking with the sexy appeal of crime thrillers. Alice Isn’t Dead is a 48-episode podcast about an over-the-road trucker on a journey across the country to search out a wife he long thought dead. Much like Trucker Dump, this podcast is wildly popular among truckers and it spans interest beyond just over-the-road drivers. This podcast is especially attractive to the logistic industry for obvious reasons. Since the series has officially wrapped, you can binge listen to the whole thing now.
Your Turn: What Are You Listening To?
Now we want to hear from you: what podcasts are you listening to? Do you have any other trucker-oriented suggestions? Or do you have something outside of trucking you’re recommending to everyone right now?
Both my dad and my father-in-law are over-the-road truckers, and here are the podcasts they’re quick to recommend:
My dad loves learning about economics, but when it comes to actually recommending a podcast for the general public, he doesn’t hesitate to suggest Freakonomics. Economist Steven Levitt and journalist Stephen Dubner look into all kinds of obscure topics and view them from multiple sides. They interview experts, dig up research, and present it all in an interesting way. The topics these guys cover have prompted some rather memorable conversations around the dinner table.
My father-in-law is the kind of guy who never meets a stranger. He immediately has something interesting and fun to talk about. When someone has that kind of personality, you have to wonder where they’re getting their info. Enter Stuff to Blow Your Mind, a podcast that talks about anything and everything in minuscule detail. Hosts Robert Lamb and Joe McCormick do their due diligence to deliver interesting, researched, and speculated takes on topics from neuroscience to art and everything in between.
What podcasts do you recommend? Share a link in the comments.