Breakeven Costs of Operating a Commercial Truck

• READ THE LATEST 2023 UPDATE HERE

Prices are going up. Everywhere. That nasty word, “inflation”, has been on the horizon for some time now, but with the worldwide pandemic and resulting supply chain disruptions, it has hit the transportation industry particularly hard. 

While this is likely not breaking news to most of us, there are a few fundamental questions:

Will the prices ever come back down? If they do, by how much? 

And whether they keep going up or come down, what can we do about it? 

While there are many factors that impact transportation trucking pricing, it is still the basics of supply and demand that drive the final value. 

Anyone trying to hire drivers right now can attest that the supply side has been declining, thus driving up wages—but still not attracting enough drivers to close the gap.

 

On the other side of the coin, demand has spiked because of the pandemic, government stimulus, higher savings rates last year, and many more factors. 

Coupled with a wide range of wild cards (see the table at the end of this article for details), this balancing act will continue to play out over the following years. But before digging into these hard to control factors, let’s turn our attention to the cost and determine the trucking price floor.

Over the past decade, the average operating cost per mile for a commercial truck has been around $1.65. Factor in that most trucks are running 12% empty miles—and that is likely being generous—and a safe historical breakeven cost per mile would be $1.875.

Said another way, this is the lowest rate per mile on average that carriers could charge in the past decade in the United States without losing money overall.

Here is a year-over-year view through 2020 of the average costs per mile, cost per hour and total average marginal costs from the most recent ATRI Analysis of the Operational Costs of Trucking: 2021 Update.

Note that the totals are not adjusted upwards to account for empty miles.

Average Marginal Costs per Mile, 2011-2020

Average Marginal Costs per Hour, 2011-2020

Share of Total Average Marginal Cost, 2012-2020

SOURCE: ATRI An Analysis of the Operational Cost of Trucking: 2021 Update

A note before proceeding:

The following analysis is for national average pricing for traditional fifty-three-foot tractor-trailer moves. Regional—most certainly specific lanes—can vary wildly in price depending on the supply-demand equation and local fuel prices. 

Expect to see higher prices for refrigerated, flatbed, and other more specialized equipment within the industry, as well. 

In the end though, the overall pricing is limited by costs and thus the ability to generate a long-term profit. And, yes, the breakeven cost per mile has gone up from the $1.875 average that we’ve seen in the past decade.

The key takeaway from this cost analysis is that anyone using newer equipment is facing a price floor approaching $2.20 per mile, just to break even. As older equipment is sunset, this will become the reality for everyone moving product on commercial tractor-trailers.

There are a few wild cards that could swing this value, though most potential items will result in increased costs, meaning the days of relatively inexpensive truckload transportation may already be behind us. 

Items that could increase costs: 

• Aging equipment has to be replaced—and the replacement rate accelerates 
• Taxes—could see higher gasoline and/or road taxes 
• Production shifting back to United States, thus reducing overall miles for finished goods 
• Driver shortages continue to get worse 
• Ocean, rail, and intermodal rates continue to rise, which brings up truckload rates (note: there are surprisingly high correlations between rates across modes
• Demand for durable goods continues to grow, outpacing supply 
• Regulatory mandates 
• Technology upgrades 
• Additional taxes for infrastructure 

Items that could decrease costs: 

• Electrification of tractors drives demand down for diesel fuel 
• New wave of younger drivers joins the workforce 
• Domestic inventory shifting closer to end consumers 
• Production shifting back to United States, thus reducing overall miles for finished goods 
• More effective TMS planning reducing empty miles and increasing cube/weight efficiency 
• Recession drives down overall production and demand for goods 
• Consumer demand shifts towards services that require fewer durable goods
  
  

On the whole, it seems unlikely that the decreasing factors will win against the tide of increasing costs.

And with inflation still making its presence felt, the days of less than $2.00 per mile all-in truckload rates will become nothing more than a fond memory. 

Now for the other important question: What can be done to mitigate the potential price increases? 

As the above list suggests, there are a few ways to counteract the rising costs of transportation. For companies with a solid working relationship with their carriers, now is the time to work closely with them to limit price fluctuations while still ensuring timely service and continued capacity. 

If you have access to a private fleet and/or dedicated contract carriage, careful lane selection for your dedicated drivers can save significantly.

The key is to identify the high-demand lanes, leverage your fleet assets to service them, and save the common carriers for lower-priced lanes. While this may sound simple, in practice, it takes a robust planning process—and preferably combined with a well-configured Transportation Management System—to take advantage of the constantly evolving rates landscape and maximize utilization of your fleet. 

More advanced systems can dynamically take advantage of mode selection, zone skipping, and multi-trip routing. 

The reality is that every company has a unique combination of challenges—and opportunities.

If you feel like your business could use extra support in identifying where to spend your time and money, reach out to a trusted partner and have them take an objective look at your current situation. With inflation on the rise, you may be surprised at what some focused changes could do to improve your bottom line.