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Is Slowing Down Your Speed To Save Money Worth It?

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Is Slowing Down Your Speed To Save Money Worth It?

We start with the premise that a driver can save $10,000 a year by slowing down his or her speed from 75 miles per hour to 65. We then set out to determine whether this would be worth it and to calculate sound, concrete numbers to back up our assumptions.

Slowing down speed when rates are low and depressed is a common practice in transportation generally (e.g., ocean tankers) to pad the bottom line and effectively reduce industry capacity.

The latest detailed figures we had for operating cost per mile by detailed line item were from the American Transport Research Institute (ATRI) in 2018. We used these figures to calculate how many more miles a driver would need to drive to drop the entire $10,000 in incremental profit to the bottom line.

Source: American Transportation Research Institute (ATRI)

Converting 2018 Operating Cost Per Mile Into Dollar-Based Expenses

What we found was that to actually drop the $10,000 in savings to the bottom line, he or she would need to drive an extra approximately 27,500 miles or 90 miles per day. Therefore, it is possible and quite doable, but the question is whether a carrier or an owner-operator views these sacrifices as worth it.

Our basic calculations and assumptions were as follows:

We had to complete the following steps to arrive at our conclusion:

  1. Convert the fuel cost back into total dollars by assuming the average truck drives 100,000 miles per year at a cost of $0.433 per mile. This gave us an annual fuel budget of $43,300.
  2. Divide the $10,000 by the annual fuel cost of $43,300 to arrive at an annual fuel savings of 23%. We then reduce the fuel cost per mile accordingly by 23% to arrive at a new fuel operating cost per mile of $0.33 (or $0.10 per mile in incremental savings).
  3. Then, because putting more miles on your truck is not free, we assumed that maintenance cost per mile, tire expenditures and tolls increased by the same 23% (we acknowledge this is not a perfect system but believe this exercise to be more art than science). Doing so increased our new maintenance cost per mile to $0.21 (from $0.17, an increase of $0.04 per mile), our new tire expense to $0.05 (from $0.04, an increase of $0.01 per mile) and our tolls expense to $0.04 per mile (from $0.03, an increase of $0.01 per mile).
  4. Other assumptions we made: A driver drives 333 miles per day for 300 days per year (100,000 miles per year, six days a week for 50 weeks per year) and a carrier is paid $2 per mile including fuel.
  5. Assuming nothing else changes, this totals a new all-in operating cost per mile of $1.78 compared to $1.82 (the ATRI average in 2018) or a per-mile operating cost savings of $0.04 per mile.
  6. Subtracting the new all-in operating cost per mile of $1.78 from our rate per mile of $2 (what we are paid including fuel) results in $0.22 per mile in operating profit compared to $0.18 when the driver was driving 75 mph instead of 65 mph. This corresponds to an operating ratio (OR) of 89%.
  7. Lastly, we show how a driver must increase his or her mileage by 27,512 miles in a year (or about 92 miles per day) to drop the full $10,000 in fuel savings to his or her bottom line (see incremental $10,000 in profit highlighted in green in the second chart below). The resulting $27,900 is equivalent to unlevered pretax income and assumes this is an owner-operator who owns 100% of the company and gets paid $75,997 in wages per year.

Source: FreightWaves, ATRI

Source: FreightWaves, ATRI

Conclusion: Is Your Time Or Your Wallet Worth More To You? 

Is it worth it to slow down your speed to 65 mph to save on fuel if you are an owner-operator or to place governors on your fleet if you are a larger carrier? The answer is it depends on your personal preference. 

For an owner-operator and sole proprietor, saving $10,000 in fuel means you will be paid $103,897 in combined wages and unlevered pretax income in our case study but that will require you to drive 127,512 miles per year (or about 425 miles per day for 300 days).

This is just a theoretical example but it has potentially profound implications that are at least worth considering because $10,000 in incremental profits (from roughly $17,900 to $27,900 in the example above) equates to more than a 55% increase in operating profit per truck. If you are a larger fleet with hundreds or thousands of trucks, this would appear to show that slowing down speed can make a meaningful difference.

Driving an extra approximately 27,000 miles per year (or 90 miles per day) per driver is hard work but definitely achievable assuming you as a driver consistently run under the hours of service (HOS) limitations of 11 hours per day. Furthermore, this example is directionally accurate and is not an "all-or-nothing" consideration in a down market — slowing down your speed by less than 10 mph will still save money but you will have to drive more miles to bank the savings and increase your bottom line. The question is: Is it worth it to you?

Image by Daniel Reche from Pixabay

Posted-In: Freight Freightwaves Logistics transportationNews General

 

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