Latest / The Operator's Manual with Fexingo: Daily Decisions, Tactical Wins, and Business Execution / How One Logistics Firm Killed Waste With A Simple Metric
Transcript
- Lucas: Look at the last mile of any delivery route. Most people think the problem is getting the package to the door. But for the company we’re talking about today, the real money leak wasn’t at the destination. It was on the way back. Luna: Right, so you’re saying the biggest cost wasn’t the service, but the absence of service? The empty truck coming home? Lucas: Exactly. This is a regional logistics firm, let’s call them Apex Freight, though they’ve been quietly profitable for years because they cracked this code. They stopped measuring success by loaded miles per driver. They started measuring by total miles driven per unit of profit generated. That shift alone cut their overhead by nearly twelve percent in two quarters. Luna: Twelve percent just by changing what they counted? That sounds like a classic case of what gets measured gets managed, but usually it takes more than just looking at the number differently. Lucas: It does take more. The insight was realizing that fuel, maintenance, and driver wages are fixed costs per mile, whether there’s cargo in the back or not. If a truck drives fifty miles to drop off a pallet and returns fifty miles empty, the company paid for one hundred miles of movement but only earned revenue on fifty. Historically, they treated the return trip as inevitable background noise. Luna: But if you treat every mile as a billable event, even if it’s zero dollars, it changes how you price the initial load, doesn’t it? Lucas: It completely reshapes the pricing model. Before, they quoted based on distance to destination plus a standard markup. After, they built a dynamic surcharge for deadhead risk. If a client wanted a one-way shipment into a rural area with no known inbound demand, the price included a premium to cover the expected empty return. It wasn’t a penalty; it was an insurance policy against inefficiency. Luna: That’s clever because it forces the customer to internalize the cost of their own logistical footprint. They start asking, 'Can I consolidate shipments?' or 'Can I wait for a backhaul?' Lucas: Precisely. And here’s where it gets tactical. Apex didn’t just raise prices. They invested in a simple matching algorithm that connected outbound drivers with local shippers looking for inbound freight. They turned their fleet into a two-way marketplace. So now, that same truck that delivered to the city might pick up raw materials on the way out to the suburbs. The vehicle is always working. Luna: So the metric isn’t just about reducing empty miles, it’s about increasing the density of every mile. Is this hard to implement for smaller companies without fancy tech? Lucas: The tech part is easier than you think. You don’t need artificial intelligence to map your routes. You need a spreadsheet that tracks every trip end-point. The hard part is cultural. Drivers used to complain when they were told to wait three hours for a return load instead of heading home early. Management had to reframe that wait time as productive engagement rather than lost time. Luna: Reframing waiting as working. That’s a huge mindset shift for field operations. People hate sitting idle, even if it’s paid. How did they handle the pushback? Lucas: They tied it to incentives. If a driver completed a round-trip with high asset utilization—meaning low deadhead percentage—they got a bonus. Suddenly, finding that second load became part of their job description. It turned logistics coordinators into salespeople too, because they were actively hunting for inbound freight to keep their trucks moving. Luna: I love that. It aligns individual behavior with company profitability. But let’s pause for a second. If these conversations have moved your work forward in some small way, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. It keeps us digging into the nitty-gritty of business execution. Lucas: Thanks for keeping the lights on. Let’s get back to the data. Because once you fix the pricing and the incentives, you still have to deal with the reality of market volatility. Sometimes there just isn’t cargo on the return leg. Luna: True. Seasonality hits everyone. Did Apex find a way to hedge against those inevitable empty miles? Lucas: They diversified their client base vertically. Instead of just serving consumer goods, they added industrial manufacturing clients who needed heavy machinery transport. These shipments are less frequent but much heavier and higher value. They balanced the light, fast consumer moves with the slow, heavy industrial moves. This smoothed out the utilization curve across the quarter. Luna: So they weren’t just trying to eliminate empty miles entirely, which is impossible, but they were minimizing the cost impact of those miles by ensuring the loaded miles compensated enough. It’s about net positive contribution per vehicle day. Lucas: Spot on. And this brings us to a broader point about operational metrics. Most managers look at top-line revenue or even gross margin. But gross margin can be misleading if your volume is built on inefficient routes. Apex looked at contribution margin per available mile. That’s the revenue minus the variable costs directly tied to that specific mile. If a mile doesn’t contribute positively after covering fuel and labor, it’s a drag on the whole system. Luna: That’s a sharper lens. Contribution margin per mile forces you to say no to bad deals. If a client offers a rate that barely covers fuel, you reject it because you know the empty return will bankrupt the transaction. It protects the bottom line. Lucas: It does. And it creates discipline. Sales teams can’t just close anything to hit a quota. They have to sell profitable miles. This changed how Apex hired sales reps. They stopped hiring hunters who chased volume and started hiring farmers who nurtured long-term, efficient contracts. The turnover in sales dropped significantly because the targets were sustainable. Luna: I’m curious about the technology side again. You mentioned a simple matching algorithm. Was this custom-built or off-the-shelf software adapted for this purpose? Lucas: They used a modified version of standard route planning software. The key was adding a constraint flag for 'inbound availability.' When the dispatcher entered a new outbound order, the system instantly checked if there was pending inbound freight within a certain radius and timeframe. If yes, it suggested a bundled rate. If no, it flagged the route as high-risk for deadhead and applied the surcharge automatically. Luna: Automation of the decision-making process. That removes the human bias toward easy wins. Dispatchers are under pressure to move product. Having the system enforce the economic logic is powerful. Lucas: Exactly. It depersonalizes the rejection. The dispatcher isn’t saying no to the client; the algorithm is saying no based on efficiency parameters. It keeps relationships professional and focused on value rather than convenience. Luna: This feels like a model that could apply beyond transportation. Any business with fixed assets that depreciate or incur holding costs while idle. Like construction equipment or rental properties. Lucas: Absolutely. Think about a crane rental company. If a crane sits on a site waiting for the next phase of construction, that’s deadhead. Or consider a commercial kitchen during the lull between lunch and dinner. Those empty hours are pure loss. The principle is universal: minimize the cost of idleness by maximizing the utility of every asset unit. Luna: So the lesson isn’t just for logistics managers. It’s for anyone running a capital-intensive operation. You have to ask, what is my deadhead metric? Lucas: Yes. Identify the asset, identify the idle state, and assign a cost to it. Then build your pricing and scheduling around eliminating or monetizing that idle state. It’s a fundamental shift from output-based thinking to throughput-based thinking. Luna: Throughput over output. I like that distinction. Output is just doing things. Throughput is doing valuable things continuously. Does Apex share any other metrics they track now? Lucas: They track 'net miles worked.' This is total miles driven minus estimated empty miles, weighted by the probability of finding a return load. It’s a predictive metric. It helps them forecast cash flow more accurately because they know exactly how many billable miles are likely to come in next week, not just how many miles their trucks will physically roll. Luna: Predictive cash flow based on utilization probability. That’s sophisticated financial modeling disguised as operational hygiene. It’s brilliant. Lucas: It’s also defensible. Competitors who stick to old metrics can’t compete on price because their overhead is bloated with inefficiency. Apex has a structural advantage. Every time they optimize a route, they widen their margin gap. It compounds over time. Luna: Compounding efficiency. That’s the holy grail of business execution. Most people look for a big innovation. Apex found a small correction that changed everything. It makes you wonder how many other industries are leaving money on the table by ignoring their own deadhead miles. Lucas: Probably all of them. The next time you book a ride-share or schedule a contractor, ask yourself: are they paying for the trip there, or the trip back? And if they’re paying for both, they’re probably charging you for it too. Efficiency hides in the margins, but it shows up in the price. Luna: So the real question for our listeners is, where is your empty leg? What are you driving back into the shop without cargo? Lucas: If you can answer that, you might just find your next twelve percent.