A trucking company’s detention rate is not a random number picked from a hat. The detention rate is used to offset the cost of a truck being detained at a shipper or receiver. If you are working through a broker, detention rates have typically already been negotiated with their shippers and receivers. If this is the case, you will not need to figure out your detention rate. However, if you are not using a broker, your detention rate may be good information to know. To get started you need to know your operating cost.
Your operating cost covers every expense required to run your company: fuel, maintenance, tires, permits, and salaries all contribute to this cost. For this example, we will follow John Doe and his 2-truck company.
To find his operating cost, John Doe tracks each of his monthly expenses. After adding them all up, he discovers he needs to make $25,180 per month to keep his 2-truck business running. (This amount does not include profits.) John’s trucks run an average of 20,000 miles a month. By dividing his monthly expenses by the average miles, John determines his cost-per-mile is $1.259.
John Doe’s trucks drive mostly on the highways and most of those roads have a speed limit of 60 mph. To determine how much money it costs to run a truck for 1 hour at 60 mph, John needs to multiply his cost-per-mile by the speed limit.
$1.259 x 60 = $75.54
It cost John $75.54 to drive his truck at 60 mph for 1 hour.
If John’s trucks are not moving, he is not making money. As determined above, it costs John on average $75.54 an hour to run his trucks. To cover the cost of an idle truck, John decides to charge a $75.54/hour detention rate when his truck is held longer than two hours at a shipper or receiver.
NOTE: Negotiating detention with a broker or shipper needs to happen while you are negotiating your freight rate. In addition, make sure to get the final, negotiated amount in writing, or you run the risk of not getting paid.
Stay on top of your monthly expenses. Know when your costs change and update your operating cost accordingly. Your operating cost helps you determine your detention rate.