While it may be true that refrigerated and flatbed equipment typically receive a higher rate per mile than dry van, are they necessarily more profitable? Let’s look at each equipment type and the costs associated with each to determine how lucrative each of these niches or specialties can be.
If you are in the trucking industry in some capacity, you likely are familiar with the term “spot rate”. If not, spot rate refers to the rate per mile a carrier receives for transporting a load in the spot market. And if you haven’t heard of the spot market, well…you should consider taking our course or reading our book, “How to Start, Drive, and Accelerate Your Trucking Business”! 😊
Historically, dry van spot rates are on average lower than flatbed rates and flatbed rates are lower than reefer rates as demonstrated in the DAT Trendline graphic below. Does this mean that reefer is the most profitable equipment type? Well, not necessarily.
The most significant measure for determining profitability is the cost per mile. See the formula below to calculate your gross profit for each load.
Rate per Mile (RPM) - Cost per Mile (CPM) = Net Profit
A more general way to think about this is as simple as Revenue minus Expenses equals Net Profit.
DAT Trendlines - https://www.dat.com/trendlines
The cost per mile calculation accounts for all business expenses. CPM can vary widely depending on several factors, including the type of truck, the distance traveled, the type of cargo being transported, and the operating conditions. Generally speaking, a reefer has a higher cost per mile than a dry van. Therefore, a higher rate per mile does not always equal a higher profit. Let’s look at an example:
A dry van carrier secures a spot rate of $2.05 per mile and has a cost per mile of $1.25.
The dry van carrier’s profit on this particular load would be:
$2.05 - $1.25 = $0.80 per mile
Now let’s say a refrigerated carrier secures a spot rate of $2.55 per mile and has a cost per mile of $1.75.
The refrigerated carrier’s profit on this particular load would be:
$2.50 - $1.75 = $0.75 per mile
The dry van carrier is making a greater profit ($0.05 more per mile!) than the refrigerated carrier even though the reefer carrier can secure a higher spot rate.
Check out our blog here to learn how to calculate your cost per mile for your trucking operation.
Now that we’ve established that the cost per mile is a major element in determining profitability, let’s look at the challenges associated with each equipment type to get a clearer understanding.
Many carriers prefer dry vans because they offer the flexibility to transport a wide range of goods, from consumer goods to electronics. With lower maintenance and equipment costs compared to specialized equipment, dry vans can be a more budget-friendly option for trucking businesses. While dry vans enjoy consistent demand throughout the year, spot rates can be low due to high market saturation (there are a lot more dry vans in the market than other equipment types).
Flatbed trailers transport oversized or unconventional freight, including construction materials and machinery, tapping into niche markets with higher earning potential. Flatbeds come in many shapes and sizes including step-decks, double drops, low boys, conestogas, and more. See our other blog to learn more about each equipment type.
Due to the specialized nature of flatbed hauling and the additional labor involved in securing loads, flatbed carriers often command premium rates. Flatbed operations present unique challenges, including load-securing complexities, weather-related risks, and driving difficulties with heavier or oversized freight. In general, flatbed equipment can be more expensive than dry van and requires more expertise and experience. Flatbed operations also require additional investment in equipment such as tarps, chains, binders, etc.
Reefer trailers cater to the growing demand for temperature-controlled transportation, serving industries such as food, pharmaceuticals, and perishable goods, where product integrity is paramount.
Reefer carriers enjoy higher pricing power due to the specialized nature of temperature-controlled transportation and the stringent requirements for maintaining cargo integrity, translating into favorable rates.
While reefer operations can offer promising returns, they require significant upfront investments in refrigeration equipment, maintenance, and compliance with safety regulations, posing financial barriers for some trucking businesses. Refrigerated equipment breakdowns are also more of a challenge because the freight on board is at an extreme risk of damage. It is rumored in the trucking community that reefer loads can also take longer to load, posing a risk for extended downtime. AKA, if the wheels are not turning your trucking business is not making any money.
In the quest for profitability, choosing between dry van, flatbed, or reefer ultimately boils down to your business expenses (cost per mile), market demand for your niche or specialty, and your negotiation capabilities. Remember, the rate per mile does not equal the profit per mile!
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC does not assume responsibility for any omissions, errors, or ambiguity contained herein. Contents may not be relied upon as a substitute for the FMCSA's published regulations. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.