Traffic/CIS™, the costed database module of the Cost Information System, contains settings dealing with the treatment of backhaul freight.  Backhaul freight is defined as shipments moving in lanes where there is more freight in the opposite direction, thereby utilizing capacity which would otherwise move empty.  Such freight is often charged at a lower revenue level than would be acceptable in a balanced lane, but is attractive none the less because it contributes to an unavoidable linehaul return cost.

The Cost Information System treats imbalanced lanes by shifting empty costs to the opposite, headhaul, direction.  With the original default settings, Traffic/CIS thus costs the freight in backhaul legs as if the lane were full, resulting in the lowest “normal” cost allocation.  However, the system has newer settings to make further adjustments to recognize that costing backhaul freight as if the lane were full is not appropriate enough for freight being sold to help counter the impact of empty costs.

Take a simple example of a leg in which freight moves in one truck that subsequently returns empty.  Proper cost allocation would dictate doubling the one-way cost on the freight to pay for the empty.  If a low-revenue truckload shipment were obtained to fill this empty, contributing, after any new P&D costs, revenue to cover half of the cost of that empty move, the cost allocation ought not suddenly show the new truckload as unprofitable, even though it covers just half the cost.  The filling of the backhaul with this “cheap” truckload shipment also should not reduce the empty cost burden on the opposite direction headhaul to nothing.  Instead, the truckload shipment should show, at worse, as a break-even, and the original headhaul freight must pay for the remaining cost not covered by the new truckload shipment.

In other words, you don’t lose money on backhaul freight as long as it contributes something to the backhaul leg cost, because the backhaul leg is a “sunk” cost which you’ll incur whether there’s freight on board or not. 

Traffic/CIS can be set to make this adjustment on a shipment by shipment basis.  The settings to accomplish this are found under the Database Builder menu item Cost the Database.  There are two options involved: 

·                     Maximum Operating Ratio, allows the user to specify the level of adjustment, based on operating ratio target.  This can be 100 or lower.  For example, if your company target operating ratio is 90, then the system will shift backhaul cost to the headhaul sufficient for backhaul freight to show a 90 operating ratio.  This is, of course, as long as there is sufficient revenue on such a shipment to cover the other “non-backhaul” costs.

·                     Percent Backhaul, to specify a backhaul threshold for multi-leg moves, over which to not make the adjustment.  For example, if set at 60, at least 60% of each shipment’s linehaul must be in backhaul legs for the adjustment to apply.  In such cases, the adjustment only applies to the backhaul portions of the move.

The adjustments made to Traffic/CIS are then saved as additional "effective empties" to be used for calculating headaul adjustments.   In the Cost Profile Maintenance program, the Dispatch Data processing setting "Make Low Revenue Backhaul Adjustment" should always be set to the latest costed Traffic/CIS period.

With these settings, when costing historic data, Traffic/CIS will recognize this unique situation:  that backhaul shipments are only unprofitable if they don’t cover the additional “non-linehaul” P&D and dock costs incurred in handling such freight.  Otherwise, they serve to offset the headhaul burden, had the backhaul leg been completely empty.

TCG holds a patent on their balance adjustment formulas.

Updated December, 2006

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