What is the Operating Ratio in Trucking and Why to Most Larger Fleets Watch this Number?

In trucking, profitability isn't just about how much you earn—it's about how efficiently you run your operation. That’s where the Operating Ratio (OR) comes in. OR is a simple formula that measures operating expenses as a percentage of revenue. It’s how much of every dollar you earn goes toward covering your costs:

Operating Ratio = (Operating Expenses ÷ Revenue) x 100

If you’re running at an OR of 90%, it means 90 cents of every dollar goes to running the business, leaving 10 cents as profit. Large trucking companies live by this metric, and anything under 95% is considered healthy.

The lower your OR, the better. An OR under 100% means you’re profitable; over 100%, and you’re losing money. Large trucking companies use the OR to monitor costs and find areas to tighten up. For them, it's about maintaining profitability, especially in a volatile market where fuel, wages, and maintenance costs fluctuate constantly.

Here’s why the OR is important:

1. Expense Control: It tells you if you're spending too much on things like fuel, maintenance, or insurance. Big companies track these closely to see where they can cut costs.

2. Benchmarking: Trucking companies use OR to compare themselves with others in the industry. A lower OR means you’re running more efficiently.

3. Strategic Decisions: It helps large fleets make decisions about fuel efficiency programs, driver pay, and route optimization—all crucial in keeping OR low.

4. Negotiating Rates: If your OR is too high, it’s a signal that your rates might not be covering your costs. You can use this information to negotiate better contracts with shippers or brokers.

While OR is a valuable tool, it's not everything. Focusing only on cutting costs can hurt service quality or burn out your drivers. OR should be one part of your strategy, not the whole picture.

For trucking companies, especially the big players, the operating ratio is key to understanding profitability. It shows how well you're managing your costs compared to what you're earning. But remember, don’t let it be the only thing you look at—customer service and driver retention matter just as much in the long run.

God bless,

Jared