Some of your routes are paying for the rest.
Between 15 and 25 percent of routes run below breakeven, and they do not show up in a depot-level P&L because the profitable routes absorb their losses. Cost the network route by route and the picture inverts: a minority of routes carries the operation, and a long tail quietly drains it.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
15 to 25 percent of logistics routes operate below breakeven, but a depot-level P&L hides this because profitable routes subsidise loss-making ones. Plotting routes from most to least profitable produces a whale curve: typically the top 20 percent of routes generate 150 to 300 percent of total profit, and the bottom tail destroys part of it. TDABC builds the per-route cost that makes this visible, turning a hidden cross-subsidy into a renegotiation, re-routing or exit decision.
A net number nets away the problem.
A depot P&L reports one figure for dozens of routes, and that figure is the profitable routes minus the loss-making ones. The losses are real, but they are invisible, because they have already been cancelled out before anyone sees the report. Until each route carries its own cost, the cross-subsidy is permanent and unmanaged, and the network keeps running deliveries that lose money on every trip.
The same top-heavy concentration of profit shows up at SKU level in manufacturing, where the top fifth of products typically generate 150 to 300 percent of profit while a tail gives it back. The underlying driver, the fixed cost of the stop itself, is even sharper in food and beverage, where a small drop can cost two to three times more than a full truck, and it reappears one layer up the network in distribution, where the same order can cost nearly double depending on which site fulfils it.
ROUTES, RANKED BY CUMULATIVE PROFIT
Illustrative. Cumulative profit climbs past 100 percent on the best routes, then a long tail of below-breakeven routes drags it back. The gap between the peak and 100 percent is the cross-subsidy.
Three moves for the tail.
Cost every route
TDABC builds the per-route cost from real stop, handling and distance time, not a fleet average.
Renegotiate
For a thin-margin route, adjust frequency, drop size or minimum order so the trip covers its cost.
Re-route
Fold an isolated loss-making drop into a profitable route nearby, sharing the cost of the journey.
Exit, deliberately
If neither works, decline the route on purpose, with the number in hand, not by accident inside a P&L.
Frequently asked questions
- How many logistics routes lose money?
- Studies find 15 to 25 percent of routes operate below breakeven, but a depot-level P&L hides this because profitable routes subsidise the loss-making ones. Plotting routes from most to least profitable produces a whale curve: typically the top 20 percent of routes generate 150 to 300 percent of total profit, and a long tail destroys part of it.
- What is a route whale curve?
- A chart of cumulative profit with routes ranked from most to least profitable. It rises to a peak above 100 percent of total profit, then falls as loss-making routes are added. The gap between the peak and 100 percent is the hidden cross-subsidy a depot average conceals.
- What do you do with an unprofitable route?
- Renegotiate frequency or minimum order, re-route to share the drop with profitable stops, or exit. The point of route-level costing is to make that a deliberate commercial decision with a number behind it, rather than carrying the loss invisibly inside a depot P&L.
See which routes fund the network, and which drain it.
The Profit Check needs no data upload. It points to where your route-level cross-subsidy is most likely hiding, and what it is worth to make visible.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Lectured alongside Professor Robert S. Kaplan at the CFO conference in Amsterdam (2009).
Call +351 910 313 731
