Route/Region Profitability

This use case explains how to analyse route and region level profitability for logistics, transport and fleet based businesses using Model Reef.

You will:

• Represent routes, lanes or regions in the branch structure or driver layer.

• Allocate revenue and cost to routes or regions.

• Compute margin per lane, corridor, region or contract.

• Connect route economics to fleet utilisation, fuel, maintenance and asset planning.

The goal is to move beyond fleet wide averages and see which parts of the network generate or destroy value.

When to use this pattern

Use this pattern when:

• You run scheduled or frequent services on defined routes or lanes.

• Different regions or corridors have materially different economics.

• You want to identify unprofitable segments, customers or routes.

• You need a clean link between pricing, utilisation, cost and margin.

You will often use this in combination with:

• Fleet Utilisation and Cost Modelling

• Fuel and Maintenance Forecasting

• Asset Replacement Planning

Architecture overview

Route and region profitability uses four elements:

• Structural representation

  • Branches per region, route group or contract.

  • Drivers per lane or corridor where very detailed.

• Revenue allocation

  • Revenue per route, lane, corridor or region.

  • Customer or contract specific pricing.

• Cost allocation

  • Direct costs such as fuel, maintenance, tolls and drivers.

  • Shared costs allocated between routes or regions.

• Profitability outputs

  • Margin per route, lane, corridor or region.

  • Comparison dashboards and scenario views.

1

Choose route and region granularity

Decide at what level you want profitability:

• Regions (for example North, South, East, West).

• Corridors (for example City A to City B).

• Key contracts or customers.

• Some combination of the above.

Use branches for the main reporting level, for example:

• Group

  • Region - North

  • Region - South

  • Region - Metro

Within each region, you can use:

• Sub branches for key corridors or contracts, or

• Drivers that allocate revenue and cost across lanes within a region.

Avoid modelling every minor route individually unless your network is small or highly concentrated.

2

Allocate revenue to routes or regions

Define revenue variables that belong to the relevant region or route branch, for example:

• Revenue - Linehaul - Region North.

• Revenue - Last Mile - Region Metro.

• Revenue - Contract Customer X - Region South.

You can build these variables from drivers such as:

• Tonnage or pallets per lane.

• Price per tonne kilometre or per pallet.

• Fixed contract fees plus variable components.

Alternatively, if your revenue forecast is built at a higher level, you can allocate total revenue down to regions or routes using allocation drivers, for example:

• Share of Revenue - Region North.

• Share of Revenue - Region South.

Then compute:

• Revenue - Region North = Total Revenue × Share of Revenue - Region North.

Ensure revenue variables are typed as Revenue so they flow correctly through P&L and cash.

3

Allocate direct operating costs by route or region

Where possible, allocate direct costs to the same branches as revenue. For example, in the Region - North branch, include:

• COGS - Fuel - Region North.

• COGS - Maintenance - Region North.

• Staff - Drivers - Region North.

• Opex - Tolls and Parking - Region North.

If you use Fleet Utilisation and Cost Modelling, you can:

• Compute total fleet cost per region or fleet group.

• Split that total across routes within the region based on utilisation drivers such as kilometres or hours per route.

The aim is to ensure that each region or route bears the direct costs that arise from the activity it generates.

4

Allocate shared costs where necessary

Some costs are shared across multiple regions or routes, for example:

• Central dispatch and planning staff.

• Shared depots or hubs.

• Head office costs.

You can allocate these using drivers such as:

• Proportion of revenue per region.

• Proportion of kilometres per region.

• Proportion of vehicles or fleet cost per region.

Implement this either by:

• Creating allocation variables in each region branch that draw from central cost drivers, or

• Using custom report formulas that allocate shared costs when reporting profitability.

The level of sophistication should match your decision needs. For many fleets, a simple revenue or kilometre based allocation is sufficient for planning.

5

Compute margin per route or region

For each region or route branch, create variables or report rows for:

• Gross Margin = Revenue minus Direct Fleet Costs.

• Contribution after Regional Overheads.

• Operating Profit after Allocations where you choose to include allocated central costs.

Use dashboards to present:

• Margin per region over time.

• Margin per route or corridor where you model at that level.

• Ranking of routes or regions by margin or margin percentage.

• Heatmaps of profitability by region and product or service type.

This reveals which routes, customers or geographies are structurally strong and which require action.

6

Connect to pricing and fleet decisions

Because route and region profitability sits on top of the same fleet and cost structures used elsewhere, you can:

• Test price increases or discounts on specific routes or contracts.

• See how changes in fuel price or utilisation affect route margins.

• Evaluate the economics of adding or removing services in a region.

• Support decisions about moving work to contract carriers where they can perform more efficiently.

This connection helps move pricing and network design conversations from anecdote to modelled evidence.

7

Use scenarios for network optimisation

Clone the model into scenario models that represent alternative network designs, for example:

• Rationalising unprofitable routes or depots.

• Opening new depots or entering new regions.

• Shifting particular customers or corridors to different fleet types.

• Outsourcing selected lanes to third party carriers.

In each scenario, adjust:

• Branch structure where necessary.

• Revenue allocation and pricing assumptions.

• Cost and utilisation drivers per region and route.

• Fleet size and composition in the connected fleet models.

Compare scenarios using:

• Margin per route or region.

• Total profitability and valuation.

• Fleet capex and utilisation implications.

• Cashflow and risk metrics.

Check your work

• Regions or routes in the model reflect how management actually thinks about the network.

• Revenue attribution to routes or regions is based on credible data or consistent rules.

• Cost allocations are transparent and simple enough to explain.

• Profitability patterns align directionally with the business narrative and available reports when calibrated.

Troubleshooting

Some routes appear impossibly profitable or unprofitable

Check that both revenue and cost are being allocated consistently and that no major cost categories are missing or double counted.

Shared cost allocations dominate the picture

Start by analysing contribution margin before allocations, then layer on allocations separately so you can see both direct and fully loaded views.

Model is too granular to maintain

Aggregate minor routes into corridor or region level views and keep detailed route modelling for only the most important flows.

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