Home FleetWatch 2016 Operating Cost Benchmarks November 2016

Operating Cost Benchmarks November 2016


Professor Jan Havenga is right when he says in the latest University of Stellenbosch Logistics Barometer that transport costs are too high. When it comes to the long haul, truckers have in many instances, struggled to survive as they stood up to weak demand and escalating operating costs – most of which flow from issues beyond the control of operators. With the diesel price increase of 63 cpl, fuel continues to account for 40% of the total cost of operating a large rig covering 200 000 kmpa.

As the November benchmarks reveal, the cost of operating a typical seven-axle rig for 286 days a year covering 200 000 kmpa – that is just 700 km a day on average – is R3,24 million or almost R1000 an hour based on a 12-hour shift.  The standing cost of such rigs is now 33% of total operating costs – or over R3700 per day. We are all aware of the amount of wheel rolling time that is lost almost every day due to any number of delays and congestion that literally is robbing operators of the time needed to complete the kilometers and recover standing costs – and hopefully keep the bottom line in the black. The latest Stats SA research suggests the average margin in the road transport business is something like 4% – hardly an acceptable return on such an expensive investment.

What can we reasonably expect in the first quarter next year? Indicators are that the oil price will not sustain a higher price than what we have now, namely somewhere around $45 to $48 Pb. However, unless the Rand recovers to something better than what we have now the diesel price will not change to any great extent. There is a need to keep in mind the ever-changing input costs such as rates and taxes, salaries and wages, higher income taxes and possibly interest rate hikes.

Regarding the outlook for operating costs, there will be the annual increase in driver and assistant wages, vehicle licenses and toll fees as well as insurance premiums. In discussions with various motor dealers, expect labour rates and parts prices to increase this time due to the need to compensate for the drop in vehicle sales. Maintenance and repair costs for long haul vehicle are somewhere between 16% and 18% of total operating costs. Expect this to go up to 20%. NAAMSA has signalled new vehicle prices will rise by 10% given the current economic framework. Hanging on to older vehicles will become more expensive as maintenance costs increase and resale values fall further.

Elimination of empty return legs and sharp focus on transport productivity and efficiency is the only way to keep the cost per ton/km at an acceptable level.

Market related owning & operating estimates for a variety of popular trucking operations

Welcome to the FleetWatch truck operating benchmarks for 2016. The schedule covers a variety of typical primary and secondary distribution trucking operations published since February 2004.

The objective is to provide operators and shippers (consignors) with a reliable independent guide to trucking costs incurred in the transportation of raw materials, semi-finished and finished products.

A thorough understanding of the assumptions and how they are applied in developing the benchmarks is necessary if the various benchmarks are to be informative, beneficial and helpful. While FleetWatch takes no responsibility for the accuracy of the estimates, considerable time and effort has been expended to ensure the various components are realistic and representative of the hypothetical transport tasks contained in the schedule. Updated estimates are published quarterly. However, the schedule is continuously monitored and updated monthly.

Many transport tasks are similar few are ever identical. The benchmarks are based on average operating conditions in terms of demography, roads, annual kilometres, working days, vehicle capability, scheduled maintenance in accordance with manufacturers’ recommendations and competent drivers. Where actual operating conditions differ from these assumptions make the necessary adjustments to the benchmarks so that they remain realistic and market related.

Briefly describes the vehicle configuration contemplated for a specific task (eg – 4×2 rigid freight carrier with volume van body for medium distance secondary distribution of FMCG products). The descriptions attached to articulated vehicles indicate the number of axles (1.1.3 means a 4×2 truck-tractor and tridem semi-trailer. 1.2.2 a 6×4 truck-tractor and tandem semi-trailer).

The assumptions are based on typical optimal legal mass payload that can be achieved on any number of vehicles, bodies and trailers freely available on the local market. In practice the actual payload will depend on the vehicle manufacturers’ specification and the road-ready unladen mass. Lightweight trailing equipment can improve payloads.

The assumptions are based on typical optimum mass distribution for the assumed vehicle configuration and the contemplated task. In practice there are many wheelbase and axle capacity options to suit specific requirements.

The assumption contemplates 1000×1200 mm 4-way entry pallets.

Cubic assumptions are based on length, width and height of typical bodies applicable to the various operations. In practice this varies with measurements of specific bodies.

Annual kilometres are based on typical operations. Annual kilometres of vehicles engaged in short and medium distance secondary distribution vary considerably. Space limitations prohibit the inclusion of a wider variety of transport operations.

A five-day week is assumed for the vehicles most likely to be involved in secondary distribution. Larger rigs often work longer hours to meet the demands of primary distribution.

Shifts indicate the average daily working hours of fridge units.

Where applicable, the useful life is based on a maximum of 800 000 km. This is in line with vehicle manufacturers’ maintenance contracts for standard operations over 48- or 60-month periods. In terms of depreciating assets, the introduction of international reporting standards (IRS) requires that all entities identify the useful life of vehicles when they are commissioned. The benchmarks assume the useful life to be the number of years required to cover the estimated cumulative kilometres for each task with a maximum of 800 000 km (where applicable). A 5-axle articulated rig (1.2.2.) covering100 000 kmpa has an assumed useful life of eight years is an example. See comments under depreciation for more detail. The useful life of the major components is an important element in achieving cost-effective transport when planning fleet size for medium- and long-term contracts.

All estimates are based on an estimate of the cost of new vehicles and trailing equipment. The indicated initial cost of vehicles, trailers, bodies and auxiliary equipment (such as fridge units) is based on the average of published current selling prices of such items less known fleet discounts.

Standing costs are incurred whether the vehicle moves or just stands. When vehicles do not cover significant kilometres or work for long hours, standing costs will be high and difficult to recover. The assumptions are:

Depreciation is based on the assumption that all vehicles are new and financed via an instalment sale, financial or operating lease. In line with current banking practice there is no residual value. Vehicle buyers with an outstanding credit rating and operating track record receive more generous terms. Conversely, those with a poor record will meet with tougher conditions. The net amount to depreciate is based on:

  • Vehicles – 20% a year over five years.
  • Auxiliaries – 25% a year straight line.
  • Trailers – 10% a year straight line.

Tyre values are not deducted from the initial price of vehicles and trailers prior to depreciation. It is important to remember that in terms of the IRS the useful life of vehicles and equipment must be assessed at least annually and revised to accommodate any significant changes that may have occurred to lengthen or shorten the useful life or diminish the ultimate residual value. For those interested read accounting codes AC123 and AC128.

“There’s no free lunch” as the saying goes. Interest on the cost of vehicles and equipment is calculated at the prime bank overdraft rate (currently 10,25% a year) on the capital cost less an RV of 25%. The calculation indicates the average interest paid per annum on the reducing balance over five years.

Licence fees for vehicles and trailers are based on the current Gauteng tariff.

Insurance cost assumes the operator has a low risk rating. Premiums are set at 7.0 per cent of the purchase price (replacement value) for vehicles, equipment and trailers.

Driver and assistant wages vary considerably across the country in terms of vehicle size, primary and secondary distribution tasks, region, different operators and the structure of remuneration packages. All assumptions include an allowance for company contributions but exclude overtime and bonuses. Where applicable an assistant has been included as a casual, daily worker.

Variable costs (also known as running costs) are incurred when the wheels turn. These include:

A major cost item in all transport operations. Where annual kilometres exceed about 120000 km a year, fuel is usually the largest expense. Fuel consumption is calculated according to a formula that assumes the vehicle is always fully loaded, travels at an average speed of approximately 80% of the speed limit in the case of highway operations and 75% of the urban speed limit. The formula takes into account an assumed maximum power demand of between 55% and 60% when expressed as a percentage of maximum available kW/hrs for each task. A similar approach is used in calculating the fuel used by fridge units. The price of fuel is based on the pump price in Gauteng for 500 ppm diesel. Bulk rebates are ignored.

Is based on five per cent of the fuel cost.

The assumed cost of maintenance is based on current vehicle manufacturer and FML maintenance contract rates, expected economic component life and industry experience. The assumptions take into account the complexity of each task including typical operating conditions such as roads, topography, traffic density etc. Repair and maintenance costs for fridge operations are calculated in hours.

Tyre life is based on typical casing life currently experienced in the various operations. Major tyre supplier tyre management programmes offer excellent data to establish achievable tyre performance.

An amount of R20 000 up to R100 000 a year for different vehicle configurations is allowed to cover number of unexpected and unforeseen expenses.

The estimates do not include toll fees, vehicle tracking, engine protection or other optional equipment. No allowance is made for administration or overhead expenses. The variation in operator approach to such costs excludes the inclusion of a sensible amount to cover these aspects as a typical benchmark.

The summary expresses operating benchmarks under numerous headings including tons, ton/km, pallets, pallet/ km and metres of deck length. It is important to note that the calculations assume a fully loaded vehicle. A 75% and 50% load factor shows the difference in the average cost per ton/km.

Management ratios provide an excellent insight into the high capital and operating cost of vehicles, especially when not properly managed. However, correctly selected vehicles that are decently driven and timeously maintained, offer cost-effective transport to shippers and the prospect of a commercially acceptable return for the operator. A predicted carbon footprint based on 2.772 kg per litre of fuel burnt is included.

The FleetWatch truck operating benchmarks offer shippers and operators the opportunity to fine tune these estimates to suit their specific transport operations or needs. Where particular elements differ from your operations, simply make the necessary adjustments.

If, however, you require more information to complete your benchmarks, contact Max Braun at maxbraun@iafrica.com for some assistance.

Download the full article here.

Related Images:


Please enter your comment!
Please enter your name here