Market
related owning & operating cost estimates for a variety of
popular transport operations
Welcome
to the FleetWatch truck operating benchmarks 2006. The
schedule covers a variety of typical primary and secondary
distribution trucking operations.
The objective is to
provide operators and shippers (consignors) with a reliable
independent guide to trucking costs incurred in the transportation
of raw materials, semifinished and finished products.
A thorough
understanding of the assumptions and how they are applied in
developing the estimates 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.
Assumptions
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.
Vehicle Type
Briefly describes the vehicle configuration contemplated for a
specific task (eg – 4x2 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 4x2 truck-tractor and tridem
semi-trailer. 1.2.2= a 6x4 trucktractor and tandem semi-trailer).
Payload (tons)
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.
Deck length
(metres)
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.
Pallets
The assumption contemplates 1000x1200 mm 4-way entry
pallets.
Volume
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
Annual kilometres are based on typical operations. Annual
kilometres of vehicles engaged in short and medium distance
secondary distribution vary considerably. The schedule includes
two examples to illustrate the impact of annual kilometres on
standing costs (see the 1.2.2. and 1.2.3 benchmarks). Space
limitations prohibit the inclusion of a wider variety of such
examples.
Working Days
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
Shifts indicate the average daily working hours of fridge units
Useful Life
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 recently introduced
international reporting standards (IRS) require 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.) covering 100 000 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.
Capital Cost
All estimates are based on 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
(also known as fixed costs)
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
Depreciation is based on the assumption that all vehicles are new
and financed via an instalment sale, financial or operating lease.
In the spirit of the IRS, a residual value (RV) of 35% is applied
to each vehicle type and trucking task. The RV is based on the
collective opinion of new and used truck traders and current
banking practice. 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.
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.
Cost of Capital
"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 10.5% a year) on the
capital cost less an RV of 35%. The calculation indicates the
average interest paid per annum on the reducing balance over five
years.
Vehicle Licences
Licence fees for vehicles and trailers are based on the current
Western Cape tariff, the most expensive vehicle licence fees in
SA.
Insurance
Insurance cost assumes the operator has a low risk rating.
Premiums are set at 6.5 per cent of the purchase price
(replacement value) for vehicles, equipment and trailers.
Wages
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)
Variable costs are incurred when the wheels turn. These
include:
Fuel
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 diesel with 3% or less
sulphur content. Bulk rebates are ignored.
Top-up Oil
Is based on five per cent of the fuel cost.
Repairs &
Maintenance
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.
Tyres
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.
Unforeseen
An amount of R10 000 a year is allowed to cover any number of
unexpected and unforeseen expenses
Exclusions
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.
Summary
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 all calculations assume a
fully loaded vehicle.
Ratios
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.
Note
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.
The persistently
high crude oil price and the volatility of a weakening rand
continue to drive the fuel price ever upwards. The geo-political
situation and ever-active commodity speculators holds little
prospect for decline in the crude oil price.
After almost three
years of stability new vehicle prices are on the rise. List prices
are increasing by about three percent from the Euro zone and
something less from Asian origins. The increased gap in the
US$:Rand rate has put US makes under heavier price pressure.
Increasing steel and
tyre prices, rubber, resins and labour costs and full order books
are driving trailer and loadbody prices in a northly direction.
Fridge units are up around five percent on last year.
Vehicle licence fees
are also on the move upwards with increases between four and 21
per cent. Not all provinces increase licence fees on the same date
and some have different rates for prime movers and trailing
equipment. The Western and Northern Cape have decided to retain
their respective 2005 rates. A moratorium from the Western Cape’s
considerably higher tariffs is long overdue. It would be prudent
to check with your province for details of their individual
implementation dates.
As was generally
expected interest rates went up by 50 basis points to 11,5%.
Collectively these increases add 11% to the benchmarks in just
three months. Variable costs now account for just on 66% of the
operating costs for longhaul,high annual kilometre sevenaxle rigs
with more to come next month due to ongoing fuel price
hikes.
