Some evening when you’re working late, look out into your yard. There may be a row of trucks, trailers and tankwagons sitting there, parked for the evening. If so, those idle trucks are costing you money.
This month, we’ll explore truck costs from three angles — idle truck costs, delivery costs, and profitability. Idle truck costs are vital to know since you incur these costs whether or not you ever deliver!
1) Idle truck costs per hour. There are three basic idle truck costs:
± The cost of the truck itself.
± Taxes and licenses.
Let’s start with the cost of the truck itself. Normally, you either purchase or lease your trucks. If you purchase, add the purchase price of the truck plus any loan interest expense.
For instance, you buy a new truck and trailer at a cost of $130,000. You make a down payment of 25% of the cost, or $32,500. You finance the balance, $97,500, over 5 years at 10% for 60 payments of $2,075. Your total cash out of pocket, therefore, is [($2,075 x 60) + $32,500] or $157,000 including interest.
For leased vehicles, your truck cost would be the total sum of the lease payments.
Next, add in the other fixed costs of keeping this truck. Typically, registration fees (including any taxes) and insurance.
Let’s assume that you purchase this truck and it will last you seven years. At the end of seven years, you will sell it for $25,000. Your net truck cost for seven years, therefore, is $132,000.
To the $132,000 let’s add $4,500 per year in total insurance, taxes and license registration fees. This brings our total cost of owning the truck over the seven year period to $163,500.
Now we calculate that there are 61,320 hours in a seven-year period (24 hours per day x 365 days x 7 years). By dividing the total cost of the truck by the hours, we find that the hourly cost of that truck is $2.67 per hour, whether we ever use the truck to deliver or not.
Next, check your truck usage. If you only use a truck 50 hours per week, this means it’s not being used 118 hours. These 118 hours translate to a cost of over $315 per week, or $16,380 per year! That’s just for one truck! What if you have five units in your fleet. Those five units have an idle cost of $81,800 per year and that’s a lot of wasted money.
2) Delivery cost. Every fleet manager should know the operating cost of each individual vehicle in his fleet. For each truck, consider the following:
± Driver wages and benefits.
± Fuel costs.
± All normal routine maintenance.
± Typical repairs (based on historical repair data).
These costs are what we call variable costs. The more product you deliver, the higher the dollar cost. Because these costs are volume driven, they are typically computed per gallon.
3) Profitability. The final step when analyzing trucks is the profit component. Each truck, in addition to typical cost per gallon, has a typical profit per gallon. The profit per gallon can vary greatly from vehicle to vehicle. For instance, a unit used for full load transports of bid accounts may have a very low profit per gallon, while a tankwagon used for short loads may have a very high profit per gallon.
By knowing a truck’s typical profit and typical variable costs per gallon, along with it’s fixed costs, we can calculate a breakeven point for the amount of gallons the vehicle needs to deliver to be cost-effective. The formula is:
Total $ Fixed Truck Costs
Variable Profit Per Gallon
For instance, if we use the same example of a truck with total costs of $163,500, and this truck generates two cents per gallon in profit based upon its typical gross profit and variable expenses, the truck would need to deliver 8,175,000 gallons just to pay for itself. This translates to 1,167,857 gallons per year based upon the seven years we intend to run the truck, or 97,321 gallons per month.
If we perform this calculation for each vehicle in our fleet, and compare the actual delivery gallons to the breakeven, we will know if each and every vehicle in the fleet is profitable. For any unprofitable vehicles, we will know the exact number of additional gallons needed to meet our costs.
You may also want to examine your truck costs and compare other measures of truck efficiencies. Compare the vehicles in your fleet based upon:
± Average time spent delivering at customer site per truck per gallon.
± Average time spent at loading rack per truck per gallon.
± Average miles traveled per truck.
± Average gallons delivered per mile traveled.
What these statistics will begin to do for you is to give you some efficiency measures that allow you to objectively measure your trucks and drivers. If some vehicles/drivers are clearly more efficient or more inefficient than average, you can take appropriate measures including alternate dispatching methods, keep-full routes, etc.
And of course, aim for 24 hour profit generation for all your vehicles. Idle trucks do cost money!