2 Jul 2008

Geneva, 30 July 2007
CTM/G7978/PKR
EFFICIENT COST MANAGEMENT - A KEY TO SUCCESS
Associations should provide strong support to their member hauliers to streamline cost
management practices - an item for discussion at the next meeting of the Goods Transport
Council in Geneva, on 8 November 2007
I. Background
Fuel prices have hit a new record high by mid-July 2007 - see Figure 1.
Figure 1: Diesel Fuel Price Development – example of Germany 1
Legend: top trend line – A98, middle – A95, low – diesel
Whatever the reasons are and the future trends will be, fuel cost developments draw attention
once more to the absolute necessity for hauliers to apply efficient cost management techniques
which help them to control not only fuel costs but also all other operating costs of the company.
The majority of hauliers are small and medium size enterprises in many countries (roughly 80%
operating less than 10 trucks) not necessarily equipped with the latest know-how as regards cost
management. Therefore, associations have an undeniable responsibility, and indeed, this is one of
their “raisons d’être”, to inform their members of the best cost management tools.
1
IRU (www.iru.org)
2
The well-known invitation to member operators to “pass on cost increases in your freight rates” is
fully justified, however its application is not always successful and it is bound to losses due to the
almost unavoidable time lapse between costs occurring and the moment of their possible
transmission. Finally such transmission is feasible only if based on solid cost management
techniques.
Proper cost management is also a condition sine qua non to prevent difficult company crisis
periods and bankruptcies, often judged too frequent and generating a relatively high turn-over
(number of companies entering and exiting) in the haulage sector. See Figure 2. 2
Figure 2: Bankruptcies as a % of the total number of companies active in a sector, NL
Permanent and efficient cost management of the company can greatly facilitate systematic tracking
of market price developments on the company’s purchase side, further exploit internal latent
company resources thus achieving productivity gains and finally create a solid basis for working
out and negotiating reasonable freight rates on the sales side.
The major cost factors and cost calculation considerations of a road freight transport company are:
various performance indicators, vehicle investment costs, fixed and variable costs of vehicle
operation, cost of personnel as well as costs of fixed installations and last but not least overheads.
They are depicted in Table 1.
2
Selected Road Transport Data, NEA, February 2006
3
Table 1: Cost and Cost Calculation Factors of a Haulage Company
1. Vehicle Technical Data
Infrastructure charges
Calculation data
A.
A.
B.
C.
D.
E.
F.
Estimated vehicle economic life (km and years)
Annual mileage
Economic life of major spare parts (tyres, axles)
Annual working days
Fuel consumption (l/100km)
Fuel price
Investment Costs
A.
B.
C.
D.
E.
Vehicle purchase cost v. leasing
State investment grant (if any)
Purchase price of major spare parts
Depreciation basis
Working capital and current assets
2. Performance related costs
Fixed costs
A.
B.
C.
D.
E.
Vehicle taxes
Vehicle insurance
Cargo insurance
Calculated depreciation
Interest on working capital
3
Charges and tolls
Variable costs (per vehicle)
A.
B.
C.
D.
Depreciation
Fuel, lubricants
Tyres
Repairs
Cost of personnel
A.
B.
Drivers
Other personnel
3. Costs of fixed installations (capital and operation)
A.
B.
C.
Warehouses
Workshops
Offices
4. Overheads
A.
B.
C.
Administration
Management
Operational overheads
Without suggesting any general method and even less a panacea for company operating costs to
be kept in a tight grip by management, here below are a few examples of cost-conscious
management measures based on good industry practices 4:
•
Regarding fleet cost management: vehicle investment decisions should be specific to the real
need for and the planned use of the vehicle by the company; a careful choice should be
made between “invest” or / and “lease”; a different cost management basis should be applied
for long-distance and short-distance activities (km- and weight- based respectively); cost
transparency should be created and used to optimise / reduce empty runs; on-board
computers and telecom tools are to be applied for a permanent vehicle cost control; etc.
•
Fuel cost management: fuel costs should be precisely linked to specific vehicles and
individual drivers; tanking plans should carefully be set up, including installation and use of
company-owned fuel stations; drivers should be trained, motivated and supervised in the
application economic driving techniques (e.g. observing speed limits); etc.
•
Staff cost management: optimise productive (driver) and non-productive (office) staff
expenses; implement an efficient staff management method to meet the challenge of
fluctuating / seasonal transport demand (e.g. by temporary staff increase, additional working
hours, leased temporary workforce, long-term time accounts, etc.); etc.
•
Overheads and energy cost management: overheads should be kept to the minimum
necessary and attributed to the activity in question; reduce lighting costs by using energy
cost-effective lighting appliances; save energy by insulating work spaces and warehouses;
etc.
•
Insurance cost management: establish a risk priority order (e.g. high value cargo risk as
compared to “frequent low value damages”), adjust insurance policies accordingly; fix
3
Partly based on “Traffic and Cost Development of Road Freight Transport”, Presentation by Stefan Rommerskirchen,
Managing Directors ProgTrans AG, Basel, in Hanover, September 26 2006
4
Partly based on Deutsche Verkehrszeitung (DVZ), no. 26 04, 03 05, 10 05, 18 05, 24 05 and 31 05 2007
4
franchise at an appropriate level; ensure the applicability of regress demands in case of subcontractors; negotiate fee reimbursement (profit participation or advance rebates); etc.
•
Controlling, internal auditing: no special controlling software is necessary, “simple”
accountancy data should be widely used; etc.
Some associations help their members with numerous cost calculation and management tools.
Some of these tools are applicable in daily cost calculations of routes or the company as such,
other ones help only in general orientation for the company in the national and global economy. As
pure examples, the following support tools have been identified on association web sites 5:
•
AISO, A: offers a cost calculation model and examples for six vehicle categories (from 3.5 to
40 tonnes); information about diesel price developments and national inflation data, transport
cost indices are also published (www.aisoe.at)
•
ASMAP, RF: offers to members calculation tools to analyse driver’s activities, vehicle
performance and expenses (in particular in respect of maintenance and repair, tyres), fleet
investments, route planning and route expenses / revenue control, financial performance per
route and for the whole company, minimum freight rate calculator, company solvability
calculator, company management control / audit tools (www.asmap.ru)
•
ATA, US: offers a Weekly Economic Recap (latest economic news and analysis as it relates
to the industry), Fuel Line (latest on diesel prices), Trucking Economic Review
(manufacturing, whole and retail sale, inventory levels in the supply chain), Fed Watch
(federal decisions), Energy Watch (petroleum market outlook) (www.truckline.com)
•
BGL, Germany: presents a tool to calculate total cost increase due to changes in the working
hours regulations; calculation table to determine the cost impact of the road user charge
(LKW-Maut), it offers information on bankruptcies and also an economic trend analysis
(Konjunktur-Analyse) which includes a climate index, indices of operational results,
revenues, costs and vehicle investment as well as prognostics; a handbook on cost
calculation is offered for sale (www.bgl-ev.de)
•
MKFE, Hungary: members have access to a vehicle cost calculation tool for two types of
vehicles (7.5 and 40 tonnes) whereby the model allows calculation of the operator’s fixed and
variable costs according to individual data input (www.mkfe.hu).
•
RHA, UK: offers cost tables where data can be substituted by figures of the given company
to determine time and distance related costs; cost tables are presented for 13 different
vehicle configurations; a template for rate quotation is also at the members’ disposal as well
as a price review for transport company purchases and an index of operating costs, an
estimate of working capital requirements is also available (www.rha.net)
•
IRU: offers on its web site fuel price indices, road transport indices (macro indicators), a
complex data bank of information influencing transport costs in almost 60 countries, border
waiting time data in Eastern Europe, the Balkans and some Asian countries (www.iru.org)
In-house and industry level cost transparency is the basis of healthy company management and
the reinforcing of a company’s competitive position on the market. The international comparison of
these data reveals some important differences in cost levels and structures. See Figures 3 and 4 in
this respect 6.
Figure 3: Costs and cost structures in international goods road transport, 2004
5
It was not intended to draw a full inventory of all associations. The quoted associations and many other IRU members
may have other useful tools at their members’ disposal. Not all web applications could be reviewed on the association
web sites visited partly due to access restrictions (a great number of these applications are available on “members only”
pages).
6
Selected Road Transport Data, NEA, February 2006
5
Figure 4: Total cost per kilometre in international goods road transport, 2004
II. Conclusions and Action
1. The IRU and its member associations have an undeniable responsibility to inform their
members of macro- and micro-economic conditions, laws and regulations impacting company
cost levels and structures.
2. Associations should offer assistance with company cost management. They should develop
and update, whichever is applicable, ideally on their web sites, cost calculation tools and give
advice to members on keeping costs under control.
3. Hauliers must build cost increases into freight rates. This however is feasible only if based on
solid company cost management.
4. Hauliers must use permanent and efficient company cost management to follow systematically
market price developments for company purchases, exploit internal latent cost resources and
achieve productivity gains, as well as create a solid basis for calculating and negotiating
reasonable freight rates on the sales side.
5. The IRU Secretariat General will circulate the enclosed Questionnaire to learn in what way
national associations are assisting member hauliers in company cost management.
Results of the survey will be reported to the next Council meeting.
*****
Encl.
ANNEX 1
CTM/G7978/PKR
30.07.07
IRU Questionnaire on Tools Applied by National Associations to Assist Member Hauliers in
Company Cost Management
Association:
………………………………………………………………………….
Country:
………………………………………………………………………….
Contact person (name, tel., fax, email): ………………………………………………
1. Do you offer tools to operators to streamline company cost management?
√ Y†N†
2. What is the format of your advisory activities regarding cost management:
a. Printed documents
√ Y†N†
b. Web based
√ Y†N†
c. Consultancy
√ Y†N†
d. Other: ………………………………………………………………..
3. Describe the contents of your advisory tools:
a. General information on conditions of transport
√ Y†N†
if Y, which ones: ……………………………………………………
b. Macro economic indices
√ Y†N†
if Y, which ones: ……………………………………………………
c. Vehicle cost calculation
√ Y†N†
d. Route cost calculation
√ Y†N†
e. Complex company cost management
√ Y†N†
f.
Fuel price index
√ Y†N†
g. Insurance calculator
√ Y†N†
h. Freight rate calculation
√ Y†N†
i.
Infrastructure charge calculator
√ Y†N†
j.
Purchase price info (e.g. vehicle prices, spare part prices, etc.)
√ Y†N†
k. Other: ………………………………………………………………
2
4. How much is this association service, described under item 3 above, appreciated by member
hauliers (please base your reply on objective factors like the number of web site hits on related
applications)? √
Tool // Use
Very often
used
Often used
Seldom used
Never used
a. general
b. macro
c. vehicle
d. route
e. complex
f. fuel
g. insurance
h. freight rate
i. infrastr. charge
j. Purchase price
k. Other
5. Describe what further assistance tools and updates of existing applications you plan in the next
2-3 years: …………………………………………………………………………………………………
*****