Operating a commercial vehicle: Not for the faint-hearted

Operating a commercial vehicle: Not for the faint-hearted

While at first glance the cost of operating a commercial vehicle might seem to be easy to calculate, but there are many factors to consider. In the highly competitive freight industry, every cent counts.

To accurately estimate the cost of operating a commercial vehicle requires transport operators to consider each model individually, as performance and maintenance costs will differ. A vehicle with newer technologies might be more fuel efficient compared to an older model, but might be more expensive to service.

One of the biggest factors influencing vehicle performance is the behaviour of the driver, which also has a ripple effect on other expenses. For example, a driver prone to harsh braking and acceleration will increase the fuel consumption of the vehicle, but also wear out the braking pads more quickly. This will require more frequent repairs, or the replacement of parts.

Fixed costs

Fortunately, there are some costs for which transport operators can prepare. These fixed costs remain the same for about a year and include:

• Vehicle finance;

• Insurance;

• Licence fees; and

• Salary of the driver or crew.

The amount spent on finance and insurance will depend on the vehicle, interest rates and risk for the insurer, but will remain the same for at least a year. For example, a heavy commercial vehicle purchased for R1,7 million at a prime interest rate of 10,5%, with no down payment over 60 months, will have an instalment of around R37 000 a month.

The insurance on a commercial vehicle is roughly seven percent of the purchase price. For this hypothetical vehicle, it would thus be around R119 000 a year.

There are alternative finance and insurance options for transport operators. Many vehicle manufacturers offer lease or renewal programmes that include insurance, maintenance and repairs. These programmes can assist operators to regularly renew their fleet and minimise unplanned costs associated with repairs.

Generally, licence fees are paid at the beginning of each year. Again, the costs will vary depending on the vehicle. The fee for a heavy commercial vehicle is estimated at around R22 000.

Salaries will be determined by the number of drivers or assistant drivers employed, the skill level of the driver and the job requirements. A long-haul driver might be paid more for overtime or risks associated with his or her tasks.

Variable costs

In addition to the predictable fixed costs, there are also many variable costs that fluctuate throughout the year (for example fuel price), and those that occur during operations (for example, maintenance costs). Generally, these costs include:

• Fuel (with fluctuating fuel prices throughout the year);

• Maintenance and repairs;

• Tyres; and

• Toll fees.

Fuel is the most volatile of the variable costs. First, the fuel price can decline or increase dramatically throughout the year depending on international trends.

Second, the amount of fuel consumed can fluctuate as the driver behaves differently or the vehicle enters certain terrains. Other influencing factors include vehicle and load size, drag co-efficient and rolling resistance.

If the anticipated fuel price for 0,05% diesel (wholesale) is R14,46 and for 0,005% diesel (wholesale) is R14,53 then, to determine the fuel cost per kilometre, transport operators should multiply the cost per litre with the consumption figure per 100 km and divide by 100.

Transport operators can prepare for maintenance or repair expenses by entering into a maintenance contract with the manufacturer; however, there should also be a plan in place to address unexpected repairs.

Tyres are another unpredictable expense. Although most tyres are expected to last for around 40 000 to 60 000 km, the wear from braking, road conditions and quality of the tyre will impact on its life. The quality of a tyre should never be compromised for price. Transport operators travelling between Johannesburg and Durban twice a week for the full 52 weeks in a year can budget for at least two to three sets of tyres annually. A set of six new tyres (at R5 000 a tyre) will cost around R30 000. This price will fluctuate depending on the number of tyres and brand purchased.

Toll fees can be estimated at the beginning of the year, but if an operator does not take the same route on each journey, this cost will also vary.

To manage some of the more volatile costs, such as fuel and vehicle maintenance, transport operators can invest in telematics solutions. These will also come at a fee, but might result in significant savings.

A final quote

The abovementioned costs indicate only the cost of operating a commercial vehicle. When quoting a customer, transport operators also need to include the overhead or administrative costs incurred in running the business.

Overheads include anything that is required to keep the operation going, for example office or workshop facilities, parking areas, despatchers, clerks, telephones and ancillary vehicles. These costs are generally divided by the number of vehicles operating out of a depot. As a guide, add 10 percent of the fixed costs to the quote.

After accounting for all these additional expenses, transport operators also need to include a profit margin. A good starting point for a profit margin is about 20% of the overall cost of operating the vehicle. This is also the best place to trim fat if the cost of operating is too expensive for a customer.

However, a smaller profit margin comes with its own challenges. If the costs are too high for a client, transport operators might be better off not getting the contract
at all.

Estimated percentage of total cost of operating a vehicle

Fixed costs

 

Finance

20%

Insurance 

7%

Crew 

16%

Overhead

5%

Licence

1%

Total 

49%

Variable costs

 

Fuel 

31%

Tyres

4%

Maintenance 

9%

Toll fees

7%

Total 

51%

Published by

Focus on Transport

FOCUS on Transport and Logistics is one of the oldest and most respected transport and logistics publications in southern Africa.
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