The trucking industry needs a consistent, reliable, and up-to-date industry standard, or benchmark, for the amount of revenue a trucking company can reasonably expect from a load in a DPM (dollar per mile) format.  The problem is that there is nowhere to get this information in real-time.  “For cars there are many third party services that estimate operating costs… as a service to potential buyers.  No similar service exists for trucks” (12).  Many studies and reports have been comprised over the years calculating the current costs of the day, but the problem with these reports is that they are out-dated before they are even printed.

 “Managers need to have enough information about their costs to make the right decision about the type of services to provide and the prices to charge” (1).  While this statement holds truth, we would add that accurate and timely information is equally as important.  Levinson, Corbett and Hashami (2) who wrote “Operating Costs for Trucks” state that “fuel, repair and maintenance, tire, depreciation, and labor cost are the most important costs that are considered in the estimation of operating cost per kilometer.”  How many of these costs fluctuate over time?  How many of these costs can fluctuate in a matter of weeks or even days?  FairTran® gathers real-time data to incorporate it into industry-accepted methods and calculations in order to broadcast it to customers so that they can make accurate, timely, and informed decisions.  This is a “Patent Pending” business model on file with the United States Patent and Trademark Office.

 Mark Berwick (3), author of  “Truck Costs for Owner/Operators” claims that “Owner Operators and users of Owner Operators need truck cost information to benchmark performance against competitors and industry standards.”  The difficulty is in comparing your business against industry benchmarks – especially when the data you are looking at is a couple weeks to a couple months old.  He also states that “basic to any business is the understanding and command of its costs.” (3)  How can we command our costs without comparing costs?  When a business compares costs, they normally compare against the same time period from the year before.  However, in the trucking industry, we need comparisons in real-time, not from the previous year.

 FairTran® incorporates the research and data from a wide variety of sources in order to come up with the most accurate and industry-wide acceptable method to calculate costs and profits.  After conducting a literature review to evaluate past studies, data, and methods, we formed a more contemporary costing method.  We use percentages and calculation methods on certain expenses gathered from this literature including: tires, licenses, profit margins, ROI, depreciation, communications, etc.  However, we combine these percentages and methods with real-time data from the Consumer Price Index, US Stock Exchange, Producer Price Index, real-time fuel prices from over 800 reporting fueling stations, NADA, and more in order to combine time-tested research with updated information.

Types of Costs

 Driver: After our research, we chose a national company specializing in salary information to provide our system with truck driver salary information.  This company’s information fell in line with the literature reviewed.

 Depreciation: We use the straight line depreciation method to divide the difference between the purchase cost and the salvage cost divided by the average of the life span of the tractor (5 years) and the average life span of the trailer (8 years).  Because of the mechanical nature of refrigerated trailers, we chose to give them the same life span as that of the tractor (5 years).  This falls in line with the literatures cost percentages.

 Fuel: Fuel costs can vary greatly over a short amount of time which is one of the problems with set percentages for fuel and older reports.  For this reason, we calculate the National FairTran® Value off of the US Department of Energy’s National Average each week.  For our subscribers, we calculate daily averages from reporting fueling stations across the country.  We derive our daily Fuel Surcharge from these daily averages and the weekly Fuel Surcharge is derived from the national DOE weekly average.  The Fuel Surcharge percentage is the percentage correlating to the appropriate current diesel price on our FairTran® Fuel Surcharge Schedule.

 Administration:  Administrative costs include buildings, electronic equipment, employees, paper, copy machines, etc.  This area of costing is difficult to determine because of the wide range of size differences between companies.  We considered the economies of scale (or scope), which is where “larger firms would reduce cost so that larger companies would have a lower cost per distance” (2).  This formula is C(y1, y2)<C(o,y2)+C(y1,0).  However, research and literature indicates that there is minimal impact on the economies of scale in transportation (6).  Berwick puts it like this, “The large number of small firms operating in the motor carrier industry should attest that economies of size are not extensive” (3).  Economies of utilization, on the other hand, provide huge paybacks.  Economies of utilization suggest that the more you drive your truck the less your fixed costs become per mile.  “Fixed costs are short-run costs that cannot be avoided and do not vary with output” (7). 

 ROI: We calculate the Return On Investment as outlined in the literature.  The interest rate is updated according to a widely known national bank rate.

 Maintenance and Repair:  Includes the maintenance and repair of the truck and trailer without consideration for tires (a separate cost since they vary in price over time).  We use our research and literature to derive the maintenance cost percentages and is after the weight adjustment in the method from Berwick (3) which adds and adjustment of .00097 per 1,000 lbs over 58,000 lbs.  We assume a percentage empty for vans, flatbeds, and tankers varying by trailer type.

 Tires: Berwick states that weight above 3,500 pounds per tire increases a .7 in wear for each 1% increase in weight.  We assume from the literature that tractor tires have a 204,500 mile life and trailers tires have a 100,000 mile life.  We obtain tire pricing from a national company and average two steer and 8 drive tires for a per tire cost for tractors.  We also assume that the combo is running a GVW of 80,000 pounds.  We adjust the tire pricing each month.  Therefore, Custom FairTran® Values will allow you to gain miles per gallon and reduced maintenance and repair for transportation companies hauling less weight on average.

 Insurance:  We are using the percentage estimate from the literature for all trailers except reefers.   We are using a higher percentage insurance costs for reefers based on their higher risk of product damage due to refrigeration failure, untimely deliveries, etc.

 Licenses/Misc:  Based on research, we are taking the average of the literature cost percentages.

 Margin: Instead of narrowing it down to  one percentage when the market changes constantly, we have decided to use a profit margin formula and major publicly traded trucking companies as an index for our range. 

 Miles Per Gallon:  MPG has a wide range depending on what and where a trucking company is hauling and with what equipment.  Research indicates that mpg is from 5-7 mpg.  We are going to use 6 mpg but it will be adjusted using Knapton’s fuel efficiency formula combined with Ryder’s theory that for every 1 mph gain in speed over 55 mph, fuel economy drops 2%.  We use the average speed of 55 mph and a GVW of 80,000.  Custom FairTran® customers have the option to take advantage of this calculation by plugging in their own GVW and speed to calculate a more accurate mpg for their company.  They can also just plug in a flat mpg from which to calculate.

 Communications: Communications include phone, cell phone, internet, etc.  We are accepting the cost percentage that the literature suggests.

 Assumptions

 Yearly Mileage:  Research and literature review shows a typical truck to run 100,000 (10).  Other research states that most owner operators are trying to operate at or above 100,000 a year or between 100,000-150,000 miles.  FairTran® assumes 115,000 miles per year for long haul and 65,000 miles per year for short haul adjusted proportionately by the average speed setting.

 Average Speed: 55 mph (11)

 Tractor Life: 5 years (9)

 Trailer Life: 5 years for a reefer and 8 years (9) for the others

 Transformation of Information:

FairTran® transforms information into a valuable commodity by using our calculation method and broadcasting process to instantly assess the market place and update our customers on the go like never before .  This “Patent Pending” method is a valuable service to our subscribers.

 References:

1.  “Learning about Transport Costs,”Braeutigam.

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