Real Costs, Real Savings:
The True Cost of a Mile in Transportation Operations
By Jemel Derbali, Wise Systems Co-Founder
No one in the industry will ever suggest that the margins in transportation are high, especially not in the middle and last miles, where routes are more complex and conditions more unpredictable. Freight and package volume is rising, but so are consumer expectations and operational complexity. As companies are forced to adapt and become more flexible and dynamic, it's more important than ever for operations teams to understand exactly how much they spend on transportation.
At the National Private Truck Council’s Annual Conference in Cincinnati last week, Dan Murray, Vice President of Research at the American Trucking Research Institute (ATRI) delivered ATRI's annual report on the operational costs of trucking. The report looked closely at the costs of congestion, which have continued to rise -- costing fleets $65B and almost 1 billion hours in lost productivity.
ATRI's analysis of the average cost per mile of operating a truck was particularly interesting because many fleets underestimate the cost of a mile, looking at fuel costs as the primary driver. However, as the report reflects, it's important to consider the fractional costs of acquiring, licensing, and maintaining a vehicle, as well as the cost of providing wages and benefits to drivers. Fuel is only 20% of the actual cost of a mile. With a very well-constructed framework, ATRI estimates that the average carrier cost per mile is $1.592, with their breakdown here:
|Motor Carrier Costs||2016|
|Truck/Trailer Lease or Purchase Payments||$.225|
|Repair & Maintenance||$.166|
|Truck Insurance Premiums||$.075|
|Truck Insurance Premiums||$.022|
These numbers likely undercount the true costs for companies doing middle or final-mile delivery. About 50% of ATRI's survey focused on long-haul fleets; this number can be much higher among urban shorter-haul fleets that face higher fuel and maintenance spends given the inefficiencies of city driving, and often employ multiple drivers per vehicle to help with loading and unloading. Estimates of the cost per mile of last-mile delivery can range from $1.50 to up to $4.
When all of the costs of operating a vehicle are tallied, the need for efficiency becomes even more clear. And as the ATRI report shows, short-term efficiencies help, but continuous optimization drives longer-term gains. Those efficiencies can allow companies to take vehicles off the road or accommodate increased demand without requiring the purchase of new vehicles or the hiring of ever more in-demand drivers.
To illustrate the value of optimization, Wise typically reduces fleet mileage by at least 10%. For a fleet of 50 vehicles, each making about 20 deliveries and driving 1150 miles per week, a 10% reduction amounts to $477,600 per year in savings! Looking at fuel alone still represents significant savings, but only a fraction of actual costs*.
Mileage efficiency is only part of the story. Reducing late deliveries, accurately understanding service times (the amount of time spent completing a delivery at a customer location), reducing time spent on manual routing, or decreasing time to onboard a new driver all have significant additional bottom-line value to fleets. We'll quantify these costs in future blog posts.
*Wise also increases fleet utilization by up to 20%, further underscoring the actual value of efficiency