Increasing asset utilization, cornerstone of path towards high quality trucking

Trucks are one of the most critical assets in the road transport system. However, companies usually don’t spend time in evaluating what all types (Tonnages) of trucks are needed for their dispatches. Typically truck type selection and allocation is left on market availability and historical usage.

Further, transportation cost is determined by engaging party requesting for quote from multiple vendors and usually selecting the lowest value quote. Multiple variables that go in building the cost are often overlooked. The most critical ones include – truck load (efficient dispatching and scheduling), load size and variable costs.

Utilisation can be increased by following a three pronged strategy:

• Reducing the overall number of kilometres driven by the fleet by eliminating wasteful driving created by empty running or underloaded trucks

• Reducing the cost of each remaining kilometre driven, primarily through improvements in fuel economy of trucks;

• And finally spreading the remaining, cheaper kilometres over a smaller overall trucking fleet, lowering total fixed costs such as depreciation, interest, insurance and driver wages

Among emerging economies India is no exception. In major manufacturing hubs such as China and Vietnam, small trucking firms reduce costs through illegal and dangerous operation of trucks (for e.g. overloading) like India,. These types of behaviour make it difficult for a firm working within the legal parameters. With recent revised axle weight norms, the government made a smart move, as it was happening anyway. This may bring down the existing overload issue. Our discussions with industry leaders suggests that small fleet operators have been impacted as efficiency gains from being able to carry more rated load per trip has been passed on through lower spot rates. However this is temporary and in long term the revision is welcome.

Efficient dispatch is the most important component to reducing empty running and a key factor in increasing utilization. With efficient dispatch a truck can get from a drop off to its next pick up point with a minimum of empty running and then pick up its freight and be on the way with minimum of wasted time. It is important to note however, that achieving scale in dispatch and scheduling need not necessarily be equivalent to large trucking fleets. For example, in the U.S., 90% of trucks belong to fleets of less than 10 vehicles, comparable to India where fleets of 5 trucks or less account for 75% of the market share and large fleet with more than 20 trucks have just 11% market share. In the US, small fleets and owner operators have gained efficiency in dispatch via third party logistics firms, which oftentimes own no physical assets, but can aggregate trucking capacity and achieve similar outcomes.

Issues of infrastructure, operational expertise and lack of enforcement reduce utilization. In the current situation in India, where utilization is low, a focus on minimizing fixed costs, by minimizing capital cost and fixed driver wages, is the highest priority. As utilization increases, variable costs increasingly dominate the cost structure. With greater utilization, investment in high quality and fuel efficient trucks operated by well-trained drivers becomes more compelling.

For distribution in the urban areas, vehicles having smaller loading capacities are required as demand is not consolidated and in a market like India with thousands of Kirana stores it’s very difficult to have an accurate forecasting. Thus for tuck operator higher utilisation is also a factor of load size. Combination of high tonnage and low tonnage vehicles with expertise in operations, scheduling, forecasting and strategic planning is a must.

Managing above variables with significant level of expertise and availability of different type of assets for optimum utilisation is must. This can only come into play when truck OEMs and third party logistics service providers or aggregators join hands to chart the path of high quality trucking together.

Commercial Vehicle Forum being held on 25 April 2019 at The Westin – Pune is the leading event in the nation that brings together all the stakeholder of Indian CV & Road Transport industry face to face for one day to deliberate on different dimensions of industry such as those captured above.

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