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Trucking Business - Profit on a Truck

Guest post by: Silvan Pillay

Article Overview: This article explains the potential profit on a truck in the road transport industry.

Trucking Business - Profit on a Truck

In this example, I refer to an "industrial"type of truck. E.g Side Tipper Trucks, Sloper Trucks and Flatdecks that typically have the capacity to legally carry 30 to 34 Tons of goods. These goods could be loose goods such as coal, maize, wheat, chrome, building material, etc. and Packed cargo such as bagged cargo, palletised cargo, containerised or boxed cargo.

What are the averages?



On average a truck shouldrun around 12,000 to 14,000 KMs per month or around 150,000 to 180,000 Kms per annum.More than this number of KMs is "killing the truck".Having said this though I have seen trucks doing up to 25,000 KMs per month - Nothing wrong with this if you have a fairly new and well maintained truck doing more than 80% long distance. This truck will not last the road though.

Are you in for the short killing or to have a sustainable trucking business? This should be your deciding factor!

The example below ignores VAT and other Tax factors.

Fixed Costs



Your lease installments on a decent truck is around R30 000 per month, insurance around R5000 and a driver R6000 (1 Driver) per month. This is R41 000 pm and you have not driven a KM yet.

Running Costs



On average a truck achieves 1.8 to 2 KM to a litre of diesel. Some achieve less - some more. This factor is influenced by the truck's horse power, diesel consumption, the driver, whether short or long distance etc. Average diesel price R7.00 per litre at today's prices (Nov 09). Maintanence budget anything between R0.50 and R0.80 per KM.

So let's assume that you do 12,000 KMs per month, your running costs are:

= 12,000 KMx [(R3.50 per KM) + (R0.50 per KM Maintenance)]

= R48 000 per month.

Breakeven - Minimum Charge out Rate to Breakeven



You have installments of R41 000 + running costs of R48 000. You must now earn at least R89 000 per month to breakeven. this is equal to R7.42 per KM. But you are not in business to breakeven. You are in business to make a profit.

What is an acceptable rate?



Minimum R8.00 per KM - something I personally will not accept. R10 per KM? Let's do the math.

Turnover = R10 x 12,000 KMs = R120,000 - Now we are getting somewhere.

With a rate of R10 per KM rate, I could - but necessarily accept it. This would give me a profit of R31.000. Am I happy with this. NO WAY! - What about major breakdowns - or if I need a second driver or standing time. We must therefore look at a premium to make up for this.

What is that Premium?



An additional 10%, 20%, 30% - Let's see what this does to our profit.

At R12 per KM = R12 x 12,000 = R144,000 - This is a profit of R55 000 per month.

At R13 per KM = R13 x 12,000 = R156,000 - This is a profit of R67,000 per month - Not too bad.

At R14 per KM = R14 x 12,000 = R168,000 - this is a profit of R79,000 per month - Getting better.

>R14 per KM - Forget it - Does not really happen in practice.

Strategy



Take on contracts/jobs where you are able to do around 15,000 KMs per month. For a 25 day month, this is 600KMs per day. At an average driving speed of 60 KM/hour (takes into account loading/offloading and some downtime), this implies that the truck would work for +/-10 hours per day for 25 days in a month.

Now let's look at the numbers at R12 per KM:

Turnover = R12x 15,000 = R180,000

Less Diesel = R3.5 x 15,000 = R52,500

Less Maintenance = R0.50 x 15,000 = R7500

Gross Profit= R120,000

Less Fixed Costs = R41,000

PROFIT: = R79 000 per month



Do not fool yourself - Now you understand what it takes to profit more than this per month on a single truck. The above is merely an example and there are a number of factors that influence truck profitability.

Notes



In practice contracting companies tend to pay a rate per ton and not a rate per KM. It is up to the truck owner to do his own calculations to arrive at his own profitability.

So for example, ifyou are aoffered a rate per ton of R100 per ton and your loading is 34 Tons and the round trip distance is 250 KMS, then your Rate per KM is calculated as follows:

R100 per Ton x 34 Tons / Round Trip of 250 KMS = R13.60 per KM.

Many transporters refer to this as the CPK (Cost per Kilometre) which is in fact not correct. Your cost per kilometre is your Diesel Cost + Maintenance Budget = CPK

The R13.60/KM is the Rate per Kilometre.

Therefore,



The Rate per KM - The Cost per Kilometre = Gross Profit per Kilometre.

Net Profit = Gross Profit per Kilometre x Total KMin a Month- Fixed Costs = Net Profit fo the Month.



Hope you enyoyed this tutorial! Happy Trucking!

Author: Silvan Pillay

CEO: Africatransport



Last Updated (Wednesday, 20 January 2010 21:33)

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Article Tags: transport contracts, transportation contracts, truck contracts, truck profitability



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