Logistics and transport have come a long way since the Pony Express. The launch of railroads and, later, cars and trucks allowed all states to enjoy a commerce boom. It also gave birth to the popularity of the trucking industry.
Trucking remains one of the foundations of an economy. It generates jobs and supports growing industries like e-commerce, poised to earn over $6.5 billion in 2023. It isn’t surprising that many consider it a viable business.
But there’s at least one primary concern: costs. According to the American Transportation Research Institute (ATRI), a fleet operator may need to spend nearly $185,000 annually for one truck alone.
How can a business owner, especially a newcomer, afford them? How can tools like fleet management software help? It begins by knowing the biggest money drainers.
1. Fuel
Recent data suggest that fuel costs in trucking are usually over three times pricier than those of passenger vehicles. Moreover, in any given year, a business owner might spend at least $70,000 on diesel for a commercial truck.
But the cost itself isn’t the only challenge. Another problem is the fluctuation of prices. Sometimes the changes are dramatic such as during the Great Recession.
Based on ATRI data, the price of diesel per gallon rose to $4.80 in the summer of 2008. However, it plunged to around half the price by March 2009.
Further, fuel costs account for not less than 30% of the line-time expenses from 2014 to 2016. From 2015 to 2018, though, the spending gradually increased that it sometimes surpassed wages.
2. Labor
A driver’s wage makes up around 25% of the total trucking expenses, but that is likely to change soon. Reason: shortage. In fact, the shortfall is critical. It was the biggest trucking concern in 2020.
How many more drivers does the United States need? It has to recruit no fewer than 60,000 people. If the trend continues, the demand will increase to at least 100,000 in 2023 and a whopping 160,000 by 2028.
Many factors contribute to this shortage. One, the average age of a truck driver is over 45, which means they are near retirement. Some drivers can no longer drive for driving under the influence. From January to September 2020, the CDL Drug & Alcohol Clearinghouse removed 40,000 drivers because of these offenses.
Either way, to retain and recruit talent, fleet operators try to attract applicants with higher compensation. In 2019, drivers earned $58,000 with bonuses, a sharp increase of over $5,000 compared to the previous year.
3. Insurance and Depreciation
Trucking insurance costs vary widely. According to Insure.com, getting coverage for a pickup would cost no more than $1,700. That makes the vehicle more affordable to insure than a car, whose average insurance reaches $2,000.
Meanwhile, Progressive Commercial revealed that the potential insurance expense for a particular truck is almost $1,000, while that of a commercial truck is $795 monthly. Depending on factors like age, size, and use, the most expensive insurance will be 11% more than that of a car.
Depreciation can be a significant factor in insurance as well. Reports suggest that pickups may depreciate slower than a private vehicle. Thus, although it could lose up to 42% of its value, it could also retain it well.
But as the vehicles gather miles and get older, they become more prone to accidents. Their parts age and may be more difficult to find. By then, depreciation reaches its peak, and insurance costs increase significantly.
4. Acquisition and Maintenance
Trucks come with a high price tag. According to Frost & Sullivan, a fleet owner should expect to spend at least $110,000 for a new tractor and around $30,000 for a trailer. But the acquisition isn’t the only item that drains the business coffers. So does maintenance.
Studies show that maintenance costs make up close to 10% of the total spending. It is not impossible to shell out $15,000 a year for a single truck.
The Role of Big Data in Curbing Costs
While these costs are cash guzzlers, they are part and parcel of doing business. What fleet operators can do is to determine ways to manage their spending more efficiently. Big data can help in this area.
Fleet management platforms, for example, can feed critical information, usually in real-time. These include the amount of fuel used, distance covered, time spent on traffic, and driver behavior. All these will translate to the following benefits:
- Identify the most cost-effective routes without compromising on driver’s safety and speed
- Determine the best time to sell vehicles and acquire new ones, maintain the fleet, and change fuel
- Keep the drivers safe by learning their behaviors while on the road
- Provide value-added services to customers, such as delivery tracking
Overall, these advantages will help the trucking business use their money efficiently, boost their productivity, and generate higher revenues and more customers.
