Determining transportation cost is important for a logistics operator. Calculating transportation cost per km will help you identify the profit margin you would receive on a monthly and an annual basis.
What is transportation cost?
Transportation cost is determining the cost of providing a transport service to a business. These services may include transportation via air, water, road and railways; road transport includes private cars, buses, trucks, etc. Small logistics operators in India generally have trucking businesses where they invest in renting or leasing or buying the truck and hiring a driver.
What are the benefits of calculating precise transport costs?
Calculating truck transport cost per km in India will not only help you determine profit margin, but it also has other benefits which includes:
- Provides an accurate basis for fixing transport rates and determining quotation for customers.
- Evaluate the operating cost of running a vehicle
- Provides a comparison between buying a truck and leasing a truck
- Determine the cost of maintenance and repairs
Types of transport costs
Transportation costs are classified based on types of expenses borne by a trucking business. These are the main factors that influence the cost of transportation. There are three main types of transport costs:
- Operating and running costs: Cost of operations are referred to as running costs for example, fuel and fuel surcharge costs. These expenses are variable in nature because they are dependent on distance covered and the number of trips.
- Fixed costs: Insurance, tax, depreciation, driver wages, interest on capital, general supervision charges, and salary of operating managers are included under fixed or standing charges. These charges will have to be borne by the owner even if the vehicles are not operational.
- Maintenance costs: As the name suggests these are expenses paid for maintaining the fleet including wear on tires, repairs and overheads painting, etc.
How to calculate transport costs?
As mentioned above, factors influencing transportation costs include fixed costs, maintenance costs and operating costs. Therefore, the transportation costs of a trip vary according to the variable costs. Here is how you determine cost of transportation of a trip:
- Determine the weight and dimensions of your goods
The type of truck to be used for transportation will depend on the weight and size of your shipment. If the shipment is small, the company might use a six-wheel truck rather than a ten-wheeler.
If the goods being transported are larger in size, then you might need to use a trailer truck equipped with a lift gate that will be big and powerful enough to move your goods. For instance, automobiles are carried in large container trucks meant for long hauls.
Depending on the weight and quantity of the shipment you will have to select the type of truck and the number of trailer axles. Remember that the weight and size of the load will have an impact on the wear of tires and fuel consumption during transportation.
- Density of goods
Taking into account the density of the cargo is necessary to calculate the accurate transport costs. Density means the space a single good occupies in the truck compared to its weight. Goods with less density are cheaper to transport compared to goods with higher densities.
- Destination of goods
The destination of the goods to be transported also plays a role in the calculation of transportation cost per km. Some destinations, especially urban areas, have excellent road connectivity with highways and bypasses for convenient and faster transportation. Rural and regional areas on the other hand lack this connectivity and often have roads that are not maintained. This will increase your fuel consumption and even driver wages.
- Type of goods being transported
Different types of goods will require different methods of handling. Medical goods will require to be refrigerated and weaponry and explosives will require a different type of handling. Logistics operators should take special care so as to prevent any shipping damage. This increases the cost of transport.
Determining the costs mentioned above and adding them will give you the total cost of transport. If you want to calculate the annual profit margin, then you must take into account the depreciation of the truck. Other costs such as insurance and FASTag should also be included in the calculation.
The transportation cost formula
The transportation cost formula takes in to account the fuel consumption and the total distance travelled by the vehicle. The formula below will help you learn how to calculate transport cost per km:
Transport cost per Km = (Cost of the transport (Wages of the driver per km + Fuel cost per km) ÷ Distance travelled)
For example, imagine a truck travelling from Bangalore to Ooty carrying FMCG products.
Distance = 271 km
Fuel cost = ₹15
Wages of the driver per km = ₹30
Transport cost per Km = [Cost of the transport (Wages of the driver per km + Fuel costs) ÷ Distance travelled]
= [(30 + 15) ÷ 271)
The problem above explains how to calculate transportation cost per Km.
If you want to calculate the annual profit margin, then you must take into account the depreciation of the truck. Other costs such as insurance and FASTag should also be included in the calculation.
Also Read: Goods transport services in Karnataka