Transport Operator Hot Topic
Road Speed Governors - a financial catastrophe for heavy hauliers?
Competitive pressure from un-governed vehicle operators could put complying operators out of business.
The used truck market will boom!
There is a serious possibility of long ultra-heavy truck convoys building on the highways due to inability to safely overtake slower moving governed vehicles.
There is also a probability of ungoverned vehicles (vehicles registered before 1 December 2016) overtaking governed vehicles - a bad idea!
Reckless drivers could resort to free-wheeling on down gradients.
What about ungoverned foreign carriers' vehicles travelling over 100 km/h?
There could be motivation among local carriers to move to neighbouring states to by-pass this legislation.
In my opinion the industry did not give this matter enough serious thought over the two-year “grace” period and now has a financial catastrophe to contend with.
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DoT published the 24th amendment to the National Road Traffic Regulations in Gazette No. 40420 of 11 November 2016 (Regulation 293) concerning the maximum speed restriction on vehicles with GVM above 3 500kg up to 9 000kg, effectively reducing it from 120 to 100 km/h. The implementation date is 11 November 2016.
Gazette No 38142 dated 31October 2014, Amendment of regulation 215 of the Regulations came into force on 1 December 2016.
53. Regulation 215 of the Regulations is hereby amended by the substitution of subregulation (1A) of the following subregulation:
(1A) No p[erson shall operate a -
(c) bus; or
(d) goods vehicle the gross mass of which exceeds 3 500 kilograms,
first registered after 1 December 2016, unless such inibus, midibus, bus or goods vehicle is fitted with a speed governor, restricting the speed of such motor vehicle to the speed limits as contimplated in regulation 293.
The implications of these amendments have created a far reaching financial catastrophe for SA Carriers!
For a start, as from 1 December 2016, virtually all new vehicles above a GVM of 3 500 kg are required to be fitted with road speed governors (RSG) upon first registration. While the effects of this are to be felt across the board, it’s the vehicles above 9 000 kg GVM i.e. 80km/h that will be the most seriously affected.
At present these vehicles a geared to around 115 km/h at maximum engine speed. While driving within the 80 to 90 km/h band they achieve an average speed on long-haul routes of around 72 km/h or just over 62% of the vehicle’s un-governed maximum speed. Now when the maximum speed is strictly limited by a road speed governor to 80 km/h, the average speed could well end up at around 50 km/h: a reduction of 22 km/h or 32%. It's the inability of these governed vehicles to overtake slower trucks that will take it's toll on achieving a higher average speed.
Taking a rate at around R20.00/km means that the average earnings drop from R1 440.00/h to R1 000/h, resulting in a loss of revenue of R440.00/h in on-road travel time. Put another way, a 1 000 km haul at 72 km/h takes just on 14 hours driving time, while 1 000 km at 50 km/ h will take about 20 hours.
Martin S's Question
Apart from serious loss of revenue, how will this issue affect fuel consumption and gearing?
Well only the manufacturers will be able to give you a clear answer on alternative gearing, Yes this could affect fuel consumption but again it needs to be considered and road tested. Operators will need to consider improving vehicle performance in the 40 to 80 km/h range.
Obviously any fall in average speed will have devistating effects on revenues but operators will need to consider the effect on Fixed cost recovery and possibily renogiate their rates.
Yes Arnold is correct, any increase in travel time (slower average speed) will not only reduce vehicle revenue earnings per hour, it will increase Fixed Cost recovery per km. The combined effect of these two adverse consequences of this legislation is that it serves to reduce what is known as Asset Turn - a critical factor in regard to Shareholder Value.
Max B's Thoughts
It will be interesting to see who responds and what issues they are battling with. Hopefully it could generate enough support to give the DoT and others something to think about.
In referring to Arnold L's Thoughts, you say the reduction in kilometre (or loads) increases fixed cost recovery - shouldn't this be just the opposite. The loss of time, for whatever reason, means under-recovery of fixed costs?
Max, thanks for your thoughts and observations, you are quite correct, fixed cost recovery will decrease as fixed costs increase (my mistake in referring to an increase in"fixed cost recovery" rather than "fixed cost" in my comment above).
Maybe as an illustration an example will work best to clarify your point and mine.
Let's say we have to recover R700 in fixed cost per hour of operation, now let's take 2 scenarios:
Scenario 1) At an average speed of 72 km/h we have to recover R9.72/km, i.e. we have 72 kms to recover R700, so that is R700/72 km
Scanario 2) At an average speed of 50 km/h we have to recover R14.00/km, i.e. we now only have 50 km to recover the R700, so that is R700/50 km, which is an increase in fixed cost of 44% (R14/9.72) or a decrease in fixed cost recovery per km i.e. money you won't be recovering if you don't increase your rates.
It's also about focusing attention on asset utilisation i.e. Asset turn per million rand of investment. Slower average speeds not only seriously affect revenue earnings per hour, they also consume more hours of fixed cost per km of distance travelled that must be recovered, if not, then as you say there will be a serious under recovery of fixed costs/transport unit (in this case km).
We ain't seen nothing yet! Given the call for road speed governors (RSGs) on all trucks registered from Dec 1, 2016, above 3 500 kg, one can see the used market booming. Yes, but it's not only RSGs: it's inflation in new vehile prices that is scaring off buyers. Maybe we will see a few OEMs deciding that the SA market is no longer worth fighting over.
Pieter L's Question
I am a 46 year old owner-operator and drive an American tandem-tridem14m semi-trailer truck on the Durban/Joburg run with a round trip distance of 1400 km, At the moment, I do three round trips a week and drive for just on 63 hours. As it is my truck, I take good care of it driving mostly between 85 to 90 km/h and avoid exceeding 100km/h. This has been a good contract and as the horse is coming up for 900,000 km, I am thinking of replacing it early next year but worried about this news that all new trucks now have to be fitted with a road speed governor.
I haul loads both ways, but the pricing is tight and I need to invoice 140 round trips (just on 200 000 km a year) to cover expenses. I get paid by the load and carry a payload of around 30 ton with an average round trip diesel consumption of 1.98km/l (50.51l/100km). I have tried limiting my top speed so as not to exceed 80 km/h to save fuel and it works out at 2.07 km/l (48.31 l/100km) this would save me close to R50 000 a year. My problem is that it takes longer and moves the round trip time up from just over 21 hours to 26 hours, which means driving for over 13 hours a day instead of just over 10 hours a day. This amounts to 78 hours driving a week, up from 63 hours a week. If I limit my driving time to 63 hours a week, then I lose just over 27 round trips a year - a shortfall of about 38,000 km/year. I need to clock 200 000 km/year to cover costs and at only 162 000km/year, I won’t make my monthly vehicle payments. What do you suggest?
This is a difficult one to answer as there are so many uncertainties affecting the industry. The RSG legislation became effective from 1 December this year and enacted for many reasons. First, it is the most effective way to control the speed of heavy goods vehicles while reducing the cost of law enforcement. Second, the industry should have given more attention to the consequences of such legislation as there can be no doubt that it will have serious consequences on operating costs and subsequently rates. Obviously it will hasten the implementation of driving hour legislation for the reasons you have explained.
You face two major decisions: a) if you are sure the business is secure then you need to think about vehicle replacement and b) you will place yourself and others in great danger by driving in excess of 60 hours a week, This means employing another driver to share the workload.
The first decision is paramount. Your contract or agreement obviously requires reliable service delivery so vehicle availability is the first priority. A major component failure now could mean you work the whole year for nothing, and might even open a gap for a competitor. However, it also means taking on a lot more debt and a dramatic increase in ownership cost, so you must factor these into your business plan. Furthermore if you are looking to finance the vehicle, you will be obliged to take a maintenance contract with the supplier – which is likely to be a lot more than your present service and repair costs.
Whether or not you decide to replace the vehicle you will definitely need to employ an additional driver to share the workload if you intend to move 140 round trips a year. The advantage of this is that you can then focus on minimising fuel consumption and maximising round trips. Start by thinking of operating two 60-hour driving shifts. This means vehicle wheel-turning time goes up to 120 hours/week which should clock; 120 divided by 26 hours, or 4.62 round trips per week, which over 47 weeks gives you somewhere in the region of 217 round trips or over 300 000 km/year. Ok this is extreme reckoning, so start with thinking 200 round trips per year or 280 000 km, which is a 40% increase in revenue over your present target. What’s more your fuel bill per trip will benefit by slower average speed while adhering to the 80 km/h maximum.
I can hear you getting excited, but first check if you can get the loads and then look to filling the driver’s seat with someone equal to your capability behind the wheel.
Mark L's Thoughts
SA beats US Motor Carrier Regulations in legislating compulsory road speed governors.
(The following is an extract from a recent Supply Chain 24/7 post that SA should take note)
Speed Limiters, and More
What else is coming down the regulatory pipeline for trucking? For one, the government wants to put the brakes on the trucking industry. In fact, NHTSA and the DOT are proposing speed governors on new trucks with a maximum speed probably around 62 to 68 miles per hour, although it says it’s waiting for public comments to determine the exact highest speed.
Transportation secretary Anthony Foxx says that the safety measure could save lives and more than $1 billion in fuel costs each year; and, more importantly for truckers, the rule wouldn’t require the retrofitting of the approximately 3.5 million older tractor-trailer trucks on the highways.
“It’s a reasonable rule,” says Leathers. “We have speed limiters set at 65 mph, (105 km/h) but they can be brought down to 62.” The key, he says, is to find the correct relationship between safety and fuel economy.
Since 2006, the ATA has adopted a policy in favor of limiting the maximum speed of new trucks to 68 miles per hour (112 km/h). The proposed ruling sets up yet another fight between owner-operators, which are against the governors, and the organized trucking industry, which is in favor of the speed limiters.
OOIDA says that according to DOT data, less than 8% of fatal crashes involving trucks are speeding-related, compared to almost 30% for passenger vehicle crashes. The owner organization also says that speed limiters for trucks would result in a significant speed differential between cars and trucks on roads like interstate highways.
Safety advocates contend that the safest highways are those where traffic travels at the same or similar speeds. For every speed differential of 1 mile per hour (1,61 km/h) between vehicles, the likelihood of interaction increases. Trucking executives agree that speed uniformity on the highways is key. “Speed should not be a competitive landscape,” adds Leathers (Derek Leathers, president and CEO of Werner Enterprises, the nation’s 4th largest truckload (TL) carrier).
Of course there is a huge difference between US interstate highway traffic and SA's N routes. For a start, US carriers operate mostly "18 wheelers" that gross at 80 000lbs (36 tonne) on five lane trafffic flow, which means they keep up with light vehicle traffic for most of the time.
The interstate highways are also heavily policed for moving violations - its difficult to travel more than a few miles without observing vigilant state troopers in your rear view mirror!
It's also strange to figure out how SA settled on 80 km/h for vehicles over 9 000 kg. The 80 km/h speed limit for trucks was originally legislated to reduce the country's fuel shortages due to sanctions prior to 1994.
Joan K's Question
What effect will this have on long-distance drivers?
This is a very crucial question, which I’m, sure came under close scrutiny during the build up to this legislation, which is when it was still a Bill.
For obvious reasons the Unions would have scrutinized it very carefully as to what was in it for their members. Clearly it has been seen to give drivers three basic gains:
1. Any reduction in a vehicle’s average speed means longer trip times and more overtime for drivers.
2. The intention of this regulation was to reduce truck accidents, so drivers should have lower risk of injury and/or death.
3. It could well create more jobs for drivers as long return trips will necessitate slip-seating drivers.
Let’s just consider these assumed gains.
Overtime: Yes, indeed this will put money in driver’s pockets but increase risk due to driver fatigue mind you compulsory driving hour legislation is well advanced and is imminent. When this is implemented it will definitely create more jobs for drivers.
Reduce truck accidents: Very doubtful, it's more likely to rapidly increase truck accidents due to overtaking problems. Create more jobs for drivers: It could well reduce employment opportunities due to disinvestment in road freight investment.
As far as advantages for employers (road transport operators) are concerned, as we have seen above, it means negotiating rate increases due to higher fixed costs and leaner margins due to lost revenue per km due to slower average trip times.
There is no doubt that in the longer term it will seriously disadvantage road transport against alternative competitors.