Operating Cost Estimates (OCEs) why they can mislead you

 TOPIC 4 

Remember Garbage In equals Garbage Out

  OCEs were first introduced in SA in the early 70s by vehicle manufacturers to promote the advantages of their Premium Class HCVs over the lower priced rivals. These were the early days of road transport in SA when the National Road Transportation Act of 1929 was strictly enforced and Carriers were heavily prosecuted for contravening this ridiculous legislation protecting the then State-owned SAR&H from competition. This Act was only repealed as late as 1989. Regrettably the new Government is planning once again to introduce this legislation to protect their rail interests - which will be the discussion point in Topic 10.

  While OCEs are useful to explain the principles of vehicle Fixed and Variable costs, they serve little more than that and unfortunately continue to mislead less-informed Road Transport Operators (RTOs).

  The following will assist readers to understand the reasons Talkingtrucks.co.za strongly advises Operators not to rely on generally published figures, or those provided by HCV Representatives in persuading prospects to favour their offerings.

Let’s get more specific why OCEs are misleading, even when available from OEMs or other sources like Associations and Publishers.

 

While the principles used in compiling most OCEs are correct, they don’t relate to any specific vehicle, operation or other specific information required to produce meaningful results. The figures therefore are pure speculation and can be widely inaccurate and misleading.

  If one accepts published OCE data then the question arises as to whether any two different makes of vehicles will deliver identical results and expenditure in the same operation? Obviously competing brands are likely to bias their “estimates” in order to influence a successful bid.

This is where the GIGO principle takes effect

  In every case information relating to a specific vehicle application like: Make, Model, Years-in-service, LTD kilometre, Vehicle specifications and configuration, Tare, Gross vehicle/combination mass, Depreciated book value (net average investment value), Nature of and mass of load transported, Details of lead-and-back-haul routes, Actual average measured fuel consumption (litre/100km or km/litre and price), Average speed km/h, Number of planned Shifts per year, Shift hours and Targeted annual km, is a prerequisite.

  So much said about Variable Cost data but the same principle applies to estimating Fixed Cost allocations and how they will apply to the numerous factors influencing these costs such as: loading/off-loading times, access to sites, detention time recovery rates, insurance, and cost associated with any penalty terms and conditions violated.

  Furthermore unless the OCE is based on a dedicated contract, all the information as mentioned above, will be necessary for each specific operation as no two [operations] create exactly the same cost effects due to the broadly varying conditions encountered.

  Given the scale of accurate information, and data essential in estimating acceptable vehicle operating costs, it becomes obvious that any OCE worthy of consideration in preparing budgets and/or pricing contracts has a long way to go from what is currently accepted by the industry.

Let’s have your responses to this - the 4th of 10 Topics under discussion this year.

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