I thought I would write a topic today on Australian Linehaul. Ive been doing a lot of analysis of the topic recently, and have been really struggling to find a good concise summary online.
By linehaul I mean interstate transport. Semi Trailers. Whilst I am writing in an Australian context there might still be some value in this analysis for overseas readers.
I am going to focus on a couple of key areas in this analysis :
1. The Industry
2. Equipment
3. Rates
4. OHS
5. Service levels
6. Perth
1. The IndustryAs I write, the frieight industry is characterised by overcapacity, and consolidation. There are more or less 3 types of players; the big players, the medium sized often family owned players, and the owner operators and subcontractors.
The big players are currently buying up medium sized players picking out the crown jewels from their contracts. The big players tend to use a mix of their own equipment and subcontractors, and tend to have national coverage including rail and coastal freight.
The medium sized players more or less tend to own their own equipment and occupy niches in the marketplace.
The owner operators and subcontractors operate a loose network communicating often by radio, and operate mostly based on personal relationships and a network of subcontract arrangements. Sometimes the equipment will be owned and maintained by an investor, and the driver operates for the investor under some sort of contract arrangement.
Applying Porters 5 forces we can summarise the industry as follows :
Barriers to Entry- Low, all that one really needs is a drivers license and some equipment.
Power of Suppliers- Key direct input is diesel fuel, price is set at the pump, and power of suppliers is high. Overhead costs such as registration and vehicle maintenance are very high, and non negotiable.
Power of Buyers- Currently very high. There is little incentive for a buyer to commit to a contract in current circumstances. Very difficult to differentiate ones service in order to obtain a premium.
Threat of Substitutes- On this element, linehaul freight is fairly well protected. There really isnt a credible substitute (with the exception of Perth which we will detail later). There is some rail and coastal freight availability, but across the eastern seaboard there is little benefit in these options due to handling constraints affecting lead time.
Level of Competition- Currently very high. The bigger players are trying to saturate the market with low pricing to gain share.
On balance, one has to concede that currently the linehaul industry in Australia is not attractive from a profitability standpoint. Above market rents are uncommon except where one can occupy a niche. Power in the market comes from scale as the large players are demonstrating.
2. EquipmentWhilst I am no expert on equipment, there are a couple of key things to know about trucks. I'll start with some terminology.
The truck part at the front where the driver sits is called the Prime Mover. Some prime movers are flat at the front, and some of them have a hood. The flat nosed prime movers are often purchased in order to put a longer trailer on the back as there are legal constraints applying to the total length of a vehicle. Newer prime movers have better fuel efficiency enabling operators to reduce their fuel cost relative to operators running older equipment.
The part at the back of the prime mover where the trailer connects is called the turntable. The trailer rests on the turntable providing considerable stability to the truck.
Lets look at trailers next. In Australia you can more or less have a single trailer, or a B double combination. Single trailers are just that - a single trailer towed behind the prime mover. A B double combination consists of a smaller 'A' trailer behind the prime mover, the 'A' trailer has its own turntable at the back, and the second, or 'B', trailer sits on this turntable.
A standard single trailer holds 22 pallets - 2 across, and 11 down. A standard pallet is 1.2 x 1.2M, so the trailers are 2400mm across, and about 13.2M long (internal dimensions). It is possible to have a 24 pallet trailer, but these are not so common.
A standard 'A' trailer on a B double holds 12 pallets - 2 across, and 6 down. So a total B double combination holds 36 pallets. I dont think you can legally put a 24 pallet 'B' trailer on a B double combination, although I could be wrong on this.
Many trailers have a flat deck, although you might have noticed some trailers that have 2 deck levels. These are called drop deck trailers, and one is shown below.
A drop deck trailer increases the cubic capacity of the trailer by lowering the height of the deck. Drop deck trailers are good for freight which is high cubic, or overheight. The maximum height of a trailer is 4.3M without special permits, so a lower deck enables the internal height of the trailer to be maximised.
A flatbed trailer is good especially in rear loading situations (which suits a lot of loading docks). A drop deck has to be loaded from the side (because of the step) and so requires a different sort of loading dock arrangement.
On any sort of trailer, the deck height is determined by the height of the turntable on the prime mover. There is no standard dimension for deck height. On a drop deck trailer, the step can range anywhere from 300mm to 420mm or more, so again there is no standardisation across equipment.
On a drop deck trailer, the part of the trailer that sits above the turntable is called the gooseneck. This is probably due to its shape. Most trailers tend to have about 2850mm clearance from the floor to the roof, though ones ability to utilise all this space can be constrained by a metal bar and rubber flaps that run down the length of the trailer, as well as ribbing across the roof.
There are also other sorts of trailers such as refrigerated trailers which I am not so familiar with, so I will avoid going into them in this analysis as I will probably write something incorrect.
3. Rates
This is the good stuff (and very hard to find anywhere online). I'll start with a disclaimer - these are my own opinions only of what are market rates, and I am sure there is a diversity of opinion.
Overall, nobody charges more for a drop deck trailer than a flatbed. If your operator is trying to make you pay more for the extra cubic, find another operator.
Before talking about rates one has to understand the dynamics of the market. If you understand the supply and demand imbalances across major routes you can understand the rate structures. These dynamics probably change over time as well, so please keep in mind that I am writing as of todays date. All rates include fuel levy but not GST.
Melbourne
A lot of freight comes out of Melbourne relative to what goes into Melbourne. This means pricing out of Melbourne is higher than pricing into Melbourne. Sydney - Melbourne is considered a backhaul, and most operators cant wait to get to Melbourne to grab another load.
For a single trailer Sydney to Melbourne you should be paying no more than $1200 per load, and for a B double you should be paying no more than $1600.
Coming back, prices are about 20-25% higher, so you can be paying up to $1500 Melbourne to Sydney for a single trailer, and $2000 for a B double.
Sydney
A lot of freight comes out of Sydney as well, and tends to go north to Brisbane, and south to Melbourne. Rates into Brisbane are much higher than rates into Melbourne (despite there not being that much difference in distance) for the reason stated above. Sydney - Brisbane is a premium route with lots of freight going up north.
Sydney - Brisbane you should be paying about $2250 for a single trailer, and up to $3200 for a B double.
Brisbane
Hardly any freight comes out of Brisbane. In fact I would estimate that the majority of trucks coming south from Brisbane to Sydney are coming back empty. Brisbane - Sydney is definately considered a backhaul, and some operators dont even bother to look for freight back down to Sydney. It is more profitable for them to get the truck back quickly and send it up again.
Brisbane - Sydney you should be paying no more than $800 for a single trailer, and $1100 for a B double.
Adelaide
I am not so familiar with the idiosynchracies surrounding Adelaide, but suffice to say, you should not be paying more than $3000 for a B double into Adelaide, and $2200 for a single trailer.
Ive devoted a whole section to Perth so I wont get into that here. There are also routes up further north into Townsville and Darwin which I am not so familiar with. I know that when its fruit picking season, anything into the far north is a backhaul so you should be getting good rates. Remember though, Townsville is further away from Brisbane than Brisbane is from Sydney, so you are looking at at least a couple of days to get your freight up there. There are operators in Brisbane who specialise in that route.
Actually there is a great article here which I just recently found that talks about what subcontractors are getting paid for various loads :
http://www.ownerdriver.com.au/news/articleid/41760.aspx
Heres another article that gives a pretty reasonable breakdown of an operators costs - although I think the fuel costs in the report are based on city driving. On the Volvo website it gave a fuel economy of 40.1 liters per 100km's on one of their prime movers :
http://www.business.vic.gov.au/busvicwr/_assets/main/lib60070/owner%20drivers%20rc%20transport%20semi-trailer%202008%20update.pdf
4. OHS
This is a really, really, super important section. I'll start by saying that there are far more authoritative sources available on this super important stuff than my little blog. So for that reason I wont go into too much specific detail other than to say this :
If you are not aware of your responsibilities under the legislation it is not a valid defence.
You could be opening yourself up to criminal liability and you can go to jail if you ignore your responsibilities.
I have included a link below for further information :
http://www.ntc.gov.au/filemedia/Publications/HVDF_ChainResponsibility_July08.pdf
Download it. Read it. Understand it. Its important.
5. Service levels
I'm going to briefly cover standard service levels in this section. By service level I am referring to lead time and deliveries. I dont deal so much with the Aldi's and Coles and Woolies of this world so I dont know much about delivery windows and that sort of thing.
Sydney - Melbourne, Sydney - Brisbane, and vice versa are overnight services. Brisbane is 11 hours away, Melbourne is 9.
Remember that a driver can only work 14 hours out of any 24 hour period.
This means that when he or she gets to Brisbane they dont have a lot of time to do deliveries. Some operators will swap drivers and put in a jockey, but this will cost you money. Most operators will do 1 drop and then a depot for free, any additional drops you will be looking at at least $100 per delivery and possibly a minimum hire or demurrage cost. Traffic in Brisbane is terrible. You should look at the option of crossdocking onto smaller rigid vehicles if you have multiple deliveries.
Melbourne is much the same as Brisbane, although, because it is 9 hours away the driver has a little more time. Melbourne, however, is a big city. The extra 2 hours that your driver has will be lost if he has to travel across town to make deliveries. You will also be looking at at least $100 per delivery, and possibly minimum hires or demurrage costs. Again, look at the option of crossdocking onto smaller rigid vehicles.
Some operators will go through a Distribution Centre (DC) to break the load down into smaller deliveries. You can add an extra day onto your leadtime for this but it tends to be fairly cost effective.
In my experience what works very well is to have a crossdocking facility set up with a 3PL operator. You can take advantage of the 1 drop then depot arrangement from your operator, but using the 3PL facility as a depot you can have semi permanent rigid trucks on hire to receive the linehaul trailer. If you go with the right 3PL partner you can negotiate to have the rigid driver unload your freight onto the rigid truck, and you can have your deliveries out same day at very reasonable cost.
6. Perth
The key thing to bear in mind about Perth is that its far away. Perth is further away from Sydney than New Zealand.
Because it is far away, the freight dynamics are a little bit different to the eastern seaboard. Whilst road transport is important, it is not the primary method for getting freight over there. Road transport is normally handled by husband and wife teams who rotate driving responsibilities to get there in a continuous trip. Road is probably the fastest and most flexible way of getting there, but it is also the most expensive.
The primary corridor for freight into Perth is rail. The delays caused by loading containers onto the trains are offset by the speed at which the trains travel. There are a number of trains per week - I think they leave Sydney on monday, wednesday, friday, and saturday. The monday train is the least popular so you might be able to negotiate better rates on this service.
Containers are destuffed in Perth and deliveries are done either by rigid trucks, or the deliveries can be done straight out of the container on a semi trailer. You will need to compare the costs of each of the two options. If you have a couple of large deliveries you are better off doing it out of the container, if you have a large number of small deliveries you are better to do it on rigid trucks.
Lead time for rail freight is about a week door to door. The wednesday service is faster and you can load the container on a tuesday and have it delivered in Perth on the friday. Pricing on a 40' container Sydney - Perth excluding delivery is around $3800 and for a 20' container it is about $2400.
Some operators can offer you 48' containers. These can be really good particularly if your freight is cubic. 48' containers also tend to have more internal height so you end up with about 30% more cubic meters. Cost on a 48' container is about $4200.
Another corridor for Perth freight is coastal. A lot of ships come from New Zealand and stop at Sydney, Melbourne, and Perth before going somewhere else. Lead times on coastal freight are longer, allow 2 weeks door to door, but the costs are lower than rail freight.
Recent changes to the legislation have made it unattractive for coastal operators to provide this service. In a nutshell, if a ship stops at more than 1 Australian port, it is now subject to Australian legislation (OHS and Worplace Relations) for the period between stops.
A lot of shipping lines are thus taking capacity off the coastal route, and this is pushing up prices reducing the cost difference between coastal and rail. Current costs on a 40' container Sydney to Perth by coastal freight is about $3300. 48' containers are not available on coastal.
In about half a second goal seek finds the solution which is that at a volume of 133,333, profit is zero, and therefore 133,333 is your breakeven volume.
Once you have activated the Analysis Toolpak, you will see that under your Tools menu bar, the Data Analysis option now appears. Once installed it will reside in your Excel Application forever, or until you uninstall it I guess.
The following window pops up. Simply select the type of regression you want. In this case I've selected linear regression but you could just as easily select logarithmic or polynomial for non linear regressions. You can also select moving average but just remember that Excel wont give you a formula for moving average and it wont have any predictive value.
