3
OPERATING COSTS DIFFERENTIATION AMONG THE HAULAGE
COMPANIES: IN THE CASE OF SOUTHERN REGION
MAZLAN BIN MD. ZAHID
A Project Report Submitted
As a Partial Fulfilment for the Award of a
Degree of Master of Science
In Transportation Planning
Faculty of Built Environment
Universiti Teknologi Malaysia
APRIL 2009
5
DEDICATION
Kerana ALLAH
Untuk manusia
Especially to my parent, beloved wife (Puan Suriah Bt Hj. Md. Taib) and children
(Nurhidayu, Mohd Asyraf, Nuramira and Nuradlina)
6
ACKNOWLEDGEMENTS
In the Name of Allah the Most Gracious, Ever Merciful
In appreciation of Allah‟s greatest bounty upon man, our humble gratitude
would be due to Him to Whom all praise is due, the Bestower of all bounties Who have
enabled me to complete this dissertation.
I would like to express my gratitude and appreciation to my dissertation
supervisor, Dr. Muhammad Zaly Shah and to all my entire lecturers and classmate for
the guidance to me during the tenure of this research.
Co-operation from those haulage operators and all respondent who participate in
answering the questionnaires.
Thank you to all who had given me their support and help with my dissertation.
7
OPERATING COSTS DIFFERENTIATION AMONG THE HAULAGE
COMPANIES: IN THE CASE OF SOUTHERN REGION
ABSTRACT
Malaysia container haulage was introduced in 1971, the number of
player has been increased from time to time. This study is basically to determine
the difference of the operating costs among the players in Southern Region,
which related to costs element i.e. Fuel, maintenance, salary, tax, staff training
and licensing. Since the haulage companies are operated with difference sizes of
truck therefore the players have been divided into three categories i.e. Big
Operators with > 50 units Prime Mover, Medium Operators with < 50 units
Prime Mover and Small Operators with < 20 units Prime Mover. The findings of
the research show that there is a difference of operating costs between the three
types of haulage operators. Fuel being spending against total annual operating
costs for both big and small operators is 30% whilst for medium is 35%, which
it shows 5% higher. Maintenance costs for both big and medium operators have
a same degree of 30% each whilst small operators incurred 25% which 5%
lower compared to the big and medium operators. Salary costs had revealed that
big and small operators are spending 25% which 5% higher compared to
medium operators. Tax, licensing and training costs are showing 5% for those
three players except licensing for small players showing a 5% higher if
compared to both big and medium operators. The costs proportion showing that
the major operating costs are apparently spending in fuel and maintenance,
followed by the salary, licensing, tax and staff training. As to sustain the
viability of this s industry, the haulage companies have to consider other
alternative of fuel e.g. using NGV or Bio-Diesel, outsourcing the repair
maintenance works, review the existing strategy and policy and last but not least
using high end technology for integrated planning and tracking systems even
though it is costly but in the long term run it will be benefited to them.
Ultimately the findings of the study will be guided decisions for estimating the
magnitude of each operating cost among the operators.
8
PERBEZAAN KOS OPERASI DI ANTARA SYARIKAT-SYARIKAT
PENGANGKUTAN KONTENA: DI SELATAN TANAHAIR, JOHOR
ABSTRAK
Pengangkutan Kontena telah dimulakan di Malaysia pada tahun 1971,
jumlah syarikat pengangkutan kontena telah bertambah dari semasa ke semasa.
Kajian ini dibuat bagi mengenal pasti apakah perbezaan kos operasi yang
berlaku di antara satu syarikat kontena kepada syarikat kontena yang lain
khususnya di selatan tanah air, yang mana elemen kos yang berkaitan adalah
seperti kos minyak, baik pulih, gaji, latihan, cukai dan perlesenan. Syarikat
pengangkutan kontena beroperasi dengan jumlah saiz yang berbeza-beza untuk
itu syarikat tersebut telah dibahagikan kepada tiga kategori. Operator Besar
beroperasi > 50 yunit pengerak utama, Operator Sederhana beroperasi < 50 yunit
pengerak utama dan operator kecil beroperasi < 20 yunit pengerak utama. Kajian
mendapati adanya perbezaan kos operasi di antara ketiga tiga jenis syarikat
tersebut. Kos minyak menunjukan persamaan jumlah 30% yang dibelanjakan
oleh kedua dua syarikat besar dan kecil yang mana 5% lebih rendah jika di
bandingkan dengan syarikat yang sederhana saiznya. Kos baik pulih
mempaparkan kedua dua syarikat besar dan sederhana membelanjakan jumlah
yang sama iaitu sebanyak 30% dari jumlah kos tahunan mereka sementara
syarikat kecil pula membelanjakan hanya 25% iaitu 5% lebih rendah. Untuk gaji
kakitangan pula syarikat besar dan kecil telah membelanjakan 25% dari jumlah
kos tahunannya. Yaitu 5% lebih tinggi dari syarikat yang sederhana. Cukai,
perlesenan dan latihan menunjukan kos yang sama bagi ketiga tiga syarikat
kecuali untuk perlesenan untuk syarikat kecil yang membelanjakan 5% lebih
tinggi. Pecahan kos menunjukan kos yang besar melibatkan kos yang berkaitan
dengan minyak, baik pulih kenderaan dan diikuti oleh kos gaji dan disusuli oleh
kos perlesenan, cukai dan latihan. Bagi mengekalkan daya saing didalam
industri tersebut, syarikat pengangkutan kontena perlu menimbangkan
mengunakan sumber lain selain minyak. Di antaranya ; mengunakan NGV atau
Bio-Diesel, menswastakan baik pulih kenderaan kepada orang ketiga, melihat
semula strategi dan polisi sedia ada supaya lebih berdaya saing dan akhir sekali
tapi tidak kurang pentingnya iaitu mengunakan sistem berteknologi canggih IT
untuk perancanggan yang lebih menyeluruh dan sistem pengesan perjalanan
kenderaan, walaupun ianyanya mahal tetapi dalam jangkamasa panjang sistem
tersebut sangat berfaedah kepada mereka. Akhirnya dari hasil kajian yang
9
diperolehi ianya mungkin boleh digunakan sebagai panduan bagi mengangarkan
kos operasi di antara operator pengangkutan kontena tersebut.
TABLE OF CONTENTS
CHAPTER
TITLE
Page
STUDENT DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENTS
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
vii
LIST OF TABLES
xii
LIST OF FIGURES
xiv
1
INTRODUCTION
1
1.1
Background
1
1.2
Malaysian Economy
2
1.3
Container Haulage in Malaysia
5
1.4
Factor Contributing of Cost Escalating
to Haulage Operators
8
10
1.5
Action Taken by Haulage Operator to
Overcome the Escalating of Cost
1.6
2
14
Effect of Cost Escalating in Haulage
Industry
16
1.7
Problem Statement
20
1.8
Study Objective
20
1.9
Study Methodology
21
1.10
Scope of Research
22
1.11
Significant of Study
24
1.12
Limitation of Study
25
LITERATURE REVIEW
26
2.1
Introduction
26
2.2
Fuel Price - Global Oil Peak
27
2.3
Truck Maintenance
29
2.3.1
2.3.2
Approach to Identifying
Problems
29
People Problems
30
11
3
2.3.3
Well-Managed Truck Fleet
31
2.3.4
Prevent Expensive Breakdowns
31
2.3.5
Calculate Optimum Life
32
2.3.6
Stick with One Brand
33
2.3.7
Train Employees to Be More
Productive
33
2.4
Policies and Procedures
33
2.5
Journey Planning
34
2.6
Driver Behaviour
38
RESEARCH METHODOLOGY
40
3.1
Introduction
40
3.2
Study Area
41
3.3
Questionnaire
42
3.4
Data Collection
42
3.4.1
Face to Face Interview
42
3.4.2
Questionnaires, Surveys,
12
4
Checklists
43
3.4.3
Observation
44
3.4.4
Case Study
44
3.4.5
Secondary Data
45
3.5
Preferred Methodology
46
3.6
Conclusion
47
DATA ANALYSIS AND FINDINGS
48
4.1
Introduction
48
4.2
Result of Face-to-Face, Mail and
4.3
Telephone Interview
52
Operating Costs
53
4.3.1
Data Analysis and Findings
of Operating Cost by Big
Haulage Operators
4.3.2
54
Data Analysis and Findings
of Operating Cost by Medium
Haulage Operators
4.3.3
Data Analysis and Findings
Of Operating Cost by Small
57
13
Haulage Operators
4.4
4.5
The Summary, Significant Results
and Discussions
63
4.4.1
Fuel Costs
64
4.4.2
Maintenance Costs
65
4.4.3
Salary Costs
66
4.4.4
Tax Costs
67
4.4.5
Training Costs
68
4.4.6
Licensing Costs
69
The Higher Proportion of Operating
Costs
5
REFERENCES
60
70
FUTURE RESEARCH CONSIDERATION,
CONCLUSION AND RECOMMENDATION
73
5.1
Introduction
73
5.2
Conclusion
74
5.3
Study Recommendation
76
78
14
APPENDICES
A
Survey Form - Questionnaire
83
LIST OF TABLES
Table No.
1.1
Title
The Five Major Container Haulage
Provider
1.2
5
Number of Licensed Container
Haulage Companies
1.3
Page
6
Number of Permits issued for
Prime Mover and Trailer
6
1.4
Total Container Hauled (In Teus’s)
7
1.5
Big Operators (Operates > 50 units
Prime Mover)
1.6
Medium Operators (Operates < 50
Units Prime Mover)
1.7
8
9
Small Operators (Operates <20 Units
Prime Mover)
10
15
1.8
List of Active Haulage Companies
In Southern Region
3.1
23
List of Active Haulage Companies
In Southern Region
41
4.1
Big Operators (>50 units Prime Mover)
50
4.2
Medum Operators (<50 units Prime
Mover)
4.3
50
Small Operators(< 20 units Prime
Mover)
51
4.4
Total Survey Forms
52
4.5
Percentage of Survey Forms
From Respondents
54
4.6
Cost Analysis in (RM -Big Operators
54
4.7
Cost Analysis in (RM)-Medium
Operators
57
4.8
Cost Analysis in (RM)-Small Operators
60
4.9
Summary of Annual Operating Costs
Among the Haulage Operators by (%)
63
16
LISTS OF FIGURES
Figure No.
4.1
Title
Analysis of Annual Operating Costs
for Big Haulage Operators
4.2
Page
55
Analysis of Operating Cost In
Percentage per Annum for Big
Operators
4.3
Analysis of Annual Operating Costs
For Medium Haulage Operators
4.4
56
58
Analysis Operating Cost In
Percentage per Annum for
Medium Operators
59
17
4.5
Analysis of Annual Operating Costs
for Small Haulage Operators
4.6
61
Analysis Operating Cost In
Percentage per Annum for
Small Operators
62
18
CHAPTER 1
INTRODUCTION
1.1
Background
The transport industry in Malaysia, comprising of land, sea, air and
pipelines has gone through numerous changes especially in the 1990s in terms of
infrastructure facilities, operators, equipment, manpower and operating systems.
The main contributors to the development of the local transport industry beside
the industrialization and international trade are the operational cost (Mc Mullen,
1987). This key factor is a complementary in nature and created the necessary
growth of our existing transport and logistics services.
19
Operating costs is the amount spent for the running of company‟s vehicle
fleet. It can include a range of functions, such as vehicle financing, vehicle
maintenance, vehicle telematics (tracking and diagnostics) (Barnes and
Langworthy, 2003).
Fleet Management is a function which allows companies which rely on
transportation in their business to remove or minimize the risks associated with
vehicle investment, improving efficiency, productivity and reducing their overall
transportation costs, providing 100% compliance with government legislation
(duty of care) and many more (Winston et al., 1988).” These functions can be
dealt with by either an in-house fleet-management department or an outsourced
fleet-management provider. Currently the number of fleet on the seems to be
increased from time to time because of the logistics industry become one of the
important elements in today business scenario. In the transportation industry,
your revenue is directly correlated with the amount of sound equipment
available to move freight at any one time. This seems pretty straight forward;
keep as much equipment as possible, fully operational. However, to do this
efficiently and cost effectively is the real challenge. At any given time, an
organization‟s equipment can be spread across the country or across the globe.
Breakdowns and damage can occur anywhere, any time during the shipping
process. Different vendors and surveyors are required with the added challenge
of accuracy and accountability. Fleet managers worldwide need a powerful set
of tools that enables them to control the entire maintenance and repair process
quickly and easily with complete transparency across all phases.
1.2
Malaysian Economy
20
The Malaysian economy in the 1950s and 1960s was agro-based,
dominated by rubber, palm oil, pepper and timber. In 1970, the agricultural
sector contributed 30.9% to the GDP compared to only 14.8% from
manufacturing. The growth in manufacturing sector began in the sixties and
accelerated with introduction of the Investment Incentives Act, 1968 and promotion
of the free trade zones (FTZ) in 1971. These incentives managed to attract many
multinational corporations (MNC) to establish export oriented operations supported
by competitive wage, good infrastructure facilities and economically and politically
stable environment.
In the early 1980s, the Government took several measures to develop
selected heavy industries such as iron and steel, petrochemicals, cement and
automobile with the objective of strengthening the industrial base and further
develop our capabilities in manufacturing sector. As a result, the manufacturing
sector‟s share in GDP rose to 33.1% in 1995. The policy framework laid by the
Industrial Master Plan (IMP) and the subsequent liberation and deregulation of the
economy after the recession in mid 1980s, provided the foundation for rapid growth
of manufacturing sector. It became the lead sector in 1987 when its‟ share of GDP
rose to 22.6%, surpassing agricultural sector‟s share of 21.7%. In 2003, it has
stabilized around 30% and estimated to stay between 30 to 31 percent for 2004
(Bank Negara Malaysia, 2003). It is difficult to foresee a far greater share of the
economy, coming from manufacturing.
Based on the economic structure of developed countries, the next phase of
economic expansion has to come from the service sector that includes transportation
and logistics. Between 1990 and 2000, world services output was reported to have
grown by 2.9% and the share of services in world GDP expanded from 57% to 64%
over the decade (World Bank, 2001). In the case of Malaysia, the services sector
expanded to 57% of GDP in 2002 (Ministry of Finance, 2003). With the progressive
realization of ASEAN Free Trade Area (AFTA), economic integration in Southeast
21
Asia and in the broader East Asia Region is making headway. Companies have started
establishing their manufacturing facilities in one or several ASEAN countries and
developing their distribution channels throughout ASEAN.
As a result, they require increasingly complex cross border supply chain
management capabilities i.e. financially strong and capable third party logistics (3PL)
providers. Moreover, “a new set of international trading disciplines for services under
the General Agreement on Trade in Services (GATS) and the World Trade
Organization (WTO) would make ASEAN, in general, and Malaysia, specifically, a
target for investments as well as an export market for multinational and global providers
of services, including logistics services. These global providers are highly competitive.
On the other hand, Malaysian services industries have not been brilliant as exporters
due to capacity constraints, technological backwardness and insufficient capitalization”
(Sieh Lee, 2003).
The Government1 is aware of these increasing demands, competition and
problems faced by the logistics industry and have put in place the necessary
infrastructure and incentives to stimulate greater private sector initiatives to
spearhead the logistics industry. For example, apart from improving the basic
logistics infrastructure such as roads, highways, seaports and airports, the
government initiated the multimodal transport operator (MTO) status with the view
of creating Malaysian 3PL providers. Additionally, it provides tax incentives with
a view of creating a more business-friendly environment as well as facilitating
the private sector to reduce their cost of doing business. After the 1997 financial
crisis, the economy has fully recovered to achieve sustainable growth. GDP
grew at an annual average rate of 5.4% during the period. Despite the less than
favourable external environment, growth is estimated at 5% for 2005. Economic
growth was achieved in an environment of stronger balance of payments and
manageable inflation as well as full employment. Global economic prospects are
expected to be more challenging, following persistent sharp increases in oil
22
prices and the less accommodative monetary stance of developed countries,
particularly in the US. Given the context of the globalization of services and
growing competition in the logistics sector, this thesis aims to study the progress
of haulage players in Southern Region and analyze its strategies in term of cost
optimization and their ability to compete, taking into account the abovementioned scenario.
1.3
Container Haulage in Malaysia
The container haulage was introduced in 1971. In its Second Malaysia
Plan (2MP), the government proposed the formation of a National Haulage
Company to meet the inland transport requirements. Thus, Kontena Nasional
Berhad was established in August 1971. As demand increased with
industrialization, additional haulage companies were approved, as per Table 1.1.
Table 1.1 : The 5 Major Container Haulage Providers
Year Licensed
Provider/Licensee
1971
Kontena Nasional Berhad
1981
Diperdana Holdings Berhad
1983
Konsortium Logistik Berhad
1991
MISC Haulage Sdn Bhd
1991
Multimodal Freight Sdn Bhd
Source: Container Haulage Association of Malaysia (CHAM), 2003
The industry is capital intensive with a complex transportation chain that
involves several parties namely shipper, consignor, consignee, port operator,
23
custom department, 42 warehouse operator and others. Conservatively, the 5
hauliers spent at least RM3 billion by the year 1999 on prime movers, trailers,
land, buildings, equipments, depots and containers monitoring systems (CHAM,
in press). Due to the continuing bottleneck crisis at the ports throughout
Peninsular Malaysia up to the year 2000 that resulted in customers paying extra
port charges and demurrage for their containers, the Government decided to
deregulate the haulage industry and give more licenses to new players.
Table 1.2 shows the increase in the number of licenses issued
throughout the years and Table 1.3 lists the increase in the number of permits
issued for prime movers and trailers.
Table 1.2 : Number of Licensed Container Haulage Companies
2000
2001
%
2002
Increase
Licensees
5
52
940
%
2 yr %
Increase
Increase
31
1,260
68
Source: CHAM, 2003
Table 1.3 : Number of Permits issued for Prime Mover and Trailers
Year
Prime Mover
% Increase
Trailers
Year to year
% Increase
Year to year
2000
2587
-
12,715
-
2001
3509
36
19,684
55
2002
3826
9
22,225
13
Source : CHAM, 2003
24
During the same period when the number of trailers supplied grew at a
tremendous rate, the total increase in container hauled was only 15.1% (Table
1.4). Consequently, the market became overcrowded with high level of
competition that led to providers resorting to price-cutting and offering extended
credit period to customers. These conditions have created financial pressure on
the companies and reduce their ability to reinvest in capital equipment and
technology in order to maintain their service standards.
Table 1.4 : Total Containers Hauled (in TEUs)
Location
2000
2001
%
2002
Increase
%
2 yr %
Increase Increase
Klang
1,420,635 1,435,873 1.1
1,638,322
14.1
15.3
Penang
472,685
454,207
-3.9
493,032
8.5
4.3
Pasir
450, 164
416, 512
-7.5
478,673
14.9
6.3
10,887
58,945
441.4
100,622
70.7
824.20
2,710,649
14.6
15.1
Gudang
Tanjung
Pelepas
Total
2,364,371 2,365,537 0.5
Source: Malaysian Port Authorities/CHAM, 2003
CHAM had expressed their concern on these matters, stressing that the
hauliers were weak and would not be in a position to compete against additional
foreign-based competition, with the opening up of borders within ASEAN upon
AFTA implementation. Accordingly, the government has stopped giving new
container haulage licenses. Hence, haulage rates were expected to stabilize
[rebates of between 20% and 40% have been stopped since January 2004]. Since
most of the 3PL providers either own or sub-contract haulage services, stabilized
rates would definitely benefit them in terms of lower operational cost which
would improve their bottom lines.
25
1.4
Factor Contributing of Cost Escalating to Haulage Operators
There are many factors which contribute to escalating cost in the haulage
industry of Third Party Logistics (3 PL) in this country, for examples;- size of
equipments, firm strategy, type of firm, and it also contributed by the fuel price,
truck maintenance, salary, tax, staff training, licensing, journey planning and
driver behavior (Boyson et al., 1999). Some of the identified contributed factors
are:-
a) Size of Equipments
Economies of scale in larger firms would reduce cost so that larger
companies would have a lower cost per unit distance. For the case of
Southern Region we have divided the haulage operators into three
categories, where there are Big (Table 1.5), Medium (Table 1.6) and
Small Operators (Table 1.7). Every category has their own revenue
and operating costs respectively.
Table 1.5 : Big Operators (Operates > 50 units Prime Mover)
Company
Total Prime
Mover (Unit)
1.Agenda Wira Haulage Sdn Bhd
60
2.Diperdana Selatan Sdn Bhd
100
3.Kontena Nasional Berhad
80
4.Perceptive Logistics Sdn Bhd
90
5.MISC Integrated Logistics Sdn Bhd
60
26
Source : Johor Port Berhad, 2008.
Table 1.6: Medium Operators (Operates < 50 units Prime Mover)
Company
Total Prime
Mover (Unit)
1.Integrated Haulage Sdn Bhd
40
2.Jangkauan Galaksi Sdn Bhd
50
3.JP Logistics Sdn Bhd
50
4.Multimodal Sdn Bhd
40
5.Pelangi Forwarding Sdn Bhd
30
6.Tiong Nam Trading & Tpt Sdn Bhd
30
7.To Tuan Kwee Sdn Bhd
30
8.Xin Hwa Trading & Tpt Sdn Bhd
30
9.Yinson Haulage Sdn Bhd
30
Source : Johor Port Berhad, 2008.
27
Table 1.7 : Small Operators (Operates < 20 units Prime Mover)
Company
1.Antara Asia Sdn Bhd
Total Prime
Mover (Unit)
5
2.Baiduri Dimensi Sdn Bhd
15
3.Barakat Andalus Sdn Bhd
20
4.Bersatu Maju Express Sdn Bhd
10
5.BJ Rising (M) Sdn Bhd
10
6.Blossom Deluxe Sdn Bhd
20
7.Delta Haulage Sdn Bhd
10
8.Generasi Jitu Sdn Bhd
10
9.Hoor Fatt Enterprise Sdn Bhd
10
10.HRH Logistics Sdn Bhd
15
11.Infinity Haulage Sdn Bhd
10
12.Interway Transport Sdn Bhd
20
13.JCS Logistics Sdn Bhd
10
14.KH Haulage Sdn Bhd
10
15.L & R Haulage Sdn BHd
20
16.Mahamiru Ent & Trading Sdn Bhd
15
17.MGS Transport Sdn Bhd
20
18.Narita Forwarding & Transport Sdn BHd
20
19.Navegacian Shipping Sdn Bhd
10
20.Nespalm Logistics Sdn Bhd.
10
21.PRO CNC Sdn Bhd
10
22.Sarmina Haulage Sdn Bhd
10
23.Damai Haulage Sdn Bhd
10
28
24.Tanjung Express Sdn Bhd
15
25.Timur Permai Haulage Sdn Bhd
10
26.ZLA Tpt & Service Sdn Bhd
20
Source : Johor Port Berhad, 2008.
b) Firm Strategy
Each firm has its own strategy based on management policy, which
may lead to differences in operating costs for firms (Coyle et al.,
2003). For example; if the company has their International Standard
Organization certificate (ISO) definitely they have to put some
budget as to establish the requirement in the sense to meet the policy
needs.
c) Type of Firm
Owner or Operator indicates the company owns and operates its own
trucks. The survey results will indicates a difference in operating cost
for owner or operators versus non-owner or operators. Owner or
operators have larger cost per kilometer (ATA, 2003). The reason for
this may be the absence of economies of scale and that they have
fewer trucks over which to distribute their firm‟s fixed costs.
d) Fuel Price
Soaring diesel fuel costs and slow economy are putting the squeeze
on the trucking industry. Diesel prices in the world have surged to
record levels, and with crude oil continuing to hit new highs on the
global markets, the price for diesel is set to climb further (McGreal,
2007). However despite the difficulties, it could be an opportunity
29
for the company. The shipping public is getting hurt by the
escalating cost of fuel as well as the haulage company. As a haulage
company their job is to try to get the best truckload carrier available
at the rate that the customer wants to pay. The customers are trying
to hold down costs and the carriers costs are going up.
e) Truck Maintenance
Maintenance of fleet is one of the cost elements in trucking industry
(Clarke and Wright, 1964). for examples; the cost of repair, spares
part, tires, labor fee and the soaring of fuel price has also affected the
logistic cost as well such as; sending the spare part and tire from
vendor place to customer premises.
f)
Salary
In all organization employees salary is a vital element which has
direct correlated to their day-to-day cost, people tend to work
because of to earn an income. Beside the salary they were some other
costs which related to this, for examples; Employee or Employer
Provident Fund, Socso, allowances and employee medical bill. These
costs will definitely be increased every year.
g) Tax
Another cost that to be considered in each organization is the tax that
to be paid to the government as regulated. Even thought the amount
paid is based on the company net performance but is still consider
30
one of the cost contributors toward each organization. A tax rate of
28% is applicable to both resident and non-resident companies
(http://www.lawyerment.com.my/tax/corporate.shtml).
h) Licensing
Compliance to the government law and regulation is a must to all
trucking company. Every single truck that moves on the road must be
provided with valid road tax, truck permit and must be approved of
vehicles inspection by the respective authorities. Those costs that
incurred are subjected to the total number of fleets owned by the
operators.
i) Training
Mr. R. Wayne Mondy and Mr. Robert M. Noe in their book title
Human Resource Management have defined Human Resource
Development as a planned, continuous effort by the management to
improve
employee
competency
levels
and
organizational
performance through training and development programmes (Wayne
and Robert, 1996).
Human Resource Development (HRD) is a continuous effort by
management as to improve employee‟s competency levels. Even
though it will definitely a cost to the company but in practice the
training is a critical factor in any organization. One of the benefits by
having trained staff it will be increased their knowledge and as a
result it will increase the company productivity.
31
1.5
Action Taken by Haulage Operator to Overcome the Cost Escalation
In anticipation of the costs escalating becoming critical and in order to
improve the situation, the 3PL operators had taken a number of positive steps
(Armstrong, 2003). Whatever the selection criteria, price is a critical factor once
the must-have capabilities have been confirmed, but price is really an issue
a) Tactical Resource or Strategic Partner
When it comes to logistics, price is only one of the variables that
contribute to cost. It is vital to procure 3PL services at competitive
rates, but it is equally important that the relationship is structured so
that the company can maintain or improve customer service while
reducing the cost of doing business. A 3PL provider relationship
often begins with the goals of reducing transaction costs and
improving efficiency. This is accomplished through outsourcing of
transportation, warehousing and etc. This tactical approach, when
executed well, delivers excellent results. But, could those results be
multiplied to reduce internal resource costs, enable greater agility in
decision making and improve your business ability to adjust to
changes in customer demands or the business environment as well
(Berglund et al., 1999). By making a strategic decision on how to
32
move the relationship to another level it takes mutual commitment
will definitely, focus on clear objectives, flexibility and, above all,
trust.
b)
Choosing a Partner
There was a natural apprehension about inviting a vendor to sit at the
table when business decisions are being made. However, in our
experience a shared understanding of our customers‟ business models,
short and long term objectives, competitive pressures, cost issues and
customer demands enables them, and us, to be more successful.
Transparency is essential, a willingness to share information confirms
that goals are aligned. That enables us to be proactive so we can
anticipate and identify opportunities to improve, suggest innovative
ways to increase logistics effectiveness and provide business
intelligence that helps 3PL users make more effective decisions and
improve profitability (Dapiran et al., 1996). Choosing the right partner
is a successful strategic 3PL relationship, and getting to know each
other to build the necessary trust is vital.
c)
Strategic Goals
The potential for the partnership to be win-win, or lose-lose,
encourages partners to work together to achieve the desired results.
The objective should not be to create a partnership, but to achieve
specific goals through partnership by working to the same
performance standards (Chew, 2003). There should be consequences
33
for both organization should they not meet the standards, and rewards
when they meet or exceed them. While a transactional relationship is
more appropriate and effective for some organization, strategic 3PL
relationships represent an exceptional business opportunity for others.
1.6
Effect of Escalating Cost in Haulage Industry
There are certain effects on the escalating of the operating costs in the
haulage industry. The effects are discussed below:
a) Business Out Sourcing
Given the high price of fuel, we could observe some of 3PL
companies are re-sourcing their services to their business partnership.
By re-sourcing to other they can seize new opportunities for
establishing competitive advantage (Armstrong, 2003). It is too early
to judge how long this re-sourcing activity will last or how farreaching it will get.
Fears of economic instability are surging higher with the continuing
rise of the oil price. The weak dollar and the limited supply of fuel
are two factors that are contributing to oil rising to over US$100 a
barrel. Businesses, particularly the transport industry, have suffered
catastrophic effects from the incessant rise of fuel. Projections from
the American Trucking Association (ATA) have recorded higher
than ever fuel costs for this year (ATA, 2008).
b) Low Profit Margin
34
The low margins in the trucking industry therefore mean that
transport companies have to transfer the costs onto customers,
affecting businesses and consumers all over the world. Haulage
companies are also digging deeper into their pockets due to the
increase in world petroleum charges.
c)
Changing in Tariff
The increase in the cost of fuel over the past couple of years is
alarming, and at the end of the day, as a logistics provider they have to
ultimately increase their tariffs as to cover the operating costs. Many
companies design their supply chains once and then drive savings
within specific cost elements, such as warehousing or transportation,
assuming that the cost relationship between these elements will remain
relatively static. In many cases, these supply chains have been
optimized in the past and do not reflect current cost paradigms
(Bowersox, 2002). Because the underlying supply chain cost elements
have changed so dramatically over the past few years, companies now
must revisit their overall network, and the corresponding costs within
them, to determine if the optimal balance of transportation, handling,
and inventory carrying costs is being achieved within today's cost
structures
c) Impact on International and Local trade
The impact of high fuel prices has particularly affected the shipping
and aviation industry. Nonetheless the high fuel rate is affecting trade
both internationally and regionally, and if transport costs continue to
rise it will put further pressure on how we conduct business in the
region.
35
d) Inflation.
There is no denying that inflation in the region will have an effect on
businesses as the increase on fuel, as well as materials for the
construction industry and the rise in salaries will force companies to
re evaluate their profit margins. The inflation in the region is having
a snowball effect on businesses, suppliers and individuals. It is an
issue for everyone but it is just a stage that any fast-paced economy
must confront. Even though our customers may have to pay a little
extra due to the fuel prices, nevertheless the services and solutions
that 3PL provides will add value to our clients' business, increase
their productivity and ultimately enhance their margins. Although the
increase in diesel costs has had a significant impact on their
operations, particularly in Malaysia, they will undertake various
activities to mitigate the effect. The 3PL companies admit that the
large increase in fuel prices over the past one and a half years has
forced them to pass part of the cost onto customers, but by no means
all of it. They have to absorb some of these costs by increasing
utilisation of their vehicles through consolidations.
e) High Capital Investment Using Technology Driven.
Currently Information Technology is one of the effective tools in the
sense to have better monitoring of truck journey through satellite
tracking whereby they can monitor the performance of the drivers
and avoid driving that incurs greater usage of fuel and the need to be
rigorous in reducing costs to stay competitive in this country. But to
have it to be fixed to each truck will incur huge amount of capital
investment.
36
f) Increase of Contract Binding
3PL need to ensure to create a long-term contract with their suppliers
to reduce fluctuating prices for related truck spares, otherwise they
will be confronted with increased costs of spares and etc. Whether
this will be sufficient is yet to be seen, but 3PL Company is certainly
aiming to try and counteract the cost of fuel as much as possible. The
increasing price of fuel is a reality and is set to continue. The demand
for transportation in this market is increasing almost daily, which
accumulates pressure on prices in the region. This is not something
that 3PL companies can shy away from; instead they need to act
quickly to ensure they continue to provide a good service to their
customers, even if it is at a higher cost to the company and customer.
At the moment to see how 3PL react, and therefore they need to act
efficiently and professionally to stay afloat in the competitive
financial market (Browne and Allen, 1997). The 3PL companies need
to ensure that its prices are benchmarked against the best in the
industry to ensure that it stays competitive. Service level expectations
are also plan to focus on in order to stay buoyant in the market.
g) High Financial Strain
However, the risk is that many regional operators are absorbing the
cost, which could potentially cripple the 3PL companies. Margins in
the industry are already low, so if companies swallow the fuel
increase themselves they are faced with a high financial strain. The
fierce competition in the US and its encouragement in welcoming
international businesses mean small regional companies have to lose
part of their margin just to secure the business. The cost of staff is
increasing day by day and the average salary per person has almost
doubled, so with that in mind the overall expense of companies is
37
higher than a few years ago. Consequently, profits will be reduced in
the region. If this problem persists, then local Haulage Operators will
not be able to afford to stay competitive in the market. Although
there are contingencies that companies can put in place, the worry is
that these will not be sufficient in the long term.
1.7
Problem Statement
After so many haulage players in the market, the escalating of operating
cost is still occurred. Since the topic of the research is to discover „The
difference in term of operating costs among the haulage company in Southern
Region‟ in which the problem statement can be translated into a form of
questions that this will define the information needed and how the information
can be obtained through the variables.
a) The difference in term of operating costs among the haulage
companies in Southern Region.
b) The fleet‟s number owned by each operator has influenced their dayto-day operating cost.
c) Lack of staff training will cause of low productivity due to less
exposure to the right knowledge in working field.
1.8 Study Objectives
The primary goals for this study are:
a) To explore and to examine whether the current Operating Costs
38
Proportion among the three operators i.e. Big, Medium and Small are
at the same degree.
b) To identify what are the higher element
c) of individual operating cost within themselves .i.e. fuel, maintenance,
salary, tax, licensing and staff training.
d) In order to understand the current situation related to the operating
cost that faced by the haulage company.
1.9
Study Methodology
A questionnaire was designed to find out the operating costs of each
haulage company in Southern Region (i.e. fuel, maintenance, salary, tax,
licensing and training). The study relies heavily on the interview via face-toface, mail and telephone. The technique used is using census research. Every
member of the population has essentially an equal probability of being included
(MHM, 2005).
a) Population size
The sizes of population are 40 companies. The population sizes were
determined based on the total number of active haulage operator in
Southern Region Table 1.8. For this study 40 questionnaire forms
were used by self to interview the respondent via face-to-face and
telephone. Only 38 forms were completed for analysis purposes.
39
All answers to the questionnaires have been analyzed and verified by self
immediately. Data collected will be represented in cross tabulation form and
discussion on the cross tabulation will be made.
1.10
Scope of Research
The most important element of the scope of research is to analyze the
current operating cost among the haulage company in Southern Region. What is
the main cost element to the haulage company is also be determined. In order to
understand the current operating expenses, and mitigate the future study for the
viability of the haulage industries.
The number of active haulage company in Southern Region is about 40
as at 31st December 2008 (Please refer table 1.8) therefore the focus will be
more in the operating cost toward the companies, basically on fuel, maintenance,
salary, tax, licensing and staff training.
40
Table 1.8 : List of Active Haulage Companies in Southern Region
1.Agenda Wira Haulage Sdn Bhd
21.L & R Haulage Sdn Bhd.
2.Antara Asia Sdn Bhd
22.Mahamiru Ent & Trading Sdn Bhd
3.Baiduri Dimensi Sdn Bhd
23.MGS Transport Sdn Bhd
4.Barakat Al Andalus Sdn Bhd
24.MISC Integrated Logistics
5.Bersatu Maju Express Sdn Bhd
25.Multimodal Sdn Bhd
6.BJ Rising (M) Sdn Bhd
26.Narita Forwarding & Tpt Sdn Bhd
7.Blossom Deluxe Sdn Bhd
27.Navegacian Shipping Sdn Bhd
8.Delta Haulage Transport (M) Sdn
28.Nespalm Logistics Sdn Bhd
Bhd
9.Diperdana Selatan Sdn Bhd
29.Pelangi Forwarding Sdn Bhd
10.Genarasi Jitu Sdn Bhd
30.Perceptive Logistics Sdn Bhd
11.Hoor Fatt Enterprise Sdn Bhd
31.PRO CNC Tpt Sdn Bhd
12.HRH Logistics Sdn Bhd
32.Sarmina Haulage Sdn Bhd
13.Infinity Haulage Sdn Bhd
33. Damai Haulage Sdn Bhd
14.Integrated Haulage Sdn Bhd
34. Tanjung Express Sdn Bhd
15.Interway Transport Sdn Bhd
35. Timur Permai Haulage Sdn Bhd
16.Jangkauan Galaksi Sdn Bhd
36. Tiong Nam Trading & Tpt Sdn Bhd
17.JCS Logistics Sdn Bhd
37. Teo Tuan Kwee Sdn Bhd
18.JP Logistics Sdn Bhd.
38. Xin Hwa Trading & Tpt Sdn Bhd
19.KH Haulage Sdn Bhd
39. Yinson Haulage Sdn Bhd
41
20.Kontena Nasional Bhd
Source : Johor Port Berhad, 2008
40. ZLA Tpt & Service Sdn Bhd
24
From the observation done by self during his 25 years service to
the haulage company, it was noted that there is still room for improvement
in the sense of cost reduction among the haulage companies.
The
escalating of operating cost due to inefficiently could give drastic impact
on both the business and financial risk to the company.
1.11
Significance of Study
a) Individual
This study will help the individual manager to understand the
overall of operating cost among the haulage player which, they
can make a comparison on how there be a certain different of
each company to another.
b) Organization
As a tool for the company to conduct further study in terms of
overall organization performance and for them to evaluate the
operating cost level and to increase the productivity of the
organization.
c) Country
Malaysia is moving into an industrialization country and as to
meet the current globalization requirement through trade
liberization competitiveness is an important element to meet
41
25
this competitiveness productivity by conduct a good business
practices.
1.12
Limitation of Study
The study only concentrates on operating costs of Haulage
Companies in Southern Region basically in Johor State (As per Table 1.8
at page 23). The important element of the scope of research is to analyze
the current operational costs particularly that faced by the existing players.
The study will also highlight the different of the operating costs among
them. The quantitative study is more appropriate for this research because
the main research problem of this thesis involves a lot of information that
related to the calculation of costs, dollar and cents. Nevertheless, some
comparisons will also be made wherever possible using data obtained
from the questionnaire.
42
CHAPTER II
LITERATURE REVIEW
2.1
Introduction
The consideration of operational costs in transport industry are
becoming a prerequisite for companies competing in today‟s market. The
factors that related to costs can be caused by the size of the firm, their
business strategy that planned type of the firm, current fuel price, truck
maintenance and etc. Operational costs often comprise a large portion of the
total costs that faced by every transport operator, thereby determining the
effectiveness of the mitigation approach is very vital. Comprehensive and
detailed studies are needed to identify the core problems in this industry,
which directly or indirectly related to their operational costs. However,
evaluating the operational cost in a global context is frequently difficult but it
doesn‟t meant that there will be no case study or references be made to the US
or Europe. By referring to the US and Europe we could evaluate their case and
making an adaptation in enhancing our local haulage industry respectively
(Langley et al., 2003).
The costs associated with logistics activities normally consist of the
following components: transportation, warehousing, order processing or
customer service, administration, and inventory holding (Lambert et al.,
43
1999). Not surprisingly, total logistics costs often represent a large portion of
total supply chain costs, especially when the supply chain is extended to the
global market. For example, previous studies have found that logistics costs
have ranged from 4 to over 30 percent of sales. As more organizations are
outsourcing their products or services to global suppliers, it becomes
increasingly critical to understand and evaluate the various logistics cost
components in order to assure the profit margin. However, the existing
methodologies for evaluating the total logistics cost, especially of global
supply chains, are sparse due in large part to the complexity of a global
logistics system and the variety of cost items involved (Berglund et al., 1999).
An overview of the independent variables, which identified as a
problem to be elaborate in this paper. The related information of each variable
and its relevancy to the operating costs in haulage industry specifically in
Southern Region will be further elaborate through literature review in more
details.
2.2
Fuel Price - Global Oil Peak
Historically, one of the most competitive industries in the nation is the
trucking industry. Participants in this industry are faced with competition from
within and without. For many operators the fuel price can significantly affect
their ultimate profitability. A major factor in determining prices in the
trucking industry is the cost of fuel. Despite the long-time popularity
traditional fuels, industry experts are predicting a period of dramatic change
with fuel requirements being divided into three time periods, approximately
30 more years in which gasoline will remain dominant but alternative fuels
become more competitive, a period occurring around 2025 to 2030 where
44
alternative fuels become as viable as gasoline and diesel, and a period of
decline for gasoline and diesel fuel with a rise in alternative fuels (Albert,
2004). It seems clear that as concerns over world oil shortages could cause the
uncertainty of fuel price.
If political and economic change only occur in reaction to high prices
and shortages rather than in reaction to the threat of a peak, then the degree of
economic damage to importing countries will largely depend on how rapidly
oil imports decline post-peak. The Export Land Model shows that the amount
of oil available internationally drops much more quickly than production in
exporting countries because the exporting countries maintain an internal
growth in demand. Shortfalls in production and therefore supply would cause
extreme price inflation, unless demand is mitigated with planned conservation
measures and use of alternatives, which would need to be implemented 20
years before the peak. Although predictions as to what exactly these negative
effects will be vary greatly, "a growing number of oil-industry chieftains are
endorsing an idea long deemed fringe: The world is approaching a practical
limit to the number of barrels of crude oil that can be pumped every day."
Optimistic estimations of peak production forecast a peak will happen in the
2020s or 2030s and assume major investments in alternatives will occur
before a crisis, obviating the need for major changes in the lifestyle of
developed nations (Wood, 2004).
Pessimistic predictions of future oil production operate on the thesis
that the peak has already occurred or will occur shortly and, as proactive
mitigation may no longer be an option, predict a global depression, perhaps
even initiating a chain reaction of the various feedback mechanisms in the
global market which might stimulate a collapse of global industrial
civilization. Throughout the first two quarters of 2008, there were signs that a
possible recession was being made worse by a series of record oil prices.
45
2.3
Truck Maintenance
For most fleet managers, it‟s almost second nature to consider the
maintenance issues (and related costs) associated with their current
vehicles when developing specifications for new chassis. But how many
fleet managers do so when specifying new, complex truck-mounted
equipment? Admittedly, the variations and complexities associated with
such mounted equipment make it seem difficult to identify opportunities
for reducing maintenance costs. However, if the approach of this issue in a
logical manner, that the finding is easy to identify opportunities to reduce
equipment maintenance costs while at the same time increasing reliability
(ATRI, 2008). In many cases, this can be achieved with little or no
increase in the initial acquisition costs of the equipment.
Far too often, fleet managers are guilty of trying to correct the
symptoms of their problems (equipment failures) instead of identifying the
root causes. This approach can be expensive and usually results in repeat
repairs. If you take to time to identify the root causes of the equipment
problems, and properly address them in our equipment specifications, this
will reduce the maintenance costs and equipment down time
2.3.1
Approach to Identifying Problems
There are two benchmarks that can be used to identify problem
equipment - the first of which is annual maintenance costs as a percentage
of the initial acquisition cost. The second factor should be considered is
46
the total number of repair orders per year. When reviewing annual
maintenance costs, remember that the opportunities to reduce recurring
maintenance costs are usually associated with the routine, day-to-day
repairs. Therefore, it is wise to remove the costs associated with
catastrophic failures when ranking your truck for maintenance costs. Once
you have quantified these two factors, assign a ranking value to each
benchmark and add the two values (percent cost and number of repairs).
The type of truck that ends up with the highest composite ranking is your
first candidate to be considered for redesign. After selecting the type of
truck you want to evaluate, the next step is to identify major maintenance
problems associated with the truck. When doing so, look at general
categories such as engine components, electrical systems, bushings and
bearings, etc (ATA, 2003). Once you have determined the areas with the
highest costs/incidences of repair, you can then conduct a systematic
failure analysis to determine the root cause(s) of the problems associated
with a specific maintenance category
2.3.2
People Problems
In many cases, a problem of this nature is related to the way the
equipment is operated or maintained. In such a situation, get out of the
office and watch the equipment actually being used and/or serviced. From
the close supervision then it may find that a component is located in a
way that makes it a handy step for the operator and/or crew, or that a
specific bearing is difficult to lube (meaning that it probably is not being
lubed). In this case, it is unlikely that the crew will stop what they are
doing, so just design the problem area out of the equipment (Barnes and
Langworthy, 2003).
47
2.3.3
Well-Managed Truck Fleet Increase Productivity, Reduce
Costs
The mechanics should know on how to change the oil, replace the
filters and get regular tune-ups to keep their vehicles running reliably.
When an older vehicles becomes too costly to repair, the owner needs to
evaluate whether it‟s time to purchase a new one. The same is true for
industrial trucks. Once the initial investment is made to purchase a truck,
ongoing management of that fleet protects the investment. But there are
more benefits to ongoing fleet management than just extending fleet life.
With a properly managed truck, companies can also enjoy less downtime,
increased productivity and, most times, a reduction in fleet size.
In the materials handling business, only 20 percent of total cost is
associated with the acquisition of equipment; the other 80 percent is
related to operator and maintenance costs. With such a large percentage of
cost dedicated to maintaining equipment, companies can‟t afford to ignore
the importance of well-coordinated fleet management. Fleet management
involves looking at many aspects of the equipment and its operations to
reduce costs and optimize productivity. These aspects include scheduled
maintenance, equipment economic life, brand standardization, operator
and technician training, and truck supplier transaction methods (Daniels,
1974).
2.3.4
Prevent Expensive Breakdowns
When a truck is not properly maintained, it may cause unexpected
and extended downtime for repairs. This can result in operators standing
idle while still on the clock. In some cases, excessive equipment downtime
48
may drive companies to rent units for short-term use or to purchase more
equipment than is necessary for the job. On average, companies operate 10
to 20 percent more trucks than are required to do a job. In addition,
breakdowns are often the result of more serious problems that can involve
costly repairs and parts. The key to reducing breakdowns is scheduled
maintenance. A scheduled maintenance program allows companies to
prepare for and work around brief downtimes while a unit is being
serviced. Some authorized service providers can even loan out similar
equipment during scheduled maintenance to prevent downtime (Allen and
Liu, 1995). To further understand what drives maintenance costs, keep
ongoing records of scheduled and breakdown maintenance on each unit in
the fleet.
2.3.5
Calculate Optimum Life
A planned replacement program can optimize the economic life of
trucks. The critical aspect of employing an effective fleet management
program is to understand the point at which acquiring a new truck for a
fleet is more cost-effective than continuing to repair the current
equipment. Many companies keep trucks too long because it is easier to
spend a couple thousand ringgit on repairs than to justify the capital
request to replace a truck. Use simple graphing to calculate when a truck
becomes too expensive to repair. Use cost per hour values on one axis and
accumulated operating hours on the other axis. Graph a line using
accumulated costs (ownership costs plus maintenance costs). The break
even point is where the line is at its lowest point on the total cost curve. If
a truck has already surpassed that break even point, it is costing more than
it‟s worth. It is generally accepted that the average truck has an estimated
economic life of 10,000 to 14,000 hours (Balakrisnan et al., 2000).
49
2.3.6
Stick with One Brand
The average truck user has multiple brands. While it may be
cheaper to purchase a different brand of truck, having multiple brands
makes the fleet more costly to maintain. Mixed brand fleets require
increased parts inventories for service, increased supplier base
management,
and
multi-brand
technical
and
operator
training.
Standardizing on a single brand, or a few brands, of trucks can avoid those
extra costs and time requirements (Dolce, 1998).
2.3.7
Train Employees to Be More Productive
Providing training to truck technicians and operators can contribute
to company productivity. A properly trained technician can reduce the cost
of operation and improve uptime by quickly and accurately identifying
and resolving problems (Davenport, et al 1996).
2.4
Policies and Procedures
Policies are created where management have discretion in decision
making and act as limits to that discretionary power. Most policies will be
established formally in order to improve efficiency, avoid confusion, and
ensure consistency of action or to enforce some particular set of values
while procedures are set of detailed instructions which have to be followed
in a certain situation. Both policies and procedures must be established in
50
any company as to make the company more competitive and efficient in
the market.
The penguin concise English Dictionary has defined procedure as
the manner of conduction business, mode of action, behaviour, technique
and policy as the course of action especially one planned by a government
political
party,
etcetera
(Garmonsway,
1969).
The
impact
on
transportation differs from one country to another, depending on national
policy and the level of government agency. As part of administrative plans
in any company, policies and procedures are designed to contribute to the
company‟s objective.
2.5
Journey Planning
Past research on the well-known vehicle routing problem (VRP)
has typically focused on finding the minimum total distance required by a
set of capacity-constrained vehicles for serving a fixed set of customers,
each with some predetermined demand volume. Recent trends towards
outsourcing the transportation logistics function have led to increased
competition for delivery services, and have led third-party logistics (3PL)
firms to compete increasingly on service level and price (Newman, et al
2005).
In the logistics literature, minimizing total cost has been the
primary objective in most of the routing models. These models typically
require that the pre-determined demand for deliveries of a pre-determined
set of customers must be satisfied. However, in the planning phase, in
order to determine the scope of planned operations when demand for
deliveries depends on prices, it is useful to understand how pricing
51
decisions drive demand (and the costs associated with meeting demand)
and how prices and demands combine to determine profitability. If, for
example, a delivery service provider wishes to determine the scope of its
service region (i.e., the set of sub-regions or customers in the region it will
serve), then the models proposed can be useful in assisting in such
decisions. In the delivery service context, since the vehicle routing cost is
difficult to estimate, no clear method exists for determining a customer‟s
(or a service region‟s) profitability a priori, based solely on the
characteristics of the customer (or region) taken in isolation. An exact
model for simultaneously determining the optimal set of customers (or
regions) to serve, the prices offered, and corresponding vehicle routes
would result in a large-scale non-linear integer program requiring heuristic
solution methods, and would be impractical for planning purposes due to
the substantial data requirements. Since this problem is relatively new and
challenging, the truck operator should consider a set of approximation
models that will serve as a basis for further research in the area of delivery
pricing.
A typical VRP considers a fleet of vehicles located at a central
depot or warehouse that must be scheduled to provide delivery service to
geographically dispersed customers throughout some service region. The
version of the VRP that we consider in the cost component of our model is
the most basic one (although this “basic” problem constitutes a very
difficult combinatorial optimization problem (Ahuja et al.,1993).All trucks
are identical in terms of their delivery-related cost per mile and in their
capacities (although the generalizations of our model and solution
approach
to
handle
non-identical
vehicle
dispatch
costs
are
straightforward, as we later discuss), and we do not consider any time
window constraints or constraints on tour lengths.
The Vehicle Routing Problem (VRP) is an NP-Hard optimization
problem; since finding a polynomial time algorithm for the VRP is
52
therefore unlikely, researchers have focused primarily on heuristic
approaches for solving this problem. Two commonly used families of
heuristics exist for the VRP, beginning with the classical heuristics, which
were developed between 1960 and 1990, including the savings algorithm
(Clarke and Wright 1964), insertion methods (Mole and Jameson 1976,
and Christofides et al. 1976), and sweep algorithms. The second family of
heuristics commonly applied to the VRP is the class of metaheuristics,
such as genetic algorithms, taboo search, simulated annealing, and other
well known randomized search methods. An additional quite successful
and innovative approach for the VRP, based on a generalized assignment
problem relaxation, was provided by Fisher and Jaikumar (1981). For a
complete review of solution techniques available for the VRP (Laporte et
al. 2000).
Each of the models and the heuristic approaches mentioned above
assumes knowledge of the location and demand of every demand point.
These studies can be categorized as prescriptive efforts, since they derive
algorithms for the construction of optimal or near-optimal tours. A body of
descriptive literature on routing problems also exists that provides
probabilistic travel length formulas under different geographical customer
distribution assumptions. Beardwood et al. (1959), Eilon et al. (1971),
Daganzo (1984a, 1984b), and Chien (1992) provide expected traveling
salesman tour lengths, given N customers independently dispersed on an
area of size A. A very useful tool for this line of research is called
continuous approximation, which has been widely used in the logistics
literature. Daganzo (1999) proposes continuous approximation models for
different logistics problems, while Langevin, Mbaraga and Campbell
(1996) present a taxonomy of continuous approximation models for
freight distribution problems. Recently, Dasci and Verter (2001) use a
continuous model to study a production-distribution system design
problem, and incorporate approximate routing cost in their supply chain
53
design model in studying the approximate pricing models for delivery
services.
The pricing aspect of our study is shaped with the assumption that
we can characterize the relationship between demand for deliveries and
the price per delivery. We expect that fewer (rational) customers will
request deliveries as the delivery price increases. Hence, demand for
deliveries should be a non increasing function of delivery price, all else
being equal. We therefore represent the relationship between price and
demand through a price-demand curve. The most prevalent demand curves
in the literature are linear demand functions, quadratic functions, and
general downward sloped functions. In the field of location theory, for
example, Erlenkotter (1977), Hansen and Thisse (1977), Dokmeci (1989),
Hanjoul et al. (1990), Hansen et al. (1995), and Hansen et al. (1997) have
used linear demand functions in analytical location models. In the
inventory/pricing literature, for example, Lau and Lau (1988), and Khouja
(2000) used linear demand functions, while Burwell et al. (1997),and Lau
and Lau (2003) used general downward sloped demand functions. Our
study of delivery pricing will explore linear and general downward sloped
demand functions when setting delivery prices
54
2.6
Driver Behavior
The bad attitude of truck driver wishes he or she was doing
something else somewhere else. They despise the life of a trucker didn't
know what to expect before becoming a trucker They place strains on the
industry continuously. These guys are the reason dispatchers feel that all
drivers need to be told to be there at 6am when we really don't need to be
there until 8am. Bad truck drivers are irresponsible and undependable.
They create most of the other bad elements of industry because of their
attitude and character traits. The bad big truck driver is rude to customers,
police officers, dispatchers, brokers (and probably their friends and family
too). They think the world owes them something and their primary
concern in life is themselves. Trucking did not create these people. They
exist scattered all through society doing other jobs other than trucking too.
The bad truck driver will follow you too close and drive too fast
for conditions, they think authority has a vendetta to seek them out and
punish them (probably because they are guilty of so much)They will block
intersections at red lights, drive without headlights in rain, and change
lanes without signaling. Sometimes they will signal but what good is it to
use the turn signal when you‟ve already braked slowed down and switch
half of the way into the other lane. These guys think they are a one man
team. The company needs them which means they feel that they operate
on their own schedule. Bad truck drivers are the biggest reason that your
merchandise wasn't in when the people told you it would be in. The bad
truck driver they don‟t care of the equipment they operate because it is not
theirs (Jonah, 1986).
It cost the company unnecessary expenses then they complain
about not getting paid more. (Imagine that)Bad truck drivers have nasty
attitudes because they see life with too many dead end roads. They see too
many obstacles they feel they will never conquer. They are stuck at a job
55
they don't like but can't leave. Because the bad truck driver gets log book
and speeding tickets too frequently the good company's don't want him.
They give in or give up whichever is easier and most convenient.
Immediate gratification and self serving thoughts are their most common
brain activity. The disadvantages of trucking eat them alive one reason is
because they don't know the power of planning ahead or don't have the
discipline to do it. And they don't know what to do about it and don't have
sense enough to listen to genuine concern to offer suggestions.
56
CHAPTER
III
RESEARCH METHODOLOGY
3.1
Introduction
In this chapter, the methodological issues for the purpose of research study
will be explained. It focuses primarily on providing help with the tools and
techniques used in the research process. These tools and techniques differ from
one thesis paper to another.
The questionnaires are designed to gather all the required information for
this study which includes among others the individual operating costs elements of
the haulage operators in Southern Region. There is an equal probability of each
element of the population to be selected during the survey. In other words every
member of the population has essentially an equal probability of being included.
Research methodology is basically concerned with the systematic
gathering of information and data. The research will only take place after the
appropriate methodology has been chosen by the researcher. The main purpose on
this research is to obtain the feed back from the haulage company‟s representative
on their current operating costs.
57
3.2
Study Area
The study area will encompass to Active Haulage Company in Southern
Region of Malaysia as shown in Table 3.1
Table 3.1 : List of Active Haulage Companies in Southern Region
1.Agenda Wira Haulage Sdn Bhd
21.L & R Haulage Sdn Bhd.
2.Antara Asia Sdn Bhd
22.Mahamiru Ent & Trading Sdn Bhd
3.Baiduri Dimensi Sdn Bhd
23.MGS Transport Sdn Bhd
4.Barakat Al Andalus Sdn Bhd
24.MISC Integrated Logistics
5.Bersatu Maju Express Sdn Bhd
25.Multimodal Sdn Bhd
6.BJ Rising (M) Sdn Bhd
26.Narita Forwarding & Tpt Sdn Bhd
7.Blossom Deluxe Sdn Bhd
27.Navegacian Shipping Sdn Bhd
8.Delta Haulage Transport (M) S/B
28.Nespalm Logistics Sdn Bhd
9.Diperdana Selatan Sdn Bhd
29.Pelangi Forwarding Sdn Bhd
10.Genarasi Jitu Sdn Bhd
30.Perceptive Logistics Sdn Bhd
11.Hoor Fatt Enterprise Sdn Bhd
31.PRO CNC Tpt Sdn Bhd
12.HRH Logistics Sdn Bhd
32.Sarmina Haulage Sdn Bhd
13.Infinity Haulage Sdn Bhd
33. Damai Haulage Sdn Bhd
14.Integrated Haulage Sdn Bhd
34. Tanjung Express Sdn Bhd
15.Interway Transport Sdn Bhd
35. Timur Permai Haulage Sdn Bhd
16.Jangkauan Galaksi Sdn Bhd
36. Tiong Nam Trading & Tpt Sdn Bhd
17.JCS Logistics Sdn Bhd
37. Teo Tuan Kwee Sdn Bhd
18.JP Logistics Sdn Bhd.
38. Xin Hwa Trading & Tpt Sdn Bhd
19.KH Haulage Sdn Bhd
39. Yinson Haulage Sdn Bhd
20.Kontena Nasional Bhd
40. ZLA Tpt & Service Sdn Bhd
Source : Johor Port Berhad, 2008.
58
3.3
Questionnaire
Questionnaire forms were used to gather information and data collection.
The same sets of questionnaire were used for all the survey area. The first part of
the questionnaire were designed to find out the information that related to the
proportion in percentage of the haulage company operating costs ( fuel,
maintenance, salary, tax, training and licensing) The second part is focused in
term of dollar and cents incurred for similar operating cost.
3.4
Data Collection
Data was collected through an interview conducted during this research
study. The interview was conducted among the haulage company representative
who is well versed person pertaining to the research topic. Those who were
interviewed are, in the position of the Company Director, General Manager,
Operation Manager and Executive In-charge of the haulage company.
There are few methods which are normally used in data collection for the
purpose of research study herewith is brief explanations of each type of the
regular method used:
3.4.1
Face to face interview
This method used whenever the researcher wants to fully understand
someone‟s impressions or experiences, or learn more about their answers to the
questionnaires. The advantages of this method would help the researcher the full
range and depth of information, develops relationship with the interviewee as well
59
as can be more flexible with the interviewee. Few challenges, which identified in
using this method, are the interview process can take much time; can be hard to
analyze and compare or the interviewer can be biased.
3.4.2
Questionnaires, Surveys, Checklists
This method used whenever the researcher need to quickly and easily get
lots of information from people in a non-threatening way. The advantages of this
method are inexpensive to administer; easy to compare and analyze; can be
distributed to many people and get many data as well. The challenges which
normally faced by the researcher are he or she might not get full of commitment
from the participants and the wording in the questionnaires can be biased to the
operators. This survey was conducted for 15 days. Most interviews were carried
out from 9.30am until 3.30 pm. As far as possible the interviews were done
during office hours.
b) Population size
The size of the population is 40 companies. The population size was
determined based on the total number of active haulage operator in
Southern Region as per Table 3.1 For this study 40 questionnaire
forms were used by self to interview the respondent via face-to-face
and telephone. Only 38 forms were completed for analysis purposes.
c) The Population
The population was taken from the list of active haulage operators in
Southern Region. After identifying the active haulage company, data
were collected through face-to-face and telephone interview.
60
All answers to the questionnaires have been analyzed and verified by self
immediately. Data collected will be represented in cross tabulation form and
discussion on the cross tabulation will be made.
3.4.3
Observation
This method used whenever the researcher wants to gather information
about how a program actually operates, particularly about the process.
The
advantages of using this method would help the researcher to view the operations
of program as they are actually occurring so as can adapt to events as they occur.
The challenges, which normally faced for this method, can be difficult to interpret
the seen behaviours, can be complex to categories, observations or it can
influence behaviour of program participant.
3.4.4
Case Study
This method used whenever the researcher wants to fully understand or
portray client‟s experiences in a program and conduct comprehensive
examination through cross comparison of cases. The advantages of using this
method would help the researcher to fully depict respondent experience in
program input, process and results and it was a powerful means to portray
program to outsiders. The challenges, which normally faced by the researchers
are usually quite time consuming and not presenting the true picture of the
“problem statement” as different organizations will face different outcome of the
problems at the time of study.
Some organizations will give their utmost
feedback in the detailed data form and some will give only brief information
required.
61
3.4.5
Secondary Data
Secondary data is the information which can be gathered among the
haulage company. The information is being obtained from the company‟s report
such as Monthly Profit and Loss Statement and Yearly Revenue Analysis Reports.
The secondary data is also can be obtained from the written information that is
gathered from other sources such as literature review, local newspapers, container
haulier association and related government bodies such as Jabatan Pengangkutan
Jalan.
a)
Literature Review
Collecting vast amounts of information regarding global and local
3PLs through literature review and compiling it into a meaningful
form, which create the foundation for further analysis, is almost the
only way to cover such a broad subject in the allotted time.
Unpublished information and financial data needed for this thesis
are hard to obtain directly from the companies and are confidential
in nature for commercial reasons. Research Furthermore, gaining
access to key decision makers and management in the Haulage
Company across Malaysia is not feasible due to the time and
economic constraint of this study. Even if it might be possible to
gain access to this level of personnel, it is certain that their
corporate positions will influence their views. Here, the data
collected give a much more objective view based on information
that is publicly available and can be compared with various
additional sources to ensure its soundness and reliability
methodology is basically concerned with the systematic gathering
62
of information and data. Due to the time and cost factors and not to
mention its convenience, government and company websites as
well as news information on the internet are important sources of
data throughout this study. Business magazines, newspapers and
personal websites on related subjects also provided differing views
from various perspectives, which at times questioned the corporate
reasoning behind a certain decision taken up by companies
concerned. Overall, the collection of facts and figures from the
annual reports of companies, their websites, interviews, journals,
newspaper and magazine articles form the backbone of the
research and the profiling of 3PL cases.
3.5
Preferred Methodology
For the purpose of this research, the researcher has decided to use the
combination method of interview and questionnaires as source of primary data.
The questionnaires are designed to gather all the required information for this
study which includes the operating cost among the haulage company (i.e. Fuel,
maintenance, salary, tax, licensing and training)
The data, which is obtained through face to face interview, e-mail and
telephone conversation, were done with the related person in charge of operations
department of the company. They are inclusive of Director, General Manager,
Operation Manager and Executive In charged in the departments concerned.
63
Among the issues discussed are the types of operating cost that normally
faced by the respective haulage companies. The followings are some of the
examples of the area to be covered during the interview session:
a)
Operating costs elements incurred in term of annually percentage
against their generated revenue.
b)
The Ringgit and cents of their monthly and annual cost
expenditures which, related to the operation running cost.
The face to face, e-mail and telephone interview had been conducted in
one session with the Director, General Manager, Operation Manager, Executive
In-charge of the respective haulage company.
(Kindly refer to Appendix A attached for a sample of interview questionnaire)
3.6
Conclusion
Chapter three is one of the most important chapter among the other five
chapters of this thesis. This chapter has defined of several techniques of research
methods where the quantitative research methods are introduced and clearly
explained.
After going through the whole process of the research methodologies, the
quantitative method which the most best to conduct this study. In this case, the
questionnaires has been drawn up and used to enable the researcher to analyze
and evaluate the present problems and therefore to recommend the finding in the
next chapter.
49
CHAPTER IV
ANALYSIS AND DISCUSSION OF RESULTS
4.1
Introduction
This chapter analyzes the data through questionnaires, face to face, mail
and telephone interview with the Key Person In-Charge of the haulage companies.
The questionnaires covered the variables that related to the study, which are Fuel
consumption, maintenance, salary, tax, licensing, and training. In this study the
analysis is made for determining the proportion of each individual operating cost
and to find out the difference among each category of the haulage companies.
The interview questions covered the typical operating costs of the haulage
companies. Thus the methodology for determining truck operating costs involves
analyzing several estimates of these costs along with related information from
other sources, and deriving a “consensus” estimate that corresponds to the specific
costs of interest here. There are many approaches to estimate the cost for trucks.
Each of them employs a different methodology and models to calculate the
variable costs of operating trucks.
50
Based on American Transportation Research Institute the total marginal
costs for the industry were $1.73 per mile and $83.68 per hour. Marginal costs
were divided into vehicle- and driver-based. Top costs for carriers were diesel
fuel/oil, driver wages and truck/trailer lease or purchase payments.
While there are obviously many different sizes and types of trucks, first
analysts will typically not have detailed counts of different types of trucks.
Second, and more importantly, robust estimates could not establish for the
operating costs of different types of trucks. The available sources tend to focus on
the proportion of percentage on the operating costs among the haulage operators
in Southern Region; there does not seem to be much information on how types of
trucks differ from each other.
The number of fleets or equipments that belonging to each haulage
company is distinguished in terms of number between one companies to another.
Since there were no standard classification of the operators type in this country
and for that reason in the case of Southern Region those haulage operators have
been divided based on their fleet size. i.e. First type of operators had more than 50
trucks and above so called Big Operator (Table 4.1), while second type of
operators had a fleets below than 50 trucks so called Medium Operator (Table
4.2), and the third type operators are operating with below 20 trucks so called
Small Operator (Table 4.3)
51
Table 4.1: Big Operators (Operates > 50 units Prime Mover)
Company
1.Agenda Wira Haulage Sdn Bhd
2.Diperdana Selatan Sdn Bhd
3.Kontena Nasional Berhad
4.Perceptive Logistics Sdn Bhd
5.MISC Integrated Logistics Sdn Bhd
Total Prime Mover (Unit)
60
100
80
90
60
Source : Johor Port Berhad, 2008.
Table 4.2 shows haulage operators in Southern Region which operates
with less then 50 units‟ prime mover and so called medium operator.
Table 4.2: Medium Operators (Operates < 50 units Prime Mover)
Company
Total Prime
Mover (Unit)
1.Integrated Haulage Sdn Bhd
40
2.Jangkauan Galaksi Sdn Bhd
50
3.JP Logistics Sdn Bhd
50
4.Multimodal Sdn Bhd
40
5.Pelangi Forwarding Sdn Bhd
30
6.Tiong Nam Trading & Tpt Sdn Bhd
30
7.To Tuan Kwee Sdn Bhd
30
8.Xin Hwa Trading & Tpt Sdn Bhd
30
9.Yinson Haulage Sdn Bhd
30
Source : Johor Port Berhad, 2008.
Table 4.3 shows haulage operators in Southern Region which operates
with less than 20 unit‟s prime mover and so called small operator.
52
Table 4.3: Small Operators (Operates < 20 units Prime Mover)
Company
1.Antara Asia Sdn Bhd
2.Baiduri Dimensi Sdn Bhd
3.Barakat Andalus Sdn Bhd
4.Bersatu Maju Express Sdn Bhd
5.BJ Rising (M) Sdn Bhd
6.Blossom Deluxe Sdn Bhd
7.Delta Haulage Sdn Bhd
8.Generasi Jitu Sdn Bhd
9.Hoor Fatt Enterprise Sdn Bhd
10.HRH Logistics Sdn Bhd
11.Infinity Haulage Sdn Bhd
12.Interway Transport Sdn Bhd
13.JCS Logistics Sdn Bhd
14.KH Haulage Sdn Bhd
15.L & R Haulage Sdn BHd
16.Mahamiru Ent & Trading Sdn Bhd
17.MGS Transport Sdn Bhd
18.Narita Forwarding & Transport Sdn BHd
19.Navegacian Shipping Sdn Bhd
20.Nespalm Logistics Sdn Bhd.
21.PRO CNC Sdn Bhd
22.Sarmina Haulage Sdn Bhd
23.Damai Haulage Sdn Bhd
24.Tanjung Express Sdn Bhd
25.Timur Permai Haulage Sdn Bhd
26.ZLA Tpt & Service Sdn Bhd
Total Prime
Mover (Unit)
5
15
20
10
10
20
10
10
10
15
10
20
10
10
20
15
20
20
10
10
10
10
10
15
10
20
Source : Johor Port Berhad, 2008.
Under this chapter, the different of the operating costs between big,
medium and small haulage operators in Southern Region of Malaysia is
discovered. The finding from the haulage operators with regards to their fleet‟s
size will be influencing their operating costs. The haulage operator companies
selected as case studies are those in Southern Region of Malaysia. This study
opted for the companies merely in Southern simply because it is one of the ways
to ensure the effectiveness of this research.
53
4.2
Result of Face-to-Face, mail and Telephone Interview
Table 4.4 shown the type of Haulage Company and the total number of
respondent where from the sample size of 40 haulage companies in Southern
Region, 38 respondents are responded to the interview conducted, while 2 of
respondents reluctant to be interviewed. Based on the sample size mentioned in
the chapter 3 the 95% confidence limits and precision are met. The sample size
was determined based on the total number of Haulage Company registered in
Johor Port, Berhad in year 2008.
A total of 40 survey forms were completed. After careful scrutiny of all
responses to check for both completeness and appropriateness the breakdown of
of the survey forms extended and the percentage of respondents is as per Table
4.4.
Based on Table 4.4 it shows a total of 38 out of 40 operators responded to
the questionnaires. This response will provide a better understanding and
feedback from the operators against the variables mentioned in the first chapter.
With the response, its will assist to determine the operating costs among them.
Table 4.4 : Total Survey Forms
Haulage
Operators
> 50 Prime Movers
(Big Players)
Respondents
Returning
5
Respondents Not
Returning
0
Total Survey
Forms Sent
5
< 50 Prime Movers
(Medium Players)
8
1
9
< 20 Prime Movers
(Small Players)
25
1
26
Total
38
2
40
Source : Johor Port Berhad, 2008
54
Based on Table 4.5, it shows a total of 95% of operators had responded to
the questionnaires asked through interview via face-to-face, mail and telephone
while 5% of them reluctant to be questioned. All of the responses will be
summarized and further explained in this chapter.
Table 4.5 : Percentages of Survey Forms from Respondents
Haulage
Operators
Percentage
Respondents
Total
Percentages
100%
Percentage
Respondents Not
Response
0%
Big Players
Medium
Players
Small
Players
Total
96%
4%
100%
95%
5%
100%
95%
5%
100%
100%
Source : Johor Port Berhad, 2008
4.3
Operating Costs
The operating costs has become essential factor in the haulage and
transportation businesses,
for that reasons the questionnaires are designed to
determine their contribution toward the company‟s costing. The findings on the
questionnaires among the three types of haulage operators also reveals the
percentage against revenue generated annually and the ringgit and cents incurred
respectively. The cost factor will be described in this chapter.
55
4.3.1
Data Analysis and Findings of Operating Cost by Big Haulage
Operators
Table 4.6 show the combination costs among the big haulage operators in
Southern Region where it can be summarized that more than RM 1,200,000 per
annum has been spent on fuel, maintenance and salary for each category. It
followed by tax payable is more than RM 40,000, while training RM 10,000 and
licensing more than RM 100,000 respectively. It seems that the amount spent on
fuel, maintenance and salary are the higher proportion among the costs. In
addition, the uncertainty of oil price lately has also influenced the amount of fuel
cost to the operators. It followed by tax, licensing and staff training. The costs
incurred have a direct correlation with the total number of prime mover and trailer
that involve on their day-to-day operations.
Table 4.6 : Cost Analysis in (RM) – Big Operator
Type of Cost
Annual Cost (RM)
Fuel
> 1,200,000
Maintenance
> 1,200,000
Salary
> 1,200,000
Tax
> 40,000
Licensing
> 100,000
Training
< 10,000
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
56
The results of the annual cost analysis for big operators as illustrated in
Figure 4.1. The higher costs are determined occurred from the fuel, Maintenance
and Salary and it followed by the costs of Licensing, Tax and Training.
(RM)
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Fuel
Main
Sal
Tax
Train Licen
Annual Operating Costs
Figure 4.1 : Analysis of Annual Operating Cost (> 50 Units Prime Mover-Big
Operator)
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
57
Figure 4.2 show the proportion of individual operating costs in percentage
per annum for big operator. From the analysis made among the big haulage
operators it has discovered that there were a different in term of operating costs
between fuel, maintenance, salary, tax, training and licensing as well. The figure
show the fuel consumption incurred 30% per annum; maintenance 30% per
annum, Salary 25 % per annum, whilst Tax 5 %, Training 5 % and licensing are 5
% per annum respectively.
5%
5%
5%
30%
Fuel
5%
5%
5%
25%
10%
Maintenance
Nett Revenue
Fuel
Maintenance
Salary
25%
Salary
20%
30%
30%
Tax
Tax
Training
Licensing
Training
Licensing
Figure 4.2: Analysis Operating Costs In Percentage Per Annum (> 50 Units
Prime Mover-Big Operator)
Source: Operating Costs Among The Haulage Company, In The Case of Southern
Region, 2008.
58
4.3.2
Data Analysis and Findings of Operating Cost by Medium Haulage
Operators
Table 4.7 show the combination costs among the medium haulage
operators in Southern Region where it can be summarized that the costs
proportion in which more than RM 480,000.00 per annum has been spending for
fuel and maintenance and for salary it has incurred more than RM 240,000 a year.
It followed by tax payable is more than RM 40,000, while training RM 10,000
and licensing more than RM 50,000 respectively. The amount spending for fuel
and maintenance seems at the higher side if compared to other costs. Salary cost
is the second largest and followed by licensing, tax and training. In addition, the
uncertainty of oil price lately has also influenced the amount of fuel cost to the
operators respectively. While for maintenance cost it seems the amount incurred
is similarly with the fuel cost incurred based on the total number of prime mover
and trailers deployed.
Table 4.7 : Cost Analysis in (RM) – Medium Operator
Type of Cost
Annual Cost (RM)
Fuel
> 480,000
Maintenance
> 480,000
Salary
> 240,000
Tax
> 40,000
Licensing
> 50,000
Training
< 10,000
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
59
The results of the annual cost analysis for medium operators in table 4.7 is
illustrated in Figure 4.3 The higher costs are determined occurred from the fuel,
Maintenance and Salary and it followed by the costs of Licensing, Tax and
Training.
(RM)
500,000
400,000
300,000
200,000
100,000
0
Fuel
Main
Sal
Tax
Train
Licen
Annual Operating Costs
Figure 4.3 : Analysis of Annual Operating Cost(< 50 Units Prime MoverMedium Operator)
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
60
While Figure 4.4 shows the proportion of operating costs incurred in
percentage per annum for medium operators, which the fuel consumption incurred
35%, maintenance 30%, Salary 20%, Tax 5%, Training 5% and licensing is 5%
per annum respectively.
5%
5%
5%
35%
Fuel
5%
20%
5%
5%
25%
10%
Maintenance
Nett Revenue
Fuel
Maintenance
Salary
Salary
20%
30%
30%
Tax
Tax
Training
Licensing
Training
Licensing
Figure 4.4: Analysis Operating Costs In Percentage Per Annum (< 50 Units
Prime Mover-Medium Operator)
Source: Operating Costs Among The Haulage Company, In The Case of Southern
Region, 2008.
61
4.3.3
Data Analysis and Findings of Operating Cost by Small Haulage
Operators
Table 4.8 shows the combination costs among the small haulage operators
in Southern Region where it can be summarized that more than RM 200,000 per
annum has been spending for fuel whilst both maintenance and salary had
incurred more than RM 100,000 a year. It followed by tax payable is RM 15,000,
while training less than RM 10,000 and licensing more than RM 90,000
respectively. The amount spending for fuel seems the bigger cost factor even
though the number of prime movers that owned by those operators are between 5
to 20 units for each operator. While for maintenance cost it seems the lesser than
fuel incurred based on the total number of prime mover and trailers that deployed.
Table 4.8 : Cost Analysis in (RM) – Small Operator
Type of Cost
Annual Cost (RM)
Fuel
> 200,000
Maintenance
> 100,000
Salary
> 100,000
Tax
> 15,000
Licensing
> 90,000
Training
< 10,000
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
62
The results of the annual cost analysis for medium operators in table 4.8 is
illustrated in Figure 4.5 The higher costs are determined on fuel, It followed by
both Maintenance and Salary then the licensing and the lesser operating costs is
determined from both tax and training.
(RM)
200,000
150,000
100,000
50,000
0
Fuel
Main
Sal
Tax
Train
Licen
Annual Operating Costs
Figure 4.5 : Analysis of Annual Operating Cost (< 20 Units Prime MoverSmall Operator)
Source : Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
63
Figure 4.6 shows that the proportion of operating costs incurred in
percentage per annum. The figure shows the fuel consumption incurred 30% per
annum; maintenance 25 % per annum, Salary 25% per annum, Tax 5% per
annum, Training 5% per annum and licensing is 10% per annum.
5%
10%
30%
5%
Fuel
5%
5%
5%
25%
10%
Maintenance
Nett Revenue
Fuel
Maintenance
Salary
Salary
25%
20%
30%
25%
Tax
Tax
Training
Licensing
Training
Licensing
Figure 4.6: Analysis Operating Costs In Percentage Per Annum (< 20 Units
Prime Mover-Small Operators)
Source: Operating Costs Among The Haulage Company, In The Case of
Southern Region, 2008.
64
4.4
The Summary, Significant Results and Discussions
Table 4.9 shows the difference of annual operating costs among the three
types of haulage operators. The individual costing will be further discussed in the
next paragraph.
Table 4.9: Summary of Annual Operating Costs Among the Haulage
Operators by Percentage
No Type of Cost
Big Operator
(%)
Medium
Small Operator
Operator
(%)
(%)
1.
Fuel
30
35
30
2.
Maintenance
30
30
25
3.
Salary
25
20
25
4.
Tax
5
5
5
5.
Training
5
5
5
6.
Licensing
5
5
10
100
100
100
Total : -
Source: Operating Costs Among The Haulage Company, In The Case of Southern
Region, 2008.
Table 4.9 shows the combination operating costs summary of respondent‟s
survey. The table shows that the costs of operating from one type of operators to
the other have differentiated in a certain degree, such as:-
65
4.4.1
Fuel Costs
Based on Table 4.9 it can be summarized that the difference of 5% in fuel
cost has been determined between medium and both big and small operators, from
the result it shows that the medium operators are spending more fuel compared to
big and small players. Whilst the big and small operators had a same degree of
fuel consumption in percentage of the proportion operating costs among them.
The escalating of diesel fuel costs and slow economy are putting the squeeze to
the operators. Diesel prices in the world have surged to record levels, and with
crude oil continuing to hit new highs on the global markets recently.
The difference of fuel costs among the operators is discovered and from
the finding this is due to the type and size of fleet owned on each organization has
an impact towards the company fuel costs.
The survey result indicates a
difference or similarly in operating cost for owner or operators versus non-owner
or operators. Owner or operators have larger cost per kilometer. The reason for
this may be the absence of economies of scale, the long or short haul activities
that took place on their day-to-day operation, the driver attitude in handling the
truck will also influenced the fuel consumption as well and that they have fewer
trucks over which to distribute their firm‟s variable costs.
In most cases the driver behavior or handling method of the truck could be
costly in fuel consumption, this happened due to lacking of training conducted
for the drivers and Human Resource Development (HRD) is a continuous effort
by management as to improve employee‟s competency levels. Even though it will
definitely a cost to the company but in practice the training is a critical factor in
any organization. One of the benefits by having trained staff it will be
increased their knowledge and as a result it will increase the company
productivity and lowering the operating cost as well.
66
4.4.2
Maintenance Cost
Based on Table 4.9, it can be summarized that both big and medium
operators are incurred 30% for the maintenance cost while the small operator is
25% respectively. It seems that the small operators have a less cost in
maintenance if compared to the big and medium operators with a difference of
5%. It seems that the maintenance costs incurred for small operators at the lower
side, if compared to both big and medium operators. One of the cause factors
could be contributed due to the size and type of fleet that deployed by the
operators. Difference fleet model or type has a different cost impact and is
subjected to the fleet itself on how and what the costs that incurred related to the
maintenance of the vehicles. For instance Japan truck model e.g. Hino or Isuzu
have a difference maintenance costs compared to Europe truck e.g. Volvo or
Scania.
Admittedly, when a truck is not properly maintained, it may cause
unexpected and extended downtime for repairs. This can result in operators
standing idle while still on the clock. In addition, breakdowns are often the result
of more serious problems that can involve costly repairs and parts. The key to
reducing breakdowns is scheduled maintenance. A scheduled maintenance
program allows companies to prepare for and work around brief downtimes while
a unit is being serviced. Some authorized service providers can even loan out
similar equipment during scheduled maintenance to prevent downtime. To further
understand what drives maintenance costs, keep ongoing records of scheduled and
breakdown maintenance on each unit in the fleet.
67
The variations and complexities associated with truck maintenance among
the operators it seem difficult to identify opportunities for reducing maintenance
costs. However, if the approach of this issue in a logical manner, that the finding
is easy to identify opportunities to reduce equipment maintenance costs while at
the same time increasing reliability. In most cases, this can be achieved with little
or no increase in the initial acquisition costs of the equipment. Far too often, fleet
managers should make the correct symptoms of their problems (equipment
failures) instead of identifying the root causes. This approach can be expensive
and usually results in repeat repairs. If you take to time to identify the root causes
of the equipment problems, and properly address them in our equipment
specifications, this will reduce the maintenance costs and equipment down time.
The average haulage operators have multiple brands. While it may be
cheaper to purchase a different brand of truck, having multiple brands makes the
fleet more costly to maintain. Mixed brand fleets require increased parts
inventories for service, increased supplier base management, and multi-brand
technical and operator training. Standardizing on a single brand, or a few brands,
of trucks can avoid those extra costs and time requirements.
4.4.3 Salary Cost
Based on Table 4.9, it can be summarized that the breakdown proportion
of the salary cost incurred for the three types of operators is at the percentage 25%
for both Big and Small Operators and 20% for Medium Operators. From the table
it is shown that the salary cost is incurred at the same degree between Big and
Small operators. Whilst for Medium size of operators seem the costs are lower by
68
a difference of 5%. Typically salary will changed from year to another due to the
annual increment of each company. Some company has their own collective
agreement between employers and employees and other related policy.
Most of company the calculation of basic salaries is depending on the
industry and a variety of other factors. For haulage industry the same basis are
also be used as to establish the rational salary ranges given to employees. This
means that in most cases there should not be great salary differentials between
early hires and later employees any risk component of being an early hire should
be made up in the equity compensation component.
As every organization aware that employee turnover is inevitable and,
while some employee turnover can be useful, losing good performers is not only a
brain drain of the company's human capital, it also carries with it direct and
indirect costs associated with both the separation and replacement of the very
employees should be retained. To a great degree, voluntary turnover is
manageable. Investing in retention solutions that result in even a small reduction
in the company's turnover rate can realize substantial reductions in turnover
expenses over the long term.
4.4.4
Tax Cost
Based on Table 4.9, it can be summarized that the tax proportion incurred
for the three types of operators are 5% for each category. It seems that there are a
same degree of costs spending among them. As nothing much can be done in this
69
issue as the tax is the cost where every organization have to pay on the same rate
as tabled by the government, unless there will be a certain special incentive been
given to some industries in this country.
Currently for haulage company there is no incentive been given as to
reduce down the tax cost, this is basically the social obligation toward any country
in this world. But in some extend the government will allow some rebate as to
encourage the organization to contribute their revenue for example; to the human
resource program in which this could be benefited to the company in the sense to
reduce their training course for the employees.
4.4.5
Training Cost
Based on Table 4.9, it can be summarized that training cost proportion for
the three types of operators also showing that the percentage incurred is 5%
respectively for each category. The same degree of costs among the haulage
company is determined.
Staff training is very vital to company because from the study has shown
that by having or sends staff for training is more viable to increase company and
staff productivity. Training is vital to today‟s business world. A good training
program can greatly improve well being and productivity throughout a company,
whilst a bad one can not only cause confusion, but also to large decreases in
productivity through staff not knowing their function, or their place in the
company.
Training program will leave the employees feeling empowered and a
70
full part of the team. It will help them to fit in, and understand the company.
As a result it could generate a pro active attitude and increase company
productivity and finally will increase the company revenue. By having a skill
staff the organization could reduce their day-to-day cost due to minimum
mistake or wrong doing being occurred.
4.4.6
Licensing Costs
Based on Table 4.9, it can be summarized that the input by the players
showing the proportion of licensing costs are incurred 5% annually for both Big
and Medium Operators. Whilst for Small Players it was determined that the cost
of licensing incurred is at 10% annually. There is a difference of 5% higher if
compared to both Big and Medium Operators. The difference could be due to the
number of trailers that deployed or owned by each operator.
The only different among the haulage company is the number of fleets that
owned by them so that the more fleets they have the more licensing cost be
incurred. Another important factor here is that the haulage company have to
ensure that upon licensing is paid the fleets are fully utilized as to optimize the
revenue.
Since the licensing is on the fixed rate basis levied by the authorities and
typically is putted in fix running cost and not a variable costs, therefore the more
the fleets is moved the cost will be at the same degree.
71
4.5
The Higher Proportion of Operating Costs
Operating costs can be divided into fixed and variable costs. The question
of truck operating costs has been of long interest. In general, firms seek to
minimize their cost including truck operating cost. Truck operating cost for each
firm can be divided into fixed and variable costs. Fixed costs are insensitive to the
volume of output, but variable costs change with the level of output. Typically
fixed costs is the money that spent on the fixed amount either monthly or annually
e.g. Staff salary and licensing whilst variables cost is related to the money spent
based on the movements activities that took place e.g. fuel is incurred when the
truck is moving.
Based on Table 4.9, it can be summarized that the bigger proportion of
operating costs that facing by the big haulage operators are apparently spent on
fuel and maintenance which is 30%, Salary is 25% and it followed by Tax,
Training and Licensing 5% respectively. The amount spending on fuel and
maintenance are incurred more than RM1,200,000 a year. Even though there is
indication for fuel subsidy but the volume consume is more than the rebate
amount.
While some trucking companies pass these increased costs on to
customers through fuel surcharges, they are usually unable to recover 100% of the
increased cost due primarily to non-revenue generating or “empty” miles that
cannot be billed to a customer. However, regardless of whether they levy fuel
surcharges, all companies must focus on minimizing empty miles and maximizing
efficiency to reduce fuel costs.
72
Increased fuel costs may also have a significant effect on transport rates.
In recent years, as the economy slowed and cargo tonnage decreased, many goods
transportation carriers lowered the rates to attract or retain customers. Major
increases in operating costs, due primarily to higher fuel prices, make reduced
rates unsustainable in the long term, even as cargo volumes begin to rise.
In addition to changes in operating costs, the operating environment for
trucking is undergoing a major shift in movement patterns. Rather than the
decades old cross country Paradigm, in which a single truck moved a load from
Johor Bahru
to Kuala Lumpur, some of the operators is moving towards a
regional distribution center model with both shorter haul lengths and shorter time
frames. For example, whereas a trailer load of freight historically left a plant in
Johor Bahru on Monday and arrived at its destination in Kuala Lumpur on the
following day, a trailer today is likely to leave the plant Monday morning, arrive
at a distribution center Monday evening, and continue its journey through a
network of centers. Therefore, today‟s tighter supply chains require better
coordination and tracking of trailers independently and ensure that loads are
moved correctly.
Another solution to reduce down the fuel costs that the haulage company
should put a serious effort into the alternative to a fuel, probably they might
develop the research study on to use bio-diesel or maybe NGV as to generate the
fleets engine. Despite they have to convert their current equipment into more high
tech engine but for a long terms runs is still viable for costs reduction.
Maintenance of truck is one of the higher costs that facing by the haulage
operators in their day-to-day activities. Even though the small operator are
incurred lesser than the big and medium operator around 10% but from the data
collected the amount incurred for repair and maintenance shown a huge amount,
some of the reasons for high costs in this area is due to a several factors which
73
related to the type, ageing, and the driver attitude in handling the fleets. Some
trucks have a different price of spare parts which it could be lower or otherwise it
is depend on the model, capacity, and etc. But the significant result shows that the
small operators has a lower maintenance cost compared to the big and medium
operators at the degree of 10% where it is consider very good. Therefore further
study should be conducted to determine the factor that contributed the costs
reduction.
As equipment and maintenance costs continue to rise, haulage company
face intense pressure to reduce and offset these expenses. This pressure, amid a
shortage of diesel technicians, continues to drive the number of fleets that
outsource some even all of their work. Many fleets are beginning to counter this
trend and even capitalize on it by opening their maintenance and repair facilities
to outside customers. This trend is helping carriers offset maintenance costs and,
in some cases, actually turn a profit in the shop.
Technology also can help solve a major business challenge of operating a
maintenance-for-profit shop, working on equipment with different specs than the
fleet uses. Technicians may lack the knowledge to repair equipment and
components from different brands, but recent technologies can offer quick access
to repair information on the shop floor.
74
CHAPTER V
FUTURE RESEARCH CONSIDERATION, CONCLUSION AND
RECOMMENDATION
5.1
Introduction
The main objectives of transport research are to develop and improve
understanding of an event that has happened or an estimate of the impact of a
planned or probable event.
Although it was the case of haulage companies in Southern Region of
Malaysia, many other countries have witnessed the growth and development in
the similar business nature. In this chapter the conclusion of the variables related
to the problem statement in the research study being explained. A study gives the
recommendations as well as to forecast the implications of such variables for
future research.
By using the data collected from the questionnaires extended and also face
to face, mail and telephone interview with the operators, the presented conclusion
and recommendations will be discussed in the next pages.
75
Further research whereby the haulage operators can look into is to study
the difference of operating costs among them whereby:
a) Its ability to reduce their fuel, maintenance, salary, tax, training and
licensing cost.
b) Its capacity to optimize their existing movement in delivery and
collection of shipments. This is can be done by having proper journey
planning
c) Adaptability to use existing resources e.g. Prime Mover and Trailers as
an advantage in saving initial capital cost.
In term of cost control the Operators should conduct future research for
example: on the introduction of alternative to the fuel e.g bio diesel or NGV to
their fleet and this alternative has given a significant value to the environment and
cost reduction as well.
5.2
Conclusion
The findings of the study will be guided decisions for estimating the
magnitude of each operating cost among the operators. What is more important is
that the findings of the study are based on the operators input. The different on
each individual operating costing among the operators can be looked into deeply
as to determine the contributed factors on why there is a difference of the
operating costs among them even though the business nature is basically similar
from one to another.
76
In any business organization costs can seriously affect their ultimate
profitability. Fleet managers have to consider the operating costs issues (and other
related costs) associated with their current vehicles. For examples; how many
fleet managers do so when specifying new, fleet equipment? Admittedly, the
variations and complexities associated with such equipment make it seem difficult
to identify opportunities for reducing the operating costs. However, if the issue is
approached in a logical manner, they will find that it is easy to identify
opportunities to reduce equipment maintenance costs while at the same time
increasing reliability. In many cases, this can be achieved with little or no increase
in the initial acquisition costs of the equipment.
Far too often, probably the fleet managers are guilty of trying to correct
the symptoms of their problems (equipment failures) instead of identifying the
root causes. This approach can be expensive and usually results in repeat repairs.
If so much time taken as to identify the root causes of the equipment problems,
and properly address the equipment specifications for example, this will enable
them to reduce maintenance costs and equipment down time. In any trucking
industry it is well known that both fuel and maintenance costs are the higher costs
factors. From this finding it has revealed the facts related to the statement made.
Whilst other operating costs such as salary observed to be the third largest
contributor and
followed by the licensing, tax, and staff training costs.
Apparently it will take some times for the operators to do research in studying the
causes of the different among them. For instance to conduct the study on the size
and model of fleets that deployed on the road, the firm type whether it is owner or
operator and the company strategy that practiced by the respective operators in
their day-to-day activities.
77
5.3
Study Recommendation
Haulage Operators have or must introduce another alternative to a fuel
such as bio diesel or NGV, the widespread use of fuels has been one of the most
important stimuli of Haulage Operators growth and prosperity since the industries
are started, the reality that when oil price is increased the haulage operator costs
will be gone up too. If alternatives are not forthcoming, this would become scarce
and expensive.
Logically, using same type of truck model or brand has a economy of
scale. In any transportation industry for reducing their operating costs for example
the operator shouldn‟t have to employ so many technician or mechanic with a
different work knowledge or experience in repairing the engine, spare parts can be
bought with the same vendors where the potential of price can be further down
are there due to the volume of spares ordered is big so that it would have a lower
cost per unit.
The haulage operators have to review their strategy based on management
policy, which may lead to differences in operating costs. For examples on how
they determined driver compensation, and if compensation was linked to on time
delivery, and if the firm has a fuel surcharge. All these customer and firm policies
could be used as variables in the future study.
Outsource to third party is one of the solution in reducing their day-to-day
operating cost for an examples; repair of truck can be fixed in constant rate base
on the lump sum figure, whilst warranty is also being guaranteed by the vendor
and in some cases the operator might be able to charge a penalty of late repair
made by their vendor and ultimately will shorten the truck down time.
78
Integrated planning will results the optimizing of truck movement and will
generate high revenue, but we must not forget the important tools of using the
high end technology such as GPS or IT Planning and Tracking Systems in
enhancing the desire result even thought it will incur high capital investment but
in the long term run it will be benefited toward their cost reduction.
79
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84
APPENDIX A
SURVEY FORM (for Hauliers personnel)
Dear Sir/Mr/Mirs/Ms/Madam,
This questionnaire is for a final project for the degree of MSc Transport Planning at
University Technology Malaysia. All answer will be used for research purpose only
and will be treated as private & confidential.
Please indicate your response/choice with a (/) in the appropriate box.
1. What are your individual costs elements incurred in term of annually percentage
against your generated revenue?
1.1
1.2
Fuel
-
Less than or equal to < 5%
-
6% - 10%
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
Maintenance -
Less than or equal to < 5%
-
6% - 10%
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
85
1.3
1.4
1.5
1.6
Salary
Tax
Training
Licensing
--
Less than or equal to < 5%
-
6% - 10%
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
-
Less than or equal to < 5%
-
6% - 10%
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
-
Less than or equal to < 5%
-
6% - 10%
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
-
Less than or equal to < 5%
-
6% - 10%
86
-
11% - 15%
-
16% - 20%
-
21% - 25%
-
26% - 30%
-
31% - 35%
-
36% - 40%
2. How much is the individual monthly operational costs elements in term of Ringgit and
cents?
2.1
2.2
2.3
Fuel
-
RM 0 - 10,000
-
RM10,001 -20,000
-
RM30, 001 – 40,000
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000
Maintenance -
RM 0 - 10,000
Salary
-
RM10,001 -20,000
-
RM30, 001 – 40,000
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000
-
RM 0 - 10,000
-
RM10,001 -20,000
-
RM30, 001 – 40,000
87
2.4
2.5
2.6
Tax
Training
Licensing
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000
-
RM 0 - 10,000
-
RM10,001 -20,000
-
RM30, 001 – 40,000
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000
-
RM 0 - 10,000
-
RM10,001 -20,000
-
RM30, 001 – 40,000
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000
-
RM 0 - 10,000
-
RM10,001 -20,000
-
RM30, 001 – 40,000
-
RM40, 001 – 50,000
-
RM50,000 – 100,000
-
> RM 100,000