Private Transportation
What is Private Transportation?
• NOT the opposite of public (government)
transportation.
• Defined as not-for-hire transportation of
goods owned by the firm that also owns (or
leases) and operates the transportation
equipment for the furtherance of its primary
business.
• Private carriers do not service the general
public, though are allowed to do so.
• Private trucking is the most prevalent mode.
Private Rail Transportation
• There are no private railways, per se.
– Some exist to transport products within large industrial complexes or
in logging operations.
• Primary form in this industry is that of privately owned
railcars moved by a common carrier railroad.
• Many firms purchase specialized rail equipment (hoppers,
tank cars, etc.) to ensure an adequate supply.
• When privately owned railcars are used, a “car allowance” is
generally provided by the rail line.
– Generally takes the form of a mileage allowance or
– Reduction in the published rate for a particular commodity
– Car allowance recognizes that the user has incurred some of the
transportation cost.
Private Rail Transportation
• Private rail transportation incurs the following:
– Cost of a private siding or spur track connecting the
main rail line with the user’s plant/warehouse.
– Maintenance of the private siding
• Without a private siding, must use a public side track and incur
additional accessibility costs.
– Cost of privately owned (& maintained) rail cars
• Some large firms own for-hire railroads that
primarily connect the owner’s facilities with other
for-hire railroads.
Private Air Transportation
• Used extensively, if not exclusively, to transport
people (unlike most other private carriers).
• Private air fleets are purchased & operated to serve
the travel needs of executives.
• They are used in emergency situations to transport
freight.
– Documents needed to consummate an important sale
– Repair parts needed to prevent an assembly line from
shutting down
• Cost of flying via a company plane generally runs 3
– 4 + times the cost of a commercial flight
– One of the reasons such flights are normally restricted to
just the firm’s “top” management (lower-level managers
usually take commercial flights).
Private Water Transportation
• Company-owned ships/barges common in the
transportation of bulk, large-volume products.
– Coal, ore, oil
• Primarily focused on barge operations.
• Most advantageous when used for movement of
bulk, low-value products moved in large volume
between limited origins and destinations.
• Considerable capital investment required
– Barges, tugboats, ships, and dock facilities (though dock
facility expense is suffered whether private or for-hire
transportation is used)
Private Oil Pipeline Transportation
• Similar to private rail transportation
• Most pipelines are for-hire
• Some firms have investing in for-hire pipelines to
ensure guaranteed transportation of their products.
Private Trucking
• Most frequently used & pervasive form of
transportation in the U.S.
– Accounted for 52% of the 1996 intercity truck
expenditures of $230 billion.
• Difficult to determine exactly how many
private fleets exist.
– Firms not required to report private trucking
operations to the STB.
– However, all private trucking firms must now
register with the DOT
Advantages of Private Trucking
• Get Improved Service
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Convenience
Flexible operation
Greater control
Lower transit times
Lower inventory levels
Reduced damage
Driver as salesperson/customer relations rep
Last resort
• Lower cost
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Reduced transportation costs?
Reduced inventory levels
Rolling advertising
Bargaining power with for-hire carriers
Disadvantages of Private Trucking
• Higher cost
– Transportation cost higher than for-hire?
– Empty backhaul
– Lack of managerial talent
– Added overhead and managerial burden
– Capital requirements
– Cargo damage & theft responsibility
– Liability for accidents
– Increased paperwork
– Breakdowns on the road
• Dealing with labor unions
Costs of Private Trucking
• Fixed Costs
– Depreciation on trucks, trailers, garage, office
– Interest on investment (vehicles, garage, office)
– Management costs
• Salaries and fringe benefits
• FICA, workers’ comp
• Travel & entertainment
– Office & garage costs
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Salaries & fringe benefits
FICA, workers’ comp
Utilities
Rent or property cost
Supplies
Communication equipment & services
Costs of Private Trucking
• Operating Costs
– Labor (drivers)
• Wages, benefits, government, layover allowances
– Vehicle operating costs
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Fuel, oil, grease, filters
Maintenance (labor + parts)
Road service
Tolls
– Insurance
• Liability, collision & comprehensive, cargo
– License & registration fees
– Highway user taxes
Equipment Selection Factors and Implications
Selection Factor/Characteristic
Equipment Implication
Large shipments (>35,000 lbs.)
Vehicles that haul up to 80,000 lbs.
Small shipments
Vehicles that haul up to 30,000 lbs.
Low density products (< 15lbs/ft3)
High cube-capacity vehicles (trailers 110”
high, 102” wide, 57’ long)
High density products
Normal cube capacity
<75,000 miles annually
Gasoline-powered vehicles
>75,000 miles annually
Diesel-powered vehicles
Trips >1000 one-way miles
Diesel with sleeper
City operations
Gasoline-powered
Intercity operations
Diesel-powered
Mountainous terrain
Higher-powered engines
Controlled temperatures needed
Refrigerated vehicles
Customer required unloading
Power tailgates
Leasing
• Full-service Lease
– Includes leased vehicle + variety of operating support
services
– May require lessor to provide fuel, license, registration,
payment of highway use taxes, insurance, towing, road
service, tire repair, washing, substitute vehicles, &
preventive maintenance.
– The more services required, the higher the lease fee.
– Fee usually is a per vehicle weekly or monthly fee, plus a
mileage fee.
– Cost of fuel purchased from lessor also charged
– Commonly used with trucks that require high & frequent
maintenance
Leasing
• Finance Lease
– Only a means of financing equipment
– Lessee pays monthly fee that covers purchase
cost of equipment & lessor’s finance charges
– No services provided by lessor
– Commonly used with trailers that require little
maintenance
Leasing Advantages
• Increases working capital
• Sometimes does not impact borrowing limits
negotiated with lending institutions
• Reduces much of the risk associated with
private trucking
– Can lease on a trial basis
– Operating costs are known during the lease period
– Can quit trucking at the end of the lease (or even
activate a cancellation clause in the lease contract)
Leasing Disadvantages
• May end up costing more than owning
– Especially is the fleet is large (30+ vehicles)
• If excess funds are available, a truck fleet may
offer an acceptable return on investment
• Do not get to enjoy the residual value of the
equipment
• Tied into the lease (unless have cancellation
clause)