• Miebach India

When should I use market trucks?

Most companies like to use existing market trucks for their transportation needs rather than going for custom truck capacity. Even though this heavily increases their dependence on external parties, why do companies do this?

The simplest answer is, someone has already invested in the capacity and it is available for use. It meets the needs of varied requirements and therefore its asset utilization is higher. If on the other hand, you decided to build dedicated truck capacity, the cost would be higher, there may not be many takers and hence the service would come at a premium. New investments would also result in high depreciation of trucks and hence higher cost of operations in the initial year of operations.

In most industries where customized truck capacity is a necessity due to the nature of the transported products e.g. cars, frozen or perishable goods, heavy components, etc., companies always have a much higher transportation cost as compared to companies which use the standard 9 or 15 ton truck available in the market.

So when does it make sense to use a customized truck?

There is usually a trade-off between the increased truck loadability for a customized truck versus the additional transportation cost incurred for a customized truck. E.g. a 9 Tonner can carry only 800 kgs of a light product like potato chips because of the volume constraint while a container can carry up to 2 Tons of the same material in one trip. In spite of paying freight premium of 25% – 40% for a container, the effective load carried is almost 250% which results in substantial cost savings. In this case, clearly the decision tilts towards choosing a more customized form of transport – containers. Since you may not find sufficient capacity of these in the market, you might have to invest in building this capacity.

There is always a question on who will invest in this additional custom requirement? Usually it is the first-mover, or a game-changing company. While this company gains, sometimes followers who use this capacity gain more. Maruti created car carrier capacity from North to West, South and East in India after setting up their Gurgaon operations. When Tata Motors came up later in Pune (West) the car carrier capacity from West to North was already created by Maruti .Tata Motors enjoyed a better transportation rate as the market capacity now existed. Similarly Hyundai created capacity from South to West and used the capacity created by Maruti from South to North. As a result their freight rates are lower to North as compared to West.

As a thumb rule it always makes more business sense to use the market infrastructure as it results in lower cost. The only exceptions are:

  • Unavailability of required capacity
  • Business based on high service levels – in which reliability is a key factor
  • Product characteristics require customized transport which does not exist in market (pharma, food, cars)

Have you seen instances where benefits have come from using dedicated truck company? We would like to hear your thoughts in the comments section.

One Response

  1. […] for the services. This would result in a higher investment risk and more premium service.(Read When should I use Market Trucks? for more […]

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