Private Transportation What is Private Transportation NOT the

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Private Transportation

Private Transportation

What is Private Transportation? • NOT the opposite of public (government) transportation. • Defined

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

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 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

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.

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

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.

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 – – – – Convenience Flexible

Advantages of Private Trucking • Get Improved Service – – – – Convenience Flexible operation Greater control Lower transit times Lower inventory levels Reduced damage Driver as salesperson/customer relations rep Last resort • Lower cost – – 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? –

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

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 • • • 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,

Costs of Private Trucking • Operating Costs – Labor (drivers) • Wages, benefits, government, layover allowances – Vehicle operating costs • • 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.

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 (< 15 lbs/ft 3) 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

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

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

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

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)