Motor carrier cost structure

Motor carrier cost structure is the expense that must be taken into account when the firm manufactures a product or provides a service. This includes transaction cost, operating costs, fixed costs and variable cost.

Content List:

1. Primary cost category
2. Characteristics of cost
3. Further analyze
4. Reference

1. Two primary costs impacts:

Fixed vs. Variable Cost:

For the cost structure of motor carriers, approximately 70% to 90% costs are variable, which allow the carrier to increase/decrease the number of vehicles used in short period of time and in small increments of capacity. An example of variable cost is fuel, because fuel price is changing all the time. A motor carrier industry has low fixed costs due to the public investment of the highway system and few terminals needed, because motor carriers are general door to door service, which is reduces the need for terminals.

2.Classification:

Transaction cost – is the cost during the transaction, the carrier have to pay the amount of money to guarantee the delivery can be reached on time. An example of this is that Motor carrier should provide insurance to the customer due to the to cover their liability. This rate has increased over the last several years because of a survey called the “American Trucking Associations (ATA)”, this survey passed the rise of insurance rates.

http://ops.fhwa.dot.gov/freight/publications/eval_mc_industry/index.htm

Operating cost is the expense that related to the operations of a business. For the motor carriers, this cost includes fuel charges and labor costs. Fuel price is an important issue for many motor carriers. If fuel price changed frequently or suddenly, small motor carriers may effect a lot, or bankrupt.

http://ops.fhwa.dot.gov/freight/publications/eval_mc_industry/index.htm

Labor issue is a big component of the service industry. The working hours of drivers directly effects the cost or gain of the firm. Since the government announced the “Hours of Service”, a driver can work up to 10 hours or be on duty 15 hours since the end of his/her last 8 hours break. This policy may reduce the efficiency of the carriers, and loos money.

3. Further analyze:

Motor carriers operate business in two types, Truckload (TL) Carriers and Less-than-truckload (LTL) Carriers. TL carriers provide a full truckload shipment service to shippers between local and inveracities. Less-than-truckload (LTL) Carriers provide service to shippers who tender shipments lower than minimum truckload quantities. LTL is a more efficient method because this idea is combine some smaller shipments into TL quantities and disintegrated TL shipments into smaller quantities.