Shipowners are doing it, so why can’t truckload transportation companies offset the rising cost of fuel by reducing vehicle speed? It’s an attractive idea, but the economics don’t work well in the truck mode. Here are a few reasons why.
First, shifting transportation to the slow lane means that drivers have to be compensated for the earnings losses they incur. Take, for example, a situation where truck speed is reduced to a steady 45 mph from 65 mph (see Figure 1 below). The downshift increases the number of miles per gallon achieved from 6.42 at the higher speed to 9.63 at 45 mph. As a result, the cost of diesel for the carrier decreases from 62 cents per mile to 42 cents per mile at the slower speed. However, clipping the driver’s wings in this way also means that he or she earns less. In fact, you would have to pay the driver an extra 20 cents per mile to maintain earnings levels at the reduced speed.
In addition, there is a vehicle utilization penalty to pay. Let’s assume that a truck costs $125,000, is driven for an average of 10 hours per day over 250 working days, and has to deliver an ROI of 10%. At the slower speed the unit’s utilization rate drops by a sizeable 31%, adding more cost to the slow speed strategy (see Utilization Reduction column in the table below).
As can be seen from the example, total costs increase from $1.84 to $ 2.18 per mile when vehicle speed is lowered to 45 mph. But this overall figure does not tell the whole story. Other costs such as the additional inventory needed to counter slower deliveries are not taken into account in this back-of-the-envelope calculation. The complete picture makes even less economic sense.
Figure 1: Truckload Driving Speed Cost Comparisons
So, why is it that some ocean shipping operators have adopted slow steaming? Shipowners are able to deploy idle tonnage on the slow-steaming routes; in effect, they can add capacity at no extra cost. If they had to supply new vessels the economics would be quite different. Trucking companies do not have mothballed fleets of vehicles waiting in the wings to be deployed. If they do, they are probably out of business. Also, the amount paid to shipboard personnel is not that significant relative to overall costs. Again, this is not the case when hauling cargo by road. There are important operational differences too. The longer lead and transit times in ocean transportation make it easier to plan for slower speeds – this is what shipping company customers have done – but trucking deadlines are more demanding.
Of course these figures will vary according to factors such as the fuel efficiency of individual truck fleets. But it is no accident that most major carriers limit the maximum speed of their trucks to something in the 62 mph to 68 mph range. Setting a more leisurely pace may seem desirable when trying to trim fuel bills, but as the analysis shows, slower trucks are also likely to be unprofitable.