WithTheGrain: Total cost of ownership important in truck purchase decisions

Author: | Date: 14 Dec 2017

When deciding on whether to purchase a truck or to hire a contractor, Rural Directions managing director David Heinjus says it is important to look at the total cost of ownership.

A big rig might well be the pride and joy of some growers, however doing the appropriate sums and taking an objective approach can help determine what truck combination to buy or if contract services will suffice.

Rural Directions managing director and South Australian grower David Heinjus says many farmers have a passion for trucks and want to have control over logistics and management.

With that in mind, Rural Directions staff have looked at the whole logistics process, from rates of harvesting in the paddock which can influence the amount of freight required and help to cost the process out.

“For growers with a large harvesting capacity and high-yielding crops, the pressure is on for logistics – either paddock storage or trucks and freight required,” he says.

“In SA, different parts of the state have different regulations and this will influence what type of combination can be operated. For example, on the Eyre Peninsula where road trains are legal, they can be quite cost-effective for growers.

“However, this is quite situational and depends on the distance to the receival site. Some growers have very short turnarounds and can carry a lot more grain in a day compared to someone else with a longer freight length, so it is certainly something that needs to be worked out on a case by case basis.

“The cost per tonne is a lot lower with a road train compared with a single combination. However, in other areas such as the Mid North or Mallee, B-double combinations are the largest that can be operated on those roads.”

Mr Heinjus says transport innovations such as a tri dolly means increased tonnage can be carried on a road train.

“Such innovations results in a tri dolly becoming the new trend,” he says. “This then accelerates the depreciation of a bogie dolly because less people want them.

“New B-triple combinations will now also influence the depreciation of single trailers that are not road train rated. As more road train routes are developed in SA, the nature of farm trucks will definitely change. This all needs to be looked at strategically and costed.”

Owning versus contracting

When deciding on whether to purchase a truck or to hire a contractor, Mr Heinjus says it is important to look at the total cost of ownership.

Total cost of ownership is the process of understanding all costs associated with operating a piece of farm machinery or a vehicle. It involves calculating:

  • Annual depreciation cost
  • Interest cost
  • Insurance cost
  • Registration cost
  • Annual repairs and maintenance costs
  • Fuel costs
  • Labour costs
  • Valuing risk, penalty or timeliness costs.

These costs then need to be divided by the expected tonnes to be carted, which can then be provided as a direct to comparison to using a carrier.

Mr Heinjus says the annual depreciation cost of a truck can be difficult to calculate because it relies on trying to value the vehicle in the future.

“Supply and demand curves influence price,” he says. “For example, the wet harvest in 2010 created unprecedented demand for second-hand harvesters and semi-trailers because people were trying to get their crop off in a short space of time. Farmers were paying higher prices to secure this machinery, but once the risk was managed both the harvester and truck would have depreciated significantly as the trade market returned to a normal level.”

Mr Heinjus says such market influences impact on the overall initial retail cost. If too much is paid for the machinery or vehicle due to reactionary or non-strategic management, the level of depreciation will generally be higher.

A simple way to calculate depreciation is to subtract the salvage value from the original purchase price and divide it by the years of the truck’s useful life. Mr Heinjus says websites such as Truck Sales and Farm Machinery Sales can be useful in assessing trade value.

“Repairs, maintenance, fuel and labour costs are all variable and will vary according to the annual usage of the truck,” he says. “The challenge with calculating variable costs is understanding the actual future costs.

“There is often a discrepancy between what other farmers and the salespeople will tell you versus reality and unfortunately basic fuel consumption and work rates are often not monitored or recorded.”

Mr Heinjus says an important aspect which needs to be considered when owning a truck is maintenance management and the level of compliance required.

He says this is often overlooked by growers.

“Some farmers say they will buy a cheap second-hand truck, but the compliance required around maintenance and making sure it’s roadworthy needs to be considered,” he says.

“Some combinations need to be inspected by a government department every year and often growers will find themselves with some big unexpected costs just to remain compliant.”

Having the right labour is also an important consideration.

“Being able to find labour with the appropriate license can be a challenge in some areas,” Mr Heinjus says.

“That is one advantage of a carrier – the labour comes with the truck – and therefore having a carrier on-site can be quite beneficial.

“I have seen situations where a grower has bought a truck but couldn’t find the labour so they ended up using a carrier.”

Mr Heinjus says the comparison between owning a truck and using a carrier might be quite marginal, but there are added benefits with owning.

“Some of the added benefits of owning a truck such as control over logistics and on-farm blending mean it does become a viable option,” he says.

“It really is a matter of modelling for your situation. The number of tonnes to be carted, blending opportunities and whether or not you have on-farm storage all need to be taken into account.”

More information

David Heinjus
08 8840 4500

Useful resources

GRDC Fact Sheet: Machinery investment and costs  www.grdc.com.au/FBM-MachineryInvestmentAndCosts