The Real Costs of Down Time

[ATeam]

In another thread that some consider too tedious, the subject of down time has been raised. While down time is a subtopic in the other thread, I'm raising the down time issue as a separate topic for simplicity sake.

Let's say you are driving down the road and find yourself unable to avoid hitting a big pothole with your left front tire. The jolt knocks you into further trouble and you end up with a shot tire and damaged front suspension that will take one week to repair.

Costs will include the tow, the tire, the supsension parts and the labor to fix it. For discussion purposes, let's not call this an accident or a loss that is covered by insurance. All expenses will be paid out of pocket.

You will also be unable to drive the truck for that week. Stated in another way, you have one week of down time attributable to that repair.

How do you account for that down time on your books? Or do you?

When talking about the costs of truck ownership or the hidden costs of truck ownership, is there a meaningful way to factor in the downtime?

Or is downtime something more simple that means nothing more than your income will be reduced to zero in the week your truck is being repaired?

 

[nighttrain]

not sure

 

[Packmule]

Huh???

 

[davekc]

Unless you have a cystal ball, one needs to account for this expense.
We assign different numbers in to this cost based on the age of the vehicle. Whatever number you assign, must be part of your cost per mile.
To figure that, go to http://www.ooida.com/trucking_tools/CPM/cost_per_mile.htm

Alot of variables come into play with the above scenerio. Some of them may be carrier driven as well if on a load. What do I mean? Some carriers will charge a percentage back to the owner if there is a service failure. You may need two tows. Why? If the carrier can't find a truck to transfer your load to, they will tow you to the delivery to get the load off. Then you have the second to a repair facility.
Using Ateam's example,
several tows might be $600 and it might be several thousand. I've seen a load out west get towed over 1,000 miles. Tow bill was 3,500
Now add to that,
Food
Motels
extra freight charges to ship in repair parts
extra days because the shop may not be open 24/7
May pay extra because many dealers will overcharge the repair because you are stuck. Have to weigh that against another tow.
Alot of that depends on where it happened.
lost revenue and fuel used.

Something well worth a new person to consider. A simple breakdown and the above scenerio can set you back thousands. Everyone has there own numbers but from the first day a truck drives off the dealers lot we keep $10,000 in reserve. Imagine if you have a accident. Whether you are at fault or not, don't think for a second they are going to pay you right away.
I have seen some that started with little and make out ok, and I have seen some hit this scenerio and get wiped out.
Better to be prepared.









Davekc
owner
22 years
PantherII
EO moderator

 

[greg334]

I understand what you are saying but I am wondering if you mean downtime of a truck or downtime of a truck with lost potential revenue?

--->Notice I said potential revenue<---

 

[ATeam]

>I understand what you are saying but I am wondering if you
>mean downtime of a truck or downtime of a truck with lost
>potential revenue?
>
>--->Notice I said potential revenue<---

I mean downtime with lost potential revenue. All of the costs DaveKC mentions above, that arise when a truck goes down, are easily quantifiable. They get entered on an income and expense statement as expenses and thereby affect your bottom line.

Say, your average gross income to the truck is $450 a day over a one-year period. While some may say that the cost of sitting home (down time) for 10 days is $4,500 (plus your fixed costs), that $4,500 does not get entered on any income and expense statement that I have seen, nor is it a tax deduction.

The value of lost income opportunities (down time) does not appear as a line item. It only shows up in the reduced income number the downtime would produce. So too with a truck repair that takes the truck out of service for a week. So too with down time attributable to reefer service, repair, or certification.

Is this a correct view?

 

[davekc]

Good question

There are two different issues. One as using Phils scenerio were it would include both in my case. Why? In my case, our trucks are rolling pretty much everyday that they are in service. Of course there are those exceptions, and sitting through a weekend could happen, or parked to reset hours. If that stops, its works against your estimated revenue average. There are only 30-31 days in a month.
You don't get those days back if your revenue stops.

The second one is the fixed costs if a truck is parked in the driveway. That still has a cost. If it sits for a week, then whatever your weekly average is, can be weighed against that. Holidays could be looked at in that same fashion. The fixed costs don't stop because its Christmas for example.






Davekc
owner
22 years
PantherII
EO moderator

 

[Streakn1]

Great thread Phil.

As you know it affects us first hand! After recently being hit and our truck damaged by a JB Hunt Transport Inc truck, "Potentual Lost Revenue" becomes a big issue. We all know our expedite trucks make far more in average daily net revenue than many common carriers do. Yet when it comes time to collect the lost net revenue for your downtime while getting the truck repaired, good luck. Many will argue the amount you're asking for is to much. Give them proof of revenue earned by your truck over the past 3 months or even a year and they still argue and refuse to pay.

I would think proven gross revenue minus operating cost ( fuel,tolls,etc) used to earn said revenue = net revenue. Would that not be an undisputable amount? Is that not the standard way for the trucking industry to figure "average net revenue" a truck earns? I also wonder if the days the truck is out of service while on hometime,etc or only the days the truck is in service availible for or under a load have to be used to calculate potentual daily net revenue? Bottom line is that one should be compensated for what they loose and nothing less.

 

[greg334]

Maybe I am from a different background than most and seeing this as a black and white issue, with no gray anywhere in sight.

I look at down time inside this type of service industry as a loss but not a loss you can not count with potential revenue due to the fact that there is no way to determine what could be outside of past performance from the last fiscal year. Even then it is not accurate with a changing environment and market conditions.

What I mean is working on DRPs and using what I did in the past as part of risk management, executive sale and business continuity planning, I would for the most part have solid of fixed figures and factors to work with that tell me and the company where we would stand with a disaster of any sort. It was determined for a fixed amount for system down time that would affect the group/department/division/company and use that figure(s) to illustrate and justify the plan.

Here we have two major factors outside of recurring fixed cost, the customer and the carrier. An almost as important factor is the truck and how it is configured but that is too many factors to take in account right now.

If we had a crystal ball and could have the information what, when and how much a customer will have, we could for all intent and purpose use those numbers to say we lost X revenue during the past week because of the injector pump failing.

The other major contributor is the carrier and how they use your truck. It again is a crystal ball thing in where it needs to be determined that yes the carrier will offer us these loads at this time.

I could go on about this but I hope that you get the picture.

 

[Streakn1]

Ok folks, sounds like there are many ways to look at figuring lost potentual revenue for downtime. In making it simple,take our situation:
Truck will be in repair shop a minimum of three days getting damaged box repaired.Company that hit us is responsible to pay.What is a fair amount to demand for compensation on downtime on a DR-unit? Based on our numbers we are asking for a net of $705.00/day. They are only offering $200.00/day. If in our situation, what would you expect as a fair number?

 

[cheri1122]

It seems reasonable that whatever number you can verify as being an average should be accepted. You'll have to fight for it, whether it's the insurance or the other driver's carrier, most likely, but if you are being fair in what you're asking, then you can be firm. And patient - it may take a long time.

 

[LDB]

>Say, your average gross income to the truck is $450 a day
>over a one-year period. While some may say that the cost of
>sitting home (down time) for 10 days is $4,500 (plus your
>fixed costs), that $4,500 does not get entered on any income
>and expense statement that I have seen, nor is it a tax
>deduction.

I don't see hometime as costing $450 a day (or whatever your true daily number is) unless last calendar year you were on the road and available 365 days. Your daily number from last year probably includes X number of days of hometime. I will agree that taking one week more hometime this year than you took last year has a potential lost revenue cost of $450x7. Additionally, one could argue that every day worked this year that was a hometime day last year has a potential of increasing this year's total revenue by $450 per day. To be more accurate I'd replace hometime with time off since it could just as easily be time spent enjoying the Smithsonian or NASA or the Grand Canyon or whatever.

Focusing on the original point of a breakdown, I don't see a viable way to record or account for the $450 daily potential loss since there's no way to know what the true loss is. It could be a N.Y. to L.A. with S.F. to Philly as the next day followup. It could just as easily be a week worth of minis and short runs with 2 days of nothing in between. Perhaps a CPA can enlighten us on how/if the lost revenue can be itemized. I don't see how it can be. I think we just have to record all the actual costs and have enough emergency fund for home needs and maint/repair fund to cover the truck costs.

If you aren't already putting away several cents per mile for just such an event you better start now.

Leo Bricker, 73's K5LDB, OOIDA 677319
Owner, Panther trucks 5508, 5509, 5641
Highway Watch Participant, Truckerbuddy
EO Forum Moderator
----------
Support the entire Constitution, not just the parts you like.

 

[greg334]

I think that there is a difference here, I may be wrong but when you talk about downtime due to a repair where you are going to get/attempt to get compensation, this is something that could be looked at as "what did the truck do in the last 30/60/90 days and this is what you owe me"

on the other hand, Phil's original premise (I may be wrong here also) was to factor downtime into a formula to determine payback of a reefer equipt truck.

 

[ATeam]

Yes Greg, I have the reefer payback formula in mind, but down time is down time, is it not? Whether it is due to hitting a pothole, or getting hit by another truck, or going in for reefer service or an engine rebuild, or going home for a grandchild's birthday, or going to your carrier's headquarters for HAZMAT training, the result is the same. Revenue ceases because the truck is not in service and available to haul freight.

In some cases you may be compensated, in full or in part, for the lost revenue. If so, the compensation would show up as income on your statement of income and expenses. But if not, nothing is entered to show the cost of down time. That cost will instead be evident in the reduced revenue during the down time period.

 

[davekc]

In our case the accountant used three variables based on quarters or 90 days.
One was potential loss of income (Your greatest chance of revenue)
The second was income averaged over the 90 days. This would be the number that say an subrogation attorney would use to seek compensation for damages.
The third was the lowest potential loss within that period, divided into a weekly average. So if your truck was down for a week, you would arrive at a number that would be your lowest average.
That would provide the bare minumum loss.
All three are different and used for a variety reasons.







Davekc
owner
22 years
PantherII
EO moderator

 

[greg334]

Phil, I understand what you re saying but from my point of view - as much as it could be wrong - Downtime should be considered as an unavoidable condition that prevents the truck from running. I understand that estimating downtime cost as a service provider is different from other industries but I think it is a lot like the banking industry.

I think Dave’s explanation is one to consider.