How to reduce losses in transportation service

Vaishnavi M

Road transportation service is a low margin business where profits are in the range of 5 to 10%. Automation and loss reduction are crucial to run logistics and road transportation service in a profitable and sustainable manner. Losses in road transportation can happen due to a multitude of reasons. It is very tough to fill a leaking bucket. It is crucial to arrest them. To avoid losses you need to know what are these holes are. 

Major categories of losses are

  1. Government Fines
  2. Operational losses like late delivery, damage, shortage, halting
  3. Fraudulent transaction
  4. Price mismatch losses due to bidding
  5. Employee pilferage

1. Government fines

A logistics company and the truck owner have to remember some points otherwise they may incur themselves in great fines. Sometimes the truck owners or transporters just neglect it, or it goes unnoticed. A truck travels through various states, they have to keep in mind the RTO rules, government regulations and Motor Vehicle Act. 

As we all know India is becoming a fine country. The fines you need to be aware as a logistics company are

  • Overload  

This is the most common mistake done by them. Some states are very strict like Delhi border, Orissa border and West Bengal. Different types of truck have different capacity for loads and a truck should only carry that much, which is authorized by the government. For your reference, this is the rules from the Ministry of Road Transport and Highways https://morth.nic.in/sites/default/files/Advisory_regarding_revision_of_safe_axle_1.pdf. Mainly the overweight is caused by the body of the truck, some truck drivers use cheap quality and some use good quality of material. let’s take an example of Three Axle Rigid Truck 

GVW allowed = 28.5 ton
Truck chassis weight = 7 Ton
GVW – Chassis = 21.5 Ton
Truck body weight
Light = 2.5
Medium = 3.5
Heavy = 4
Type Ton Carrying Capacity
Light body 2.5 = 19 Ton
Medium Body 3.5 = 18 Ton
Heavy body (South trucks) 4 = 17.5 Ton
GVW (Gross Vehicle Weight)

The weight allowed for this truck is 28.5 Ton, the weight of the truck itself is 7 Ton. So, the truck has the capacity to carry 21.5 Tonnes. There are three ways in which a truck driver builds the body light body, medium body and heavy body, this material weight is also calculated. You can see in the example, how the carrying capacity of the truck is calculated. The weight of the material used always differs, that’s why it is common for any truck to get overloaded without their knowledge.

  • Traffic rules and documents required

Driving without following the traffic rules and proper documents is illegal. According to Motor Vehicle Act 2019 https://egazette.nic.in/WriteReadData/2019/210413.pdf The Government of India has made Third-Party Liability Insurance mandatory for all motor vehicles to drive legally on the road. The fine for the first offence of driving without insurance policy is Rs.2,000/- and/or imprisonment of up to 3 months. For the second time offence, if you continue to drive a vehicle without insurance policy then you will be liable to pay a fine of Rs.4,000 and/or imprisonment of up to 3 months. https://www.bankbazaar.com/driving-licence/traffic-fines.html This page will give you a brief information about the fine and imprisonment of driving without a license, RC Book and also about drunk driving and speed Limit. 

To avoid fine and imprisonment you should 

  • Have hard copy of license, RC, pollution certificate of your truck
  • Have soft copy of these documents in your mobile also
  • Remember to renew your insurance policy to avoid penalties
  • Border in Sates like Maharashtra, Orissa, Delhi are very strict on overloading and fines can be as high as Rs 50,000
  • Goods and Service Tax (GST) and Eway bill

GST means single tax on the supply of goods and services. All cargo transportation services by road are exempt (not applicable) from GST except services from Goods Transport Agency (GTA) and courier services. GTA means any person or agency who provides service in relation to transport of goods by road and issues a consignment note (A document given by the transport providers). It is important for the truck owners to know the rate of GST on the goods transportation service offered by GTA. Household goods and item of personal use attracts 5% GST (SGST 2.5% and CGST 2.5%) and some specific goods which are exempted from GTA

  •  Agricultural product
  •  Goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees
  •  Goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty
  •  Milk, salt and food grain including flour, pulses and rice
  •  organic manure
  •  Newspaper or magazines registered with the Registrar of Newspapers
  • Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap.
  • Defence or military equipment. 

For more information about GST on GTA Services https://www.cbic.gov.in/htdocs-cbec/gst/goods_transport_service.pdf 

Eway bill fines for expiry, minor mistakes can be very high to the tune of 5 to 10 lakhs in certail states like Uttar Pradesh, Bihar and Maharashtra

Tips:

  1. Eway bill management and extension becomes a main part of truck tracking. It is prudent to extend earlier if you feel your truck will reach before eway bill expiry. Eway bill related fines are very high in Uttar pradesh, Bihar and Maharashtra. A detailed blog on how to calculate e-way bill is here: https://cleartax.in/s/gst-eway-bill-validity-distance
  2. New age Transport Management Software like digitify, easy way bill can automate eway bill management and renewal process. Integrated Sim tracking and GPS tracking also helps in automation of eway bill
  3. New amendments are in place to reduce fines for minor mistakes hindi video and tamil video. It’s always better to prevent these issues as handling government agency during transit of goods is very painful

2. Operational losses

Operational losses means the losses occurred during the transportation operation process. The losses can be anything from material damages to order cancellation due to late delivery etc. In freight shipping there is always a fear of risk, because no one can predict what will happen during the course of goods transportation. The major risks are

  • Material damage It can occur when the material is not stacked properly, if one box moves the other moves automatically resulting in crushed, squashed and broken products. Improper packing leads to material damage and unprecedented events also like bumpy or zigzag roads. 
  • Late deliveries The most common factors resulting in delayed delivery are misspelt, incomplete or outdated addresses that lead to failed delivery attempts and incorrectly completed order forms.
  • Halting In Indian logistics sector, it’s a common practice to us truck as a warehouse. Large MNC during peak periods like end of the month or end of the quater they do not have proper planning and have 3-4 days of unloading haling. These companies pay very minimal halting charges of 1000 per day after 24 Hours. All transporters in India should demand higher halting charges per day and it should be (EMI + driver salary / 30). For example, an 18 Ton MXL truck with monthly EMI of 60K and monthly driver salary of 30K should have a halting charge of 3,000 per day. 
Halting per day
(after 24 Hours)
32 Feet MXL Container32 Feet SXL Container20 Feet Container
Current Rs 1200Rs 1000Rs 800
Proposed
(EMI + driver salary / 30)
Rs 3000Rs 2500Rs 2000
Halting charges proposed to reduce halting

3 Fraudulent transaction:

Fraudulent transaction in transportation is getting higher day by day. Always use trusted brokers and truck owners. Have a stringent KYC process. 1 single mistake in a year can cause huge losses and mental agony.

Tips:

  1. Have a stringent KYC and onboarding process
    • Very PAN and do a online search based on PAN number to match
    • Get RC documents and verify using https://vahan.parivahan.gov.in/
  2. Get GPS tracking or sim tracking details of first trip
  3. Verify details with driver during 1st load about owner and broker
  4. If advance value is higher like 1 lakh amount. Pay in 2 or 3 parts based on completed distance

4 Price quotation losses due to bidding: Reverse auction mistakes

Most of large MNC have a reverse auction mechanism done once in 6 months or 12 months. Multiple transporters bid to win lanes and prices are fixed for the contract period. Reverse auction is very tempting as it is time bound if your quoted price is low you are stuck with the contact throughout the contract period and losses can run into crores if not handled properly

Tips:

  1. During bidiing process Be calm like Captain Cool Dhoni
  2. Know the annual truck hire rates trend and try to have minimum 7% on average and https://www.fr8.in/truck-rates.
  3. If you realise quoted rates are too low, have a open discussion with end shippers and renegotiate before starting operations

5 Employee kickbacks: Transportation mamul

Employee pilferage is an act in which the coordinator who is involved in the bidding process gives the trucks or loads to the brokers who are providing extra commission to the coordinator. It is a common practice for transport service in India to have employees at very low salary. The average salary for entry level person is below 12,000 per month. This is a major reason for employees to take kickbacks in terms of mamul from truck owners or brokers. This is a unhealthy practice as employees will start to treat transport brokers and truck owners in a unfair way by collusion with known brokers and truck owners who pay more money as kickbacks.

Tips:

  1. Take care of employees and pay a decent minimum salary of Rs 15,000.
  2. Have a strict no mamul or kickback policy and terminate in case of any wrong doings
  3. Compare your purchase rate with market rate. you can check the live prices and truck rate here: https://www.fr8.in/truck-rates.

Conclusion 

The profit earned in a logistics business is 5% to 10%. The logistics company should know all the updated information about the law, rules and regulations by the government to avoid the fines. Automating the process using transportation management systems and having a right and tight process is crucial to run it in a profitable manner.

Tip:

Provisional losses: Having 2% of your revenue as provisional losses is a good place to start with in a new contract.  Lesser your actual losses, it is better for the business but provisioning 2% is a good accounting practice. 


2 responses to “How to reduce losses in transportation service”

  1. Avatar
    ———-

    Totally accept with above mentioned points!!
    But this profit margin of 5-10% is only and only possible when truck is EMI free.
    And if unfortunately truck is on EMI truck owner’s need to pay that EMI from thier buffer fund..
    #Road transport is bleeding…

    1. Avatarwp-user-avatar wp-user-avatar-40 alignnone photo wp-block-avatar__image
      Jay

      If a truck is in EMI. As long as the EMI is paid from profit then the business is profitable. Because your paying principal + interest from your business itself. This way in 3-4 years the truck becomes EMI free. With 1 EMI free truck you can either refinance and get 4 more truck with high debt leverage or get 1 more truck with good safety margin. Based on our data, north Indian truck owner leverage a lot and that get into EMI pressure. But south indian truck owners operate with heavy safety margin but they grow slowly.

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