Five reasons why trucking haulage rates in Jamaica are inconsistent

Why is this so? How is it that pricing for the same delivery job can appear so random?

Here are five reasons why.

If you work for a manufacturing or distribution company, and you are responsible for ensuring the company’s goods get from its warehouse to your customers, at some point you are going to contemplate outsourcing your delivery services.  In fact, you may be here because you read my blog on the pros and cons of companies owning their own delivery vehicles.

Naturally, the first question that you would want to have answered is, “How much would it cost if we outsourced our deliveries?”

And this is where your research would get interesting. For if you asked 10 independent box truck owners to quote you on carrying a truck load of your goods from your warehouse to a specific customer, at least seven of them are likely to first ask you how much you were thinking of paying (more on why later).  And when all 10 eventually provide their quotes, it is likely that the variance between the highest and the lowest will be so wide that you wonder if somehow you miscommunicated the details of the delivery request.

Why is this so? How is it that pricing for the same delivery job can appear so random?

Here are five reasons why.

1. Rates are not only based on the quantity of goods

In our everyday lives, we are used to seeing goods and services priced for standard units. For example, if we go to the supermarket to buy bottles of water, there will be a price per bottle.  By the same token, that supermarket would have likely purchased that water at a specific price per 24-bottle case from a distribution company.  This norm in pricing goods and services leads most of us to expect that delivery services will be priced in units of our cargo.  Therefore, it would not be unreasonable for the manager at that distribution company to expect that the cost to deliver a specific number of cases of water to the supermarket will be derived from some standard price per unit of some attribute for each case – be it weight or size.

However, this is not how it works for customized cargo transportation.  The price quoted to move your cargo is based primarily on the cost the Trucker must incur to do so.  This cost is mainly driven by: a) the cost of fuel required for the delivery, and b) the labour cost for the crew to transport, load and unload your cargo.

Fuel Cost

Fuel cost is dependent on the fuel consumption rate of the delivery vehicle and, all other things being equal, the larger the vehicle the higher the fuel consumption. Therefore, if for example the distributor wishes to deliver 100 cases of bottled water and is getting quotes from a trucker with a 3-ton box truck and a trucker with a 5-ton truck, he is likely to get a lower quote from the trucker with the smaller truck.  Therefore, to minimize delivery costs, it is critical for distributors to put their cargo in the smallest delivery vehicle available that can carry it.  Otherwise, they will be paying more to transport surplus space.  

Crew Cost

The crew will include at least the driver (of course) and may also include one or two assistants (called sidemen in the haulage industry). The volume, packaging and stacking of cargo influences how much effort is required to load and unload.  Therefore, going back to our example of 100 cases of water, if these are stacked on pallets then a single sideman with a hydraulic pallet jack would be able to move the pallets from the delivery truck to a receival dock at the supermarket relatively quickly.  However, if the 100 cases are stacked ‘free’ in the truck, then more than one person will be required to load and unload them in a reasonable time.  Therefore, the crew cost will be higher for the latter situation.

At Will Deliver, we encourage clients to include details about cargo volume and packaging when posting their delivery requests to our platform so that they are more likely to find the best trucker option for each job.   

2. Some Truckers only consider the direct costs

While fuel costs and crew costs heavily drive haulage prices, they are not the only costs a trucker needs to cover. Truck overheads such as maintenance, insurance, loan interest, licenses and depreciation ought to be allocated for each delivery.  However, many do not factor these in their estimates and hence these truckers tend to underprice their services.

3. Truckers may pass on savings from backhaul deliveries and combined loads

Sometimes truckers get the opportunity to carry cargo on the return leg from another delivery. Since the vehicle would be returning to base anyway, carrying the cargo on this backhaul leg requires little additional fuel and crew costs. In such instances, truckers may decide to pass on the savings to the client.

Likewise, there may be occasions when a trucker is able to combine cargo loads from multiple clients and spread the total delivery cost among those clients thereby significantly lowering the charge for each.  

4. Some truckers base their estimates on erroneous rate sheets from larger companies

There is this peculiar phenomenon in the haulage industry in Jamaica whereby, because of pricing power skewed heavily in their favour, a few relatively large distributors and manufacturers that outsource their delivery service define the rates that they will pay the truckers they outsource the services to. This pricing power imbalance exists because most truck owners flock to these few companies seeking delivery contracts thereby creating a huge surplus in supply of contracted haulage capacity.

Some truckers with experience with some of these larger companies’ rates use these rates as a guide to price their services to other clients.  However, in several instances these companies’ rate structures have anomalies.  I have seen rate sheets with rates that are too low to adequately cover the truckers’ costs, or do not define rates with sufficient location specificity (such as having a single rate to deliver to everywhere in an entire parish).  And I have seen rate sheets from different companies that have widely differing rates for similar delivery distances and truck sizes.  As a result, I have my doubts about whether these companies use accurate trucking service costs to define the rates on their rate sheets.

However, they can maintain these rate sheets because of the aforementioned pricing power as well as the next reason trucking rates appear to be all over the map.   

5. Many Truckers do not know the true operating costs for their vehicles

Over the years, I have met many truckers and whenever I get the opportunity – which is most of the time – I ask them about the operating costs and fuel consumption for their trucks.  Many do not have a strong grasp on this information.  Sure, with regards to fuel, for example, many of them can say approximately how much the spend is for a route that they have done often or recently – say Kingston to Montego Bay.  However, many do not know the average fuel consumption in kilometers per liter of their vehicles.  So, when a request for a quote for a delivery to a location for which they do not have previous experience, they struggle to accurately estimate the fuel cost.

Given the said norm of most of the outsourced deliveries being done for rates set by large distribution companies, it is not surprising that many truckers do not know their trucks’ operating costs more precisely.  Many of them accepted these rates on good faith and never saw the need to compare these rates to their costs of doing the deliveries to see if the rates were profitable for them (the truckers).

The Will Deliver app helps truckers in this regard by providing a recommended quote for each delivery request.  The app’s algorithm generates these quotes from data on direct costs and overhead costs for the specific vehicle and crew the trucker is using to do the job.

How Do We Improve?

While there are valid reasons trucking haulage prices may vary significantly for the same job among truckers, some of the variation is ultimately due to gaps in truckers’ knowledge about their vehicles’ operating costs. Truckers who know, or can reliably get, the true cost of doing delivery jobs will be able to better determine a fair rate to charge – or to accept – for the delivery job in question. The more truckers are so informed, the more market forces will push rates toward their true fair value. 

The variation in rates also stem from the fact that the commercial trucking haulage market in Jamaica is inefficient.  That is, most times when a company engages a trucker to transport the company’s goods, the company does not seek – or does not have access to – quotes from all the other truckers willing and capable of carrying out the job.  So, agreed rates are not usually truly market driven.

The bottom line therefore is that the consistency of rates will improve when: a) most truckers become sufficiently informed about their trucks’ operating costs and use that knowledge to agree to fair rates; and b) clients, or shippers, get access to offers from a market-representative sample of multiple truckers willing and able to fulfill the delivery requests.

Will Deliver’s platform helps to make these happen.  In addition to providing recommended quotes for truckers based on the true costs to do the delivery jobs, the app also enables shippers to get quotes from multiple independent truckers for delivery requests.

So, we may not be too far away from having a commercial trucking haulage sector with market-driven rates provided by informed truckers.

Roger Williams
CEO, Will Deliver

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