Separating costs as a private carrier

Scope

Being able to correctly separate costs is critical for all private carriers. If the company management is not viewing the true cost of fleet operations, they may make detrimental decisions as to the future of the fleet.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Support and physical facility costs should not be mixed with company operations.

Examples of mixing costs:

• An example would be the company handling the driver hiring qualifications through the company human resources office rather than as an internal function of the carrier operations.
• The other example of mixing the costs is assigning all transportation department costs to the private fleet. If the traffic department solicits and works with outside carriers, the full cost of the traffic department cannot be assigned entirely to the private fleet. In some cases, the warehousing and freight storage costs are charged against the private fleet.

Instead, a carrier’s budget and related costs must be separated into functions. Using line-item budgeting and an ABC model, the Fleet Manager can separate out the non-carrier costs that may be appearing in the budget.

The ABC model. ABC allows the Fleet Manager to separate the private fleet’s costs from the company’s costs in areas where the costs are intertwined. In the example used earlier, the company is handling the driver hiring and qualifications for the fleet. To separate the costs of this arrangement, the Fleet Manager would need to determine which activities the human resources department has to undertake for the fleet. Once this is determined, a time requirement for each activity can be assigned. Next, simply multiply this by the full hourly rate of the human resources department.

In short, the private fleet should only be billed for the time that the human resources department spends working for the fleet: no more, no less.