For a growing number of companies, cargo transport has ceased to be a matter of secondary and purely operational importance and has become definitively at the center of discussions and strategic decisions. Costs and level of service, two significant variables for the success (or failure) of any company, are directly and decisively influenced by cargo transportation management. Finding the balance between these two variables is the challenge for industry professionals.
In this sense, the benchmarking of tariffs and transport practices, if carried out with well-defined segmentation criteria, can be an important support tool for decision-making, contributing with relevant information on the values of freight paid in the market according to the characteristics of the operation and the different services offered by carriers.
The purpose of this article is to expose the benchmarking methodology that CEL/COPPEAD has developed with some of the most important companies in the country. First, a brief description of the national scenario will be made and the importance of the benchmarking process for transport management will be presented. Then, the most used benchmarking methods will be pointed out and some critical activities for carrying out an effective comparison process will be mentioned. Finally, examples of analyzes carried out and the main results obtained with the work will be presented.
Current Situation of Road Cargo Transport in the Country
The impact of infrastructure on export operations is widely recognized around the world (Limao and Venables, 2001). Of all logistical costs, transport costs are demonstrably affected by the level of infrastructure (Martinez-Zarzoso, Garcia-Menendez and Suares-Burguet, 2003). In addition to freight, export transport expenses also involve other items, such as ship demurrage, container detention, truck and train per diems, all associated with penalties resulting from the demurrage and idleness of these assets.
According to research by Limao and Venables (2001), “deterioration of infrastructure from the median to the 75th percentile increases transport spending by twelve percentage points and reduces trade volume by 28%”. In the Brazilian debate on export logistics infrastructure, these expenditure items are often referred to as the Brazil Cost (see, for example, Figueiredo, Fleury, and Wanke, 2003).
The accumulation of infrastructure, however, is limited by a certain technological frontier and includes fixed and variable components (Bougheas, Demetriades and Morgenroth, 2004). The first involve the physical infrastructure, that is, in a broad sense, the modes of transport through which shipments are shipped. Export is a multimodal operation by nature, with shipments being made by road, rail and waterway to the exit points, that is, ports and airports.
The variable components involve the bureaucratic infrastructure, that is, legislation, taxes, fees, customs procedures for dispatching shipments and any facilities. In Brazil, the EADIs deserve increasing attention (see, for example, Guia de Logística, 2004), that is, the Inland Customs Stations. The EADIs are customs facilities for public use, located in a secondary zone, in which, under concession, the operations of movement, storage and customs clearance of goods are carried out. The provision of these customs services in a dry port close to the domicile of exporters greatly simplifies procedures (Receita Federal, 2004).
Segmentation of exporters
The national scenario presents peculiarities that significantly influence both costs and the level of service that companies can offer. Understanding the context is the first step towards developing a consistent comparison analysis process suited to the transport market.
Road freight transport in Brazil has been facing a series of problems, which, despite being experienced on a daily basis, are still impressive when quantified. Structural problems, associated with political and social issues, define a scenario of great difficulties.
THE LACK OF REGULATION IN THE SECTOR favors the disorderly and excessive growth of players, leading carriers to reduce their tariffs (often to values below their cost price) and preventing the development of the sector. Shippers are also harmed due to the lack of minimum quality standards, such as fleet renewal, vehicle tracking, safety and labor qualification.
According to data from the National Land Transport Agency (ANTT), there are currently 719.741 road hauliers registered in Brazil, of which 85% are self-employed. Of a fleet of 1.385.994 vehicles, 56% are autonomous. This suggests a large number of small transporters, with a precarious structure and an aging fleet.
Recently, ANTT took the first step towards regularizing the exercise of the activity, forcing carriers to register with the National Registry of Road Cargo Carriers (RNTRC). Although still timid, the decision demonstrates an inevitable trend towards professionalization in the sector.
POOR ROAD MAINTENANCE is another serious obstacle to road transport, contributing to an increase in accidents, vehicle maintenance costs, transit time and the number of delays. Recent decisions by the federal government to invest on an emergency basis in the recovery of highways are still insufficient to reverse this situation.
According to the National Department of Transport Infrastructure, of the total length of Brazilian highways (1.610.076 km), 88% of the stretches are unpaved and, of the paved stretches, 95% are single lane. In addition, according to the 2005 Highway Survey, carried out by the CNT, 72% of the main highways in the country are in poor, bad or terrible general condition.
CARGO ROBBING continuously puts pressure on insurance values in the market and, in 2004 alone, it is estimated that the number of robberies and thefts reached 11.700, generating a loss of approximately R$ 700 million (COMPSUR/CNT, 2004). Due to excessive theft, companies began to invest in other security measures, such as risk management technologies and services.
THE HIGH NUMBER OF ACCIDENTS, in addition to taking lives and injuring thousands of people, causes losses with the loss of cargo, vehicles and the resulting delays, compromising the satisfaction of the end customer. Accidents can also damage the environment and compromise the company's image.
According to estimates made by Pamcary, in 2004 there were 89,2 thousand accidents in the country, with damages turning around R$ 9,7 billion. Annually, the number of deaths and victims of serious injuries involved in accidents in the country reaches 12 thousand people, 1/3 of them drivers. While in Brazil there are, on average, 281 deaths per group of 100 truck drivers, in the US there are 25.
THE INCREASE IN THE AVERAGE PRICE OF DIESEL has a direct impact on freight prices, as diesel accounts for the largest percentage share in road transport tariffs: 33,5% – according to the CEL/COPPEAD Cost Survey. According to the ANP, in the last four years there has been a 91,4% increase in the price of diesel.
Within this context, contractors need to seek, in addition to cost reduction, a qualified service that maintains the company's image and reputation. Constant monitoring of the services provided by carriers and a good relationship with carriers, drivers and assistants is essential to ensure a qualified process and service in accordance with the needs and expectations of the market.
Benchmarking can help in this relationship and serve as a subsidy for a frank conversation between the parties, with the intention that, jointly, measures can be adopted aimed at reducing costs and improving the use of assets. Among these measures, the following can be mentioned: reduction in loading/unloading times, identification of return cargo, fleet renewal, adaptation of the best vehicle profile, adoption of a dedicated fleet, changes in contracting policies, adoption of information systems and technologies of risk management.
In addition, it is important that companies are prepared to overcome the difficulties encountered and future uncertainties. Benchmarking makes it possible to record information over time and analyze the behavior of transport tariffs according to changes in demand, fuel prices and other cost items, and investments in national infrastructure, among others.
Benchmarking Methods
Benchmarking consists of comparing the processes of a company/unit with those of others, whether in related sectors or not, enabling continuous learning and improvement of the organizational system. It is one of the most used and recommended ways to establish goals and benchmarks.
According to BOWERSOX and CLOSS (2001), there are three benchmarking methods:
– The first uses logistic data published by consultants, journals and university research. Despite the ease of obtaining information, this method hardly provides a competitive advantage, since the information is in the public domain. In addition, the little existing information is often not segmented according to the company's information needs.
– The second method is private benchmarking with companies that are not direct competitors (in their own industry or in a related industry). In this case, each organization examines the others' measures, practices, and processes to develop ideas that will improve performance. Although the two-way method provides more in-depth and reserved knowledge, it does not offer a particularly broad perspective, with the analysis being limited to a small number of companies.
– The third method consists of an alliance of organizations that systematically share benchmarking data on a regular basis. These alliances require a greater effort to maintain, but normally provide substantially more adequate information than the previous methods. Additionally, this method allows a more accurate analysis, segmented according to the interests of the participants, and for this very reason it is the recommended methodology for an in-depth benchmarking process in the transport sector.
This type of benchmarking is usually composed of the following activities (Fig. 1):
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| Fig. 1 – The Collaborative Benchmarking Process |
Critical Activities for the Transport Tariff Benchmarking Process
Below, some critical activities for carrying out a transport tariff comparison process will be detailed: freight standardization and data segmentation.
Uniformization and Standardization of Freight
In a Benchmarking process, it is essential that the information used is standardized. Thus, when comparing freight rates, it is important to analyze the tariff components (Fig. 2) and define which variables should be taken into account and which ones should be left out in the name of standardizing the analysis.
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| Fig. 2 - Freight Components |
When benchmarking tariffs across different sectors, it is important to:
- highlight the portions referring to gris and ad-valorem to eliminate distortions related to the value of the cargo transported. These costs tend to be much higher for electronics than for commodities, for example.
- analyze, separately, the elements that are not included in the tariff to verify that there is not some kind of cross-subsidy that could be distorting the comparisons. For example, the carrier can adopt a significantly lower value for the portion referring to weight freight and compensate in ad-valorem.
Data Segmentation
Data segmentation activity is one of the most critical points in the transport tariff benchmarking process. This step must be well planned so that comparisons can be made between companies with similar transport profiles. This care is extremely important to give credibility to the results obtained.
On the other hand, it is not advisable for the classification of companies with the same profile to be excessively restrictive to the point of unnecessarily reducing the size of the comparison group. In these cases, the representativeness of the sample can be lost and the comparisons made can be limited. This trade-off is shown in Fig. 3.
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| Fig. 3 - Breakeven Point for Comparisons of Road Transport Tariffs |
There are many variables that can impact the cost of shipping. The segmentation process consists of determining the most critical factors to be used in the formation of comparable groups. These factors can be defined by the companies participating in a benchmarking process themselves, according to the expertise of transport professionals, however, even so, they must be validated with a more careful analysis, such as statistical techniques and sensitivity analysis.
Data Analysis
Below, some examples of relevant information for the transport management process that can be obtained through benchmarking will be presented. The analyzes presented here are segmented by load, degree of fractionation and type of vehicle, based on dry loads, enclosed in 26 ton trailers.
ANALYSIS 1: Average freight values paid by companies in the national market, according to the distances traveled (Fig. In addition to freight, the average values paid with insurance/ad valorem and risk management can also be informed.
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| Fig. 4 – Average freight rates paid by companies in Brazil, according to distance traveled |
Continuous benchmarking allows companies to analyze the behavior of prices paid to road transport service providers in Brazil over time and market trends.
ANALYSIS 2: Variation of national freight rates (minimum, maximum and percentile values) according to distance ranges (Fig. 5).
To better understand the reasons for the variations presented, the characteristics referring to the minimum and maximum tariffs can be detailed. In Fig. 5, for example, in the range of 800 – 1000 km, the minimum freight of R$38,20/(1.000*ton*km) refers to the transport of low value-added cargo, while the maximum freight of R$168,06/ (1.000*ton*km), refers to the transport of high value cargo.
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| Fig. 5 – Variations in freight paid by companies in Brazil, according to the distance traveled |
Additionally, more in-depth analyzes can be carried out to understand the reason for these variations (and not just the maximum and minimum values), identifying which factors have the greatest impact on the freight value and how much this impact is. In Tab. 1 are some examples of issues related to transport management that can be correlated with transport tariffs.
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| Tab. 2 – Transport management decisions that can be related to freight rates in the market |
Benchmarking can also help in understanding the correlations between variables. For example: companies that have a high percentage of spot tend to transport cargo with low added value, have a low seasonality index in the month, make less fleet age requirements and, normally, hire carriers in a decentralized manner.
ANALYSIS 3: Impact of regional differences on freight rates and identification of routes with the highest incidence of return cargo.
In Fig. 6 shows the freight curves for the SP–RJ and RJ–SP flows. Note that the fares for routes originating in SP are usually higher than those for routes originating in RJ. For a distance of 500 km, for example, fares for the SP–RJ stretch are, on average, 44% higher than those for the RJ–SP stretch.
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| Fig. 6 – Differences in freight rates between RJ-SP and SP-RJ routes |
ANALYSIS 4: Comparison of transport tariffs (R$/ton) paid by different companies, on the same route and the same distance covered.
Fig. 7 shows comparisons between the values of freight paid by a certain Company X on routes that originate in the state of Rio de Janeiro and destination any point in the Southeast region. In this illustrative example, the red squares show the position of Company X in relation to the maximum amount, the minimum amount and the average amount paid by the companies participating in the benchmarking in each of the distances traveled. Through this graph, it is possible to verify, for example, that for distances that vary from 20 to 115 kilometers, Company X is the one that pays the most for freight.
The “Additional Information” box enriches the analysis by informing how many companies participated in the comparison, how many times Company X paid the lowest freight rates and how many times it paid the highest freight rates. The table also shows the characteristics of the companies that pay the lowest tariffs, allowing an analysis of the level of demand of the companies that have the lowest freight costs.
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| Fig. 7 – Customized Analysis by Company |
ANALYSIS 5: Comparisons of curves of freight values paid by companies from different sectors.
Fig. 11 compares the freight values paid by a certain Company X with the values paid by the other companies participating in the benchmarking. The steeper the curve, the more expensive the freight paid by the company. This chart allows companies to check if they pay similar amounts for freight to other companies in the same sector and different sectors.
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| Fig. 8 - Comparison of Freight Curves of Participating Companies |
Use of Information Obtained by Benchmarking
The analyzes constructed throughout the benchmarking process can be useful as inputs for decision-making in matters related to the transport area. Information on tariffs between different routes and regions and the impact of distances on freight costs helps companies to:
– Identification of routes with the greatest opportunity to reduce costs and the definition of priorities,
– Identification of regions with higher/lower return load;
– Reallocation of flows;
– Definition of distribution policies for volumes and routes to carriers;
– Redesign of the company's logistics network and definition of stock positioning;
Additionally, information on differences in freight values according to vehicle capacities can serve as a subsidy to better match the types of vehicles to be used. Comparisons of tariffs between different degrees of fractionation can help define minimum lots and encourage promotions for the purchase of certain quantities. In the same way, benchmarking can be useful for defining the requirements required and the services offered.
CONCLUSION
In view of the above, it is clear that a transport tariff benchmarking process is a relatively complex procedure that, when executed in a judicious and rigorous manner, can help in the shipper/transporter relationship and contribute to the construction of a competitive advantage .
Briefly, benchmarking allows:
- Knowing the real situation of the company in terms of expenses with transporters for the eventual taking of managerial actions;
- Use the results obtained through the benchmarking process to communicate results to stakeholders;
- Evaluate how far you are from pre-set performance targets;
- Generate subsidies for determining priorities and actions to be implemented.
Since the beginning of 2004, CEL/COPPEAD has been developing freight price benchmarking work with important Brazilian shipping companies, called Freight Panel. The work has allowed participating companies to monitor and adjust the amounts paid for road freight in the country, being an important tool for improving transport management.
BIBLIOGRAPHY
ANP – NATIONAL PETROLEUM AGENCY. Average consumer price of diesel by region/year total. Available in www.anp.gov.br/i_preco-web/include/Resumo_Mensal_Index.asp, October, 2005.
ANTT – NATIONAL LAND TRANSPORT AGENCY. National Registry of Road Cargo Carriers – RNTRC. Available inwww.antt.gov.br/rntrc/rntrc_porestado.asp, October, 2005.
BOWERSOX, DJ; CLOSS, D. Business Logistics: The supply chain integration process. São Paulo: Atlas, 2001.
COMPSUR/ NTC&LOGÍSTICA – PERMANENT COMMISSION ON SAFETY/ NATIONAL ASSOCIATION OF CARGO TRANSPORT & LOGISTICS 2004. Risk management. Available in www.ntcelogistica.org.br/gris/canal_gris.asp, October, 2005.
CEL/COPPEAD – CENTER FOR STUDIES IN LOGISTICS. Logistic Costs. National Logistics Forum & International Seminar. Rio de Janeiro, 2005.
CNT – NATIONAL TRANSPORT CONFEDERATION. Highway Survey 2005. Available at www.cnt.org.br, October, 2005.
DNIT – NATIONAL DEPARTMENT OF TRANSPORT INFRASTRUCTURE. General Summaries of the Division into Excerpts of the PNV version 2004. Available at www.dnit.gov.br/rodovias/rodoviasfederais, October, 2005.
FIPE – FOUNDATION INSTITUTE OF ECONOMIC RESEARCH. How are road freight transport costs calculated? Available inhttp://www.fipe.com.br/indices/inct_textos.asp, October, 2005.
IBGE – BRAZILIAN INSTITUTE OF GEOGRAPHY AND STATISTICS. Brazil's gross domestic product at current prices, by major regions and states – 1985 – 2003. Regional accounts for Brazil. Available in www.ibge.gov.br, October, 2005.
PAMCARY. Risk management as a means of reducing costs. National Logistics Forum & International Seminar. Rio de Janeiro, 2005.
REIS, NEUTO GONÇALVES DOS. Justification and legality of freight value, gray and fees. Available in www.abti.com.br/valor_gris.htm, October, 2005.
