Analyst Case Study Transportation You are the Analyst for a small bulk transportation operation located in Houston, TX.

Analyst Case Study

Transportation

You are the Analyst for a small bulk transportation operation located in Houston, TX. Your manager has informed you that ABC Refinery recently sent out a Request for Proposal (RFP) to provide PetCoke transportation services. The volumes are expected to be 1,000,000 tons each year. The product will be transported on a ratable basis during the twelve months of the year; hence, transportation services will need to be provided 24/7, 365 days per year.

Your manager has asked you to calculate the transportation rate necessary to achieve an 88% Operating Ratio (Total Expenses / Total Revenue). You have performed a zero-based analysis of the costs for providing these services and have summarized your findings as follows:

The current truck yard and maintenance shop is sufficient for the additional equipment

The current lease payment for the land is $10,000 per month

The shop has annual depreciation of $36,000 per year

One-way miles: 15.1

Anticipated MPH: 48

Time to Load & Unload: 30 minutes

Time for Pre/Post Shift Check and Fueling: 45 minutes

Cost of diesel: $4.05/gal

MPG: 5.2

Tons of PetCoke per Load: 25.50

Tire Expense: $.08 per mile

Parts & Supplies Expense: $0.16 per mile

Outside Maintenance Expense: $0.04 per mile

Driver Pay:

The current market analysis shows the drivers annual wages need to be roughly $55,000 per year. The drivers need to be paid on a “per load” basis; hence you need to calculate what the pay per load needs to be and reflect this pay structure in your pro forma.

Drivers schedule will be 11 hours per day 5 days per week

Bonus Pay: 4% of Labor

One mechanic for every six tractors (assume 50 hour work weeks)

Mechanic Pay: $24.00 per hour

Cost of tractor: $105,000

Depreciate over 3 years

Salvage Value: 15% of purchase price

Insurance cost: $260 per month per tractor

Cost of trailer: $150,000

Depreciate over 10 years

Salvage Value: Zero

Insurance costs: .85% of the total purchase price

Savage’s CFO has indicated the interest rate will be 5.50% for all capital purchases

Overhead support as follows:

Operation Manager: $85,000 (salary)

Maintenance Manager: $70,000 (salary)

Coordinator: $20 per hour (40 hour work week)

Fringe benefit costs will be 38% of wages and salaries (also applies to drivers and maintenance employees)

Travel and other manager expenses will cost $500 a month except in June when the costs will be $3,000

General Liability Insurance costs will be 1.5% of revenue

Telephone and other utilities will be $35,000 per year

Office and facility supplies, uniforms, and miscellaneous expenses will be $2,500 per month

General overhead costs will be 10% of revenue

Ignore taxes

Prepare a pro forma for this opportunity as requested by your manager, and calculate the rate per ton needed to generate an 88% operating ratio.