TRUCK BUSINESS IN NIGERIA: COMMON MISTAKE

This write up aims give a clearer perspective towards haulage business and also to give the business owners the simplest and most direct model to make money in truck business in Nigeria without necessarily spending much on fuel or maintenance. I will be looking at just 3 concepts ...

in haulage business and will be doing a comprehensive analysis using just one factor DISTANCE which will be held constant. The other 2 are Fuel consumption and Maintenance. How all these factors affect profit making both positively and negatively will be the overall objective of this write-up. Before I proceed; there are some other confounding variables that will be put on ceteris-paribus and they are; the drivers (let us assume they are motivated properly and only misbehave by loading their personal goods while coming back from their delivery journey),the mechanic (let us also assume he increases the price of truck parts by little over 10%) and finally the road (let is put the state of the road as bad; which means will delay time to deliver goods and at the same time increase consumption of fuel and reduce the life span of tyres). Haven’t agreed on these factors I shall now proceed with my analysis.  

DISTANCE

Some truck business owners think that the longer the distance the more the money to make right? Am sorry to say this but you are wrong! Here is the simple analysis; Let us take 3 locations of Abuja, Akure and Ibadan making Lagos the point of departure. You can as well use any location of your choice to do the analysis but you must take into consideration the distance in terms of k/m.

Location	Price (20 tons truck)	k/m	Diesel consumption	Rate	Total Price of Diesel
Abuja	N180,000	724km	500 litres	N140	N70,000
Akure	N90,000	314km	270 litres	‘’	N37,800
Ibadan	N56,000	145km	160 litres	‘’	N22,400

 ***Please note that the amount listed above is the average money paid by companies and the nature of truck are the normal truck used to carry packaged goods so flat body do not fit into the category even though the same principle still applies. I made use of 20tns because it is a capacity that is assumed brings more profit

ABUJA

If we deduct the trip price from the diesel cost we have N180,000 – N70,000 = N110,000

How many k/m is Lagos to Abuja = 724km

So, how much did a k/m cost from Lagos to Abuja = N110,000/724k/m = N151.93

It cost just N151.93 per k/m from Lagos to Abuja.

AKURE

If we deduct the trip price from the diesel cost we have N90,000 – N37,800 = N52,200

How many k/m is Lagos to Akure = 314km  So, how much did a k/m cost from Lagos to Akure = N52,200/314k/m = N166.24

It cost just N166.24 per k/m from Lagos to Akure.

IBADAN

If we deduct the trip price from the diesel cost we have N56,000 – N22,400 = N33,600

How many k/m is Lagos to Ibadan = 145km

So, how much did a k/m cost from Lagos to Ibadan = N33,600/145k/m = N231.72

It cost N231.72 per k/m from Lagos to Ibadan.

Looking at the above analysis, you can testify to the fact that the more the distance the less the money coming into the company. If Abuja generates N151.93 per k/m and Ibadan which is shorter in distance to Abuja is generating  N231.72 per k/m then a big economic question needs to be asked!

I will also prove that if a truck A travels to Ibadan 10 times plus 1 trip to Ijebu-Ode in a month and another truck B travels 5 times to Akure, that truck A will generate more profit than truck B even though 5 trips to Akure (1,570km) is farther than 10 trips to Ibadan (1,450km) plus 1 trip to Ijebu-Ode(105km) which equals to 1,555km all from Lagos. Follow me through this journey of analysis and please tighten your sit belt, lol!

However before proving the above hypothesis, lets quickly go through the other 2 factors;

FUEL CONSUMPTION

The fuel consumption from Lagos to Abuja is 500 litres which amounts to N70,000 and yet the journey is generates N151.93 per k/m , and fuel consumption to Ibadan is just 160 litres which amounts to N22,400 and it  generated  N231.72 per k/m. What this is telling us is that we spend more on fuel and yet getting less in return. To common logic it is an economic blunder that needs to be reversed. 

MAINTENANCE 

You will agree with me that the more the distance, the more the wear and tear on tyres, the more the pressure on the engine and also the higher the potency for servicing and maintenance of the trucks.

The rational question to ask is, does it make sense to put so much damage on a truck when it is bringing less in term of per capita of k/m? Capital NO!

MY PROVE THAT A SHORTER DISTANCE BRINGS MORE PROFIT AND LESS DAMAGE ON TRUCKS

I will be using 2 trucks going to separate distance taking into consideration the cumulative figure of the total distance covered by the trucks and the income they can generate.

I will be using  Akure (Truck A) and Ibadan and Ijebu-Ode (covered by Truck B);

Akure is 314km, so let us assume  truck A goes to Akure 5 times a month;

So therefore, the total distance covered for 5 trips to Akure  = 314 x 5 = 1,570 km

Ibadan is 145km, so let us assume  truck B goes to Ibadan 10 times a month; 

So therefore, the total distance covered for 10 trips to Ibadan = 145 x 10 = 1,450 km

Ijebu-Ode is 105km so the same truck B goes to Ijebu-Ode once = 105km

So therefore 1,450 (10 times trip from Lagos to Ibadan) + 105 km(a trip to Ijebu-Ode) = 1,555km which is less than 1,570km (5 trips from Lagos to Akure) right? Yes!

Let us go straight to the analysis;

1. The price of 5 trips from Lagos to Akure = N450,000

Let us remove Diesel cost = N450,000 – N189,000 = N261,000

So therefore, 1,570km will generate N261,000 ( a distance that is 10 times the journey from Lagos to Ibadan and 1 trip Lagos to Ijebu-Ode)

2. The Price of 10 trips from Lagos to Ibadan = N560,000

Let us remove diesel cost = N560,000 – N203,000 = N357,000

3. The Price of a trip from Lagos to Ijebu-Ode = N50,000

Let us remove diesel cost = N50,000 – N18,200 (130 litres for a trip to Ijebu-Ode) = N31,800

Now let us add the N357,000 + N31,800 (10 trips to Ibadan and 1 trip to Ijebu-Ode which is equivalent to 1,555km which is less than 5 trips from Lagos to Akure 1,570km) = N388,800

You are going to be making ; N388,800 - N261,000 = N127,800 in excess profit for a distance that is even shorter by 15km by doing a shorter journey (just like the case of Akure vs Ibadan & Ijebu-Ode). 

In conclusion, longer distance does not equate to more profit in truck business and this is a common mistake often made by Truck Business owners.

For more consultation of the best distance and ideal fuel consumption contact me on twitter @ayoolaashiru or my e-mail ayoolaashiru@gmail.com

                  Supported by AAVICTO TRUCK SERVICES

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