Deccan Cargo Movers: rail versus road versus an owned fleet that is losing money
Deccan Cargo Movers, Nagpur, moves 2,400 tonnes a month of packaged goods from Pune to Nagpur, 710 km. It owns three 32-ft trucks with a 21-tonne payload, each doing four round trips a month at an all-in cost of ₹58 per km covering driver, fuel, maintenance and depreciation; 60% of return legs run empty and no backhaul is sold. Hired market trucks on the same lane cost ₹2,150 per tonne. CONCOR rail offers a 20-ft container with a 26-tonne payload at ₹1,450 per tonne Pune–Nagpur, but door-to-door transit is 9 days against 2 days by road, departure is twice a week, and first- and last-mile drayage adds ₹220 per tonne. The carrying cost of the goods is 12% a year and average product value is ₹85,000 per tonne. Three key customers, together 35% of volume, have contracts promising delivery within 4 days of dispatch with a ₹5,000 penalty per late consignment. The sales head says rail will lose customers; the CFO says the owned fleet is bleeding money.
1. Compute the cost per tonne by each option, including inventory carrying and drayage, and identify how much volume can realistically move by rail.
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Owned fleet. Round trip = 710 × 2 = 1,420 km × ₹58 = ₹82,360 per trip for 21 tonnes = ₹3,922 per tonne. Monthly capacity = 3 trucks × 4 trips × 21 t = 252 t, costing ₹9,88,320.
Hired road. ₹2,150 per tonne door to door.
Rail. ₹1,450 freight + ₹220 drayage + carrying cost of the extra 7 days' transit: 85,000 × 0.12 × 7 ÷ 365 = ₹195.6. Total = ₹1,865.6 per tonne.
Saving of rail over hired road = 2,150 − 1,865.6 = ₹284.4 per tonne, after paying for the slower transit.
Eligible volume. The 35% under a 4-day promise (840 t) cannot use a 9-day rail transit; the 4-day clock starts at dispatch, so even a perfect rail run breaks the SLA. That leaves 1,560 t a month, or 60 containers of 26 t. Saving = 1,560 × 284.4 = ₹4,43,664 per month, roughly ₹53 lakh a year.
Caveats to state in the answer: drayage must be contracted, not assumed; twice-weekly departure means about 7 containers must be consolidated per sailing, so order cut-offs tighten; and the carrying cost assumes the goods are stable and non-perishable. The owned fleet at ₹3,922 per tonne is ₹1,772 per tonne above the market - on 252 t that is a ₹4.46 lakh monthly premium for 10.5% of volume.
2. Recommend the freight plan and say what should happen to the three owned trucks.
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Plan. Split the lane by service requirement, not by habit:
- 840 t (key accounts, 4-day promise): road, but on hired trucks under a rate contract with a back-to-back 4-day SLA and a ₹5,000 penalty clause at the transporter's risk. Paying ₹2,150 is still cheaper than ₹3,922.
- 1,560 t: rail, booked as a monthly block of about 60 containers, with a third weekly departure negotiated and a damage/handling SLA with CONCOR.
- Buffer: keep 3 days of safety stock for rail lanes, costed in the ₹195.6 carrying figure.
The owned fleet. At ₹3,922 per tonne it loses to the market even before the empty return leg is counted. Three choices, ranked:
- Sell or return two trucks and retain one for emergency and odd-size loads - the cheapest way to keep a capability.
- Sell all three and move entirely to hired capacity; own fleet only makes sense if it is cheaper per tonne or if the service cannot be bought.
- Chase backhaul on Nagpur–Pune (steel, agri, packaging) - even at 8.4 t sold per return at ₹1,800 per tonne the effective cost falls to about ₹3,200 per tonne, still above market. Backhaul alone does not rescue the numbers; it only reduces the loss.
Recommend exiting the fleet over three months while a rate contract is signed, so the exit does not create a service gap. The judgement the examiner wants: an asset you already own is not automatically cheaper - sunk cost does not belong in a go-forward comparison.
3. What risks would you monitor, and which metrics would prove the new plan is working?
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Risks
- Rail reliability: a missed sailing adds 3–4 days and breaks even the relaxed promise; keep a road fallback and a written escalation with the rail operator.
- Damage and handling: container stuffing and de-stuffing adds two handlings; inspect and photograph at both ends, and agree a claim procedure.
- Customer acceptance: obtain written consent from non-key customers before the first rail dispatch; do not let the sales head discover it from a late delivery.
- Monsoon: Nagpur–Pune road closures in July–August can shift volume unexpectedly; keep the hired contract flexible on volume.
- Concentration: relying on one rail operator and two road transporters is itself a risk; qualify a third road transporter.
Metrics
- Cost per tonne-km: road = 2,150 ÷ 710 = ₹3.03; rail = 1,865.6 ÷ 710 = ₹2.63. Report monthly by lane and mode.
- Empty running %: 60% today; if any owned or contracted truck is retained, target below 20%.
- On-time delivery against the promised date, separately for 4-day and rail customers.
- Damage rate per 1,000 tonnes and claim recovery ratio.
- Container fill: target ≥90% of the 26 t payload; a half-filled container destroys the ₹284.4 per tonne saving.