How Do You Figure Reefer Payback?

[ATeam]

There has been an ongoing and hopefully informative debate in the Open Forum about the pros and cons of owning and operating a reefer-equipped truck (that's refrigeration unit, not the other kind).

People of opposite views have shared their opinions in mostly respectful exchanges.

Diane and I equipped our truck with a reefer and while having our share of reefer troubles already, have nevertheless been pleased with the results so far.

Now that I have first hand access to real world reefer numbers, I am interested in continuing the ongoing debate but in a more detailed manner.

I'm wondering if members of the EO community could come up with a mutually-agreed-upon formula for determining if and when a reefer pays for itself, and/or a way of determining the return on assets (ROA), positive or negative, a reefer produces.

Included in the calculation would be the cost of the reefer and reefer body of course. Reefer maintenance and ongoing operating costs should also be included. If you run with FedEx and are T-Val qualified, the costs of obtaining and maintaining that qualification should also be included. Am I leaving anything out?

Regarding revenue, how do you figure? Do you credit the entire revenue of a reefer load against the cost of a reefer? Do you you split a reefer run's revenue between the reefer and the truck in some fashion? Do you assume that there is nothing special at all about any kind of reefer run and that without a reefer run you would have had a dry-box run of the same miles at the same time? In that case, do you charge only the difference between reefer revenue and dry box revenue? What about the fact that some dry box loads pay more than some reefer loads? How do we account for that in the reefer ROA?

I have some ideas of my own in this regard but before tossing them out, I want all parties in the reefer-pro-and-con discussion to have the chance to share their views.

Perhaps, and maybe I am expecting a mirical here, people on both sides of the reefer issue can agree on an objective formula for calculating a reefer's ROA (or return on investment as some may call it).

 

[Paul56]

>Perhaps, and maybe I am expecting a mirical here, people on
>both sides of the reefer issue can agree on an objective
>formula for calculating a reefer's ROA (or return on
>investment as some may call it).


Return on Asset = ROA

Return on Investment = ROI

Return on Equity = ROE


There is a distinction.

 

[ATeam]

Which distinction would you suggest is best for this discussion? Which best answers the question, "How do you figure reefer payback?"

 

[Prarysun]

Hello, the way we are getting paid we get 25 cents per mile over what a normal load pays. That is for all miles, not just reefer miles so we figure at the base extra cost of 16K we figure on an avg of 100k paid miles per yr on avg so it on a very basic level will pay for itself in less than a year. Maintenance etc is another story but I think it's a good investment. We opted for the higher base revenue for all miles rather than the company who pays a higher percentage just for reefer miles. Thinking we will make out better in the long run. We are new to the reefer world and appreciate this subject. Thanks.

 

[Paul56]

>Which distinction would you suggest is best for this
>discussion? Which best answers the question, "How do you
>figure reefer payback?"

Since you started the thread it would be great if we could see your contribution to these questions to get the ball rolling, particulary since as you say you have accumulated real world data. I find it very odd that you, as they say, "hedge your bets" here.

As far as I'm concerned as long as we have a few long term contracts with customers where a reefer is required, the reefer pays for itself.

I'll leave the nuts n' bolts of a numbers based discussion to my wife, Nicole, who is an accountant by profession.

 

[davekc]

We have owned reefer trucks on and off for years, and ran them for different carriers. In Paul56's case, it is a different animal because he is servicing his own accounts.
We found that over a period of years, the return is greater with a dry van.
As in other posts, that is why many consider the reefer truck a calling.
The reefer will generate more revenue in the first year or so until you start picking those repairs up and the continual downtime for those repairs.
Also if looking at "real world numbers" I am mindful that 90 percent of the current "Teams Wanted" ads are from reefer TVAL owners or WG that have existing trucks with no drivers. Many have the same ad for weeks at a time.
As mentioned in another post, the carrier preference may be an issue? Not sure? But as an owner, it is hard to ignore those number of owners looking for drivers.
Just my observation









Davekc
owner
22 years
PantherII
EO moderator

 

[mrgoodtude]

What reefer problems are you having Phil?
If you are running a belly mount 844 series or similar I am probably aware of the problem and don't mind sharing info.
As for a litmus test on worthiness I suppose you would have to reflect on a years (minimum) revenue and decide.
I personally would expect a reefer equipped truck to generate $225,000 a year in gross revenue but I may be too optimistic, especially now.
In general if a dry box generated $175,000 a year and you were indeed at
the 50k mark in additional revenue I suppose it would be worth it but in this day I think one would be taking a gamble.
What are your expectations?
Mike and Cyn

 

[ATeam]

>We found that over a period of years, the return is greater
>with a dry van.

I'm glad to see your response, DaveKC. You and I have gone around and around before on reefer pros and cons. As stated in my original post, I am interested in raising the discussion to a more detailed level. As another poster already said, the subject is appreciated. We can do readers a service by getting as detailed as we can from our own experience.

So, my question, respectfully asked, DaveKC, is, how do you know that your return over the years is greater with a dry van? What numbers or calculations or observations do you use? More importantly, are your numbers, calculations or observations others can use who are considering a reefer purchase?

 

[ATeam]

>Since you started the thread it would be great if we could
>see your contribution to these questions to get the ball
>rolling, particulary since as you say you have accumulated
>real world data. I find it very odd that you, as they say,
>"hedge your bets" here.

I am hedging my bets because I want other people's views on how to calculate reefer payback. I'm not coming here with answers, but with questions.

I will offer this to get the discussion going a bit more.

Our truck is brand new, put in service in June. We paid about $22,000 for a reefer and $20,000 for our reefer body. Had we purchased a similarly spec'ed dry box, the body would have cost about $12,000, our vendor says. Thus, the additional cost of adding a reefer to the truck before the truck turns it's first mile under load is about $30,000. That number is likely higher than most. We have a number of custom items custom-built into the reefer and body that ran the price up. It is also an underbody mount which is more expensive to install.

I encourage others to contribute their reefer cost numbers if they are so inclined.

With this being a brand new truck, we have no meaningful maintenance cost numbers to share yet. But others do and I am hoping they will contribute to this thread.

>As far as I'm concerned as long as we have a few long term
>contracts with customers where a reefer is required, the
>reefer pays for itself.

I've thought about this too. While a reefer is not required for FedEx White Glove, I have wondered if it might be better to not separate the cost of a reefer from the cost of a truck and instead calculate the payback on the entire truck/reefer package. There are a number of non-financial reasons for including a reefer on the truck (in my view), and it may not be all that important to separate the reefer from the entire truck package. I'll list those reasons later but Diane just got back from the shower and it's my turn. We're on a run with little time to spare.

>I'll leave the nuts n' bolts of a numbers based discussion
>to my wife, Nicole, who is an accountant by profession.

I would love it if Nicole to jumped in at this point.

If a client came to her and asked, "How do you figure reefer payback?" what would she say?

 

[davekc]

What we did is look at numbers with the aid of a CPA through the life cycle of numerous trucks. Basically in five year increments.
Our interest of course was to look at it from strictly a investment standpoint. Much of this I have discussed in other posts.

We took same equipped trucks and compared.
What we found in our set of circumstances.

WE took the initial investments, variable and fixed costs and compared them. Through the first couple of years, the reefer trucks outperformed the dry van. Once we went past that period, it went the other way. I should clarify, the reefer trucks were liftgate equipped.

Your initial investment is higher as well as insurance and maintenence. We paid cash, but if these were financed, then there is another higher cost because the loan would be larger.

In our case, not all loads were reefer loads, which means we weren't running at that rate all the time. The reefer trucks initial investment is a third higher, but the rate wasn't a third higher.
Thats comparing a 90,000 truck up against a 135,000 truck.

The reefer had some advantages in slower markets, but we found after those first couple of years, that we lost that advantage with reefer and liftgate repairs, maintenance and downtime. We were using Carriers and few are ever open on weekends, so you lose considerable time on repairs. And of course, there are more box and door seal repairs ect.
Also, a reefer has some restrictions because of width that it can't accomadate certain loads. Some restrictions on a gate as some union plants won't load them. Additional weight of the vehicle is an issue as well, but that wasn't factored. Hard to tell in some instances what loads you lost because they were never offered, or you show up and get a dry run and a wasted day possibly because they won't load you. Days available and in service were very simular when put up against the load count for each.

So, if looking at current rates for arguments sake, dry van at 1.30, that same same vehicle with a reefer has to run at least at 1.73 per mile just to break even. You add in the additional maintenance, finance charges and insurance, the number has to climb. The finance charges (if any) and insurance would be partially recovered at time of sale because the vehicle has a higher resale value.

All of these points could be argued with certain variables, but that is how it worked out for us.

There are other issues that may be carrier specific that one would have to factor as well.

Forgot to add;
At the time we did these comparisons, fuel was much cheaper and wasn't quite the factor it is today. With all the FSC changes one would have to factor that cost as well if applicable.




















Davekc
owner
22 years
PantherII
EO moderator

 

[Broompilot]

If you do not get X 1.5 a year gross on your additional investment, calculating you have to recoup ones investment, repair it, load it, insure it, clean it. Does any amount less than 1.5 seem like a smart investment?

If one is doing less than that I would say one is not making a decent return. Thus are you really generating between $47K and 50K additional over me and my dry box? If not I personally would not tie up that kinda capitol with me being responsible when a load is waisted due to a malfunction insurance or no insurance its a big responsiblity and liability. Just my two cents, what works for one may not work for another.

 

[Paul56]

>>Since you started the thread it would be great if we could
>>see your contribution to these questions to get the ball
>>rolling, particulary since as you say you have accumulated
>>real world data. I find it very odd that you, as they say,
>>"hedge your bets" here.
>
>I am hedging my bets because I want other people's views on
>how to calculate reefer payback. I'm not coming here with
>answers, but with questions.
>

Ok, fair enough.

>I will offer this to get the discussion going a bit more.
>
>Our truck is brand new, put in service in June. We paid
>about $22,000 for a reefer and $20,000 for our reefer body.
>Had we purchased a similarly spec'ed dry box, the body would
>have cost about $12,000, our vendor says. Thus, the
>additional cost of adding a reefer to the truck before the
>truck turns it's first mile under load is about $30,000.
>That number is likely higher than most. We have a number of
>custom items custom-built into the reefer and body that ran
>the price up. It is also an underbody mount which is more
>expensive to install.
>
>I encourage others to contribute their reefer cost numbers
>if they are so inclined.
>
>With this being a brand new truck, we have no meaningful
>maintenance cost numbers to share yet. But others do and I
>am hoping they will contribute to this thread.
>
>>As far as I'm concerned as long as we have a few long term
>>contracts with customers where a reefer is required, the
>>reefer pays for itself.
>
>I've thought about this too. While a reefer is not required
>for FedEx White Glove, I have wondered if it might be better
>to not separate the cost of a reefer from the cost of a
>truck and instead calculate the payback on the entire
>truck/reefer package. There are a number of non-financial
>reasons for including a reefer on the truck (in my view),
>and it may not be all that important to separate the reefer
>from the entire truck package. I'll list those reasons later
>but Diane just got back from the shower and it's my turn.
>We're on a run with little time to spare.
>
>>I'll leave the nuts n' bolts of a numbers based discussion
>>to my wife, Nicole, who is an accountant by profession.
>
>I would love it if Nicole to jumped in at this point.
>
>If a client came to her and asked, "How do you figure reefer
>payback?" what would she say?

Right or wrong, Nicole's view of the online world can be summed up in one word: "evil".

I suspect the bottom line question you are trying to answer is: Is it financially worthwhile having reefer equipment on the truck?

The more difficult part for those of us number challenged, that would be me , is exactly what criteria to take into account and how to figure this out.

With a non-reefer run this is no reefer payback, in fact, I'd like to suggest there is a detriment due to the extra weight. Seems to me the effect on fuel consumption would need to be considered for ALL miles.

How to figure that? Yikes!

Well, once the weight difference is known one would need to have two similar runs over the same terrain: One empty and one loaded with the additional weight of the reefer equipment. That seems like a reasonable method.

That is a start.

I know Nicole doesn't figure out individual component payback, but rather considers the whole unit for the rigs we have on the road including ours. In one way or another either directly or indirectly, everything on the rig is being used to service customer needs. Does that sound like a line of marketing hype? Well, maybe it is.

 

[ATeam]

>>>As far as I'm concerned as long as we have a few long term
>>>contracts with customers where a reefer is required, the
>>>reefer pays for itself.

I agree. In your own-authority situation, where your customers are hiring the whole package, it makes sense to consider the truck and reefer combined also as the whole package. The reefer pays for itself in one sense immediatly because it helps you get customers you otherwise would not have. Otherwise, the reefer pays for itself over time at the same rate as the truck. (my view).

>I suspect the bottom line question you are trying to answer
>is: Is it financially worthwhile having reefer equipment on
>the truck?
>
>The more difficult part for those of us number challenged,
>that would be me , is exactly what criteria to take into
>account and how to figure this out.
>
>With a non-reefer run this is no reefer payback, in fact,
>I'd like to suggest there is a detriment due to the extra
>weight. Seems to me the effect on fuel consumption would
>need to be considered for ALL miles.
>
>How to figure that? Yikes!
>
>Well, once the weight difference is known one would need to
>have two similar runs over the same terrain: One empty and
>one loaded with the additional weight of the reefer
>equipment. That seems like a reasonable method.
>
>That is a start.

Ballpark range for reefer weight on various truck sizes and for the additional weight of the reefer body (vs. a dry box) is somewhere between 1,000 and 3,000 lbs. I would guess.

On our class 8 truck (2006 Volvo, 435 hp), that is not enough to cause a noticable difference in fuel use. In fact, we drove the truck for a time without a reefer on it and the fuel use improved after it was installed; because of engine break in over time. Whether we have 100 lbs of freight on the truck or 5,000 lbs, the fuel use is about the same. Other variables (hills, wind, speed, altitude, temperature, wheel alignment, tire pressure, etc.) affect fuel economy too much to figure in a meaningful reefer penalty on fuel.

Runing the reefer is a different matter. On a reefer run, it will of course consume fuel that should be factored in, but even this is difficult. Our last two runs were reefer runs with the set point at 40F. For most of the trip, outside temp was the same. We ran the reefer on auto-start, not continuious run. Since the body and ambient (outside) temps were the same, our reefer fuel use on these runs was almost zero. Also, when the reefer heats a load instead of cools it, fuel use will be quite different. Further to think about is hours. A Friday pickup may take you only 200 miles but you may run the reefer all weekend as you wait for the consignee to arrive Monday morning. And the same run done in a different season may require virtually no reefer fuel at all.

I'll take a stab at an estimate. If someone can offer something better, by all means, please do so.

Reefer hours are known. Reefer run miles are known. Understanding that a reefer under heavy load can use a gallon of fuel an hour (according to my dealer), and understanding that the reefer does not always run under heavy load and sometimes does not even run at all on a reefer run, I'll suggest, tentatively, that we use 1/2 gallon of fuel for each hour the reefer runs. That fuel cost should not be charged to each load, but distributed over all reefer loads for the time period under consideration. Reefers do not run by the mile, they run by the hour.

>I know Nicole doesn't figure out individual component
>payback, but rather considers the whole unit for the rigs we
>have on the road including ours. In one way or another
>either directly or indirectly, everything on the rig is
>being used to service customer needs. Does that sound like a
>line of marketing hype? Well, maybe it is.

It does and it does not. As I said above, in your case, the reefer is part of the total package. Reefer costs and payback should be considered as such, not as separate items.

So, perhaps we have part of the answer already. For expediters in your own-authority circumstances with the customers you serve, the reefer pays for itself along with the entire truck.

But for people in our situation, contractors with a carrier, running a reefer is optional. In this case, it should be considered as a separate item since it is not needed to get into White Glove or Pather's Elite Services. Here, reefer costs and revenue do matter.

 

[ATeam]

>Hello, the way we are getting paid we get 25 cents per mile
>over what a normal load pays. That is for all miles, not
>just reefer miles so we figure at the base extra cost of 16K
>we figure on an avg of 100k paid miles per yr on avg so it
>on a very basic level will pay for itself in less than a
>year. Maintenance etc is another story but I think it's a
>good investment. We opted for the higher base revenue for
>all miles rather than the company who pays a higher
>percentage just for reefer miles. Thinking we will make out
>better in the long run. We are new to the reefer world and
>appreciate this subject. Thanks.

Thank you for sharing your reefer cost ($16,000) and anticipated revenue ($0.25 per mile, all paid miles, 100,000 paid miles per year, thus $25,000 reefer revenue.) Is that with Panther or a different carrier?

To dial it in a bit further, the cost of the reefer body should be added in (vs. a dry box), as should reefer fuel use and maintenance costs over a given period of time.

Down time and deadhead for service is also a factor. If you take the truck out of service to get the reefer serviced, that is not something you would do if you were running a dry box. To calculate the true costs and payback of reefer ownership, down time needs to be factored in.

To complicate things even further, there is the T-Val qualifications FedEx has. Does Panther have anything similar? That requires one trip every 18 months to FedEx to have your reefer body mapped and additional maintenance stops and expense to meet T-Val maintenance standards.

 

[ATeam]

>What reefer problems are you having Phil?

It was a manufacturer's defect repaired under warranty. Twice, the reefer radiator cap came off because the brass tabs on the filler neck onto which the cap screws broke under the spring pressure of the cap. It was a very strange failure. A quick fix was first tried that did not last. The final fix was to replace the entire radiator/condensor assembly, of which the filler neck is a part. Down time attributable to the reefer thus accrued to us.

Another issue remains to be resolved, but it is not one that keeps us from using the reefer and successfully completing reefer runs. I can share more about that once we figure that one out. That issue will also require some down time to address, which we will of course have to factor into our reefer payback calculations.

>If you are running a belly mount 844 series or similar I am
>probably aware of the problem and don't mind sharing info.
>As for a litmus test on worthiness I suppose you would have
>to reflect on a years (minimum) revenue and decide.
>I personally would expect a reefer equipped truck to
>generate $225,000 a year in gross revenue but I may be too
>optimistic, especially now.
>In general if a dry box generated $175,000 a year and you
>were indeed at
>the 50k mark in additional revenue I suppose it would be
>worth it but in this day I think one would be taking a
>gamble.
>What are your expectations?
>Mike and Cyn

I'm not sure expectations should enter into it. If we are trying to produce an objective formula under which reefer payback can be calculated in dollars-and-cents terms, what we expect would not have much to do with it, would it? The reefer costs $X to buy and $X to maintain. Over time, it will earn $X over and above a dry box, or it won't. A reefer owner's expectations will not change the reefer's numbers.

 

[ATeam]

>We took same equipped trucks and compared.
>What we found in our set of circumstances.
>
>WE took the initial investments, variable and fixed costs
>and compared them. Through the first couple of years, the
>reefer trucks outperformed the dry van. Once we went past
>that period, it went the other way. I should clarify, the
>reefer trucks were liftgate equipped.

You have talked about how you buy used trucks before. Were these reefer trucks used trucks? Were the reefers and reefer bodies new or used?

 

[ATeam]

>If you do not get X 1.5 a year gross on your additional
>investment, calculating you have to recoup ones investment,
>repair it, load it, insure it, clean it. Does any amount
>less than 1.5 seem like a smart investment?
>
>If one is doing less than that I would say one is not making
>a decent return. Thus are you really generating between
>$47K and 50K additional over me and my dry box? If not I
>personally would not tie up that kinda capitol with me being
>responsible when a load is waisted due to a malfunction
>insurance or no insurance its a big responsiblity and
>liability. Just my two cents, what works for one may not
>work for another.

In the interests of stimulating further discussion, Broompilot, let's consider the numbers Exp10yrs offered. $16,000 paid one time for a reefer. $25,000 a year each year thereafter in payback. While not all costs are included in that $16,000, does $75,000 in revenue over three years justify the reefer purchase?

 

[greg334]

I am going ask something else that may be also an important factor -

When the unit out of warantee, do you figure in the cost of an extended warantee or in Carrier's case Extended Major Component Coverage program into the cost of operating?

 

[ATeam]

Whether or not the cost of an extended warranty is included would depend on whether or not the truck owner purchased it. If so, I would include it as part of the reefer cost.

 

[davekc]

For what we reviewed, it only pertained to new trucks. Used ones would be too hard as there are numerous other factors that would go in to figuring cost. Used units were profitable for us, but we were buying them well below market value.

I wouldn't discount the weight issue entirely. In our case, once you added the gate,tag, reefer and box, you've added 5 to 6,000 pounds. If you take the tag out of the picture you save a bunch, but lose alot of your carrying capacity. Once you add that tag or second axle, its more maintenance (namely tires), weight, additional tolls, and possibly FET tax....which can be a big number. You finance that, and its more cost. A bigger engine will save in some aspects of economy, but its another cost on the front end that can't be ignored.

As mentioned, reefer fuel cost is extremely difficult to calculate. A fuel meter is the only way to get specific consumption numbers.
You will only get a questimate using strictly hours.

The $75,000 can't be used for the sole basis of an investment comparison. All of the other factors mentoned, have to be factored against that number to realize an accurate return.

With regards to extended warranties, they use to exclude alot of the things that do go wrong. And of course, no recovery for lost load, downtime, and DH to repair. Some of that coverage may have changed over the last few years. Keep in mind, that even small repairs are pretty expensive.

On Elite Services, you aren't required to have a TVAL test. Also, if you have a recorder and probes, it probably helps on some loads, but isn't a requirement. In fact, I can't think of a load were it was ever used.
If a carrier requires inspections, that of course would be another cost. Not quite sure why it has to be at their facility? Keep in mind that one of the constant repairs is not being able to maintain temperature. Our units cooled and heated through using freon.








Davekc
owner
22 years
PantherII
EO moderator