Executive Summary
Objectives. The overall objective of the Economic Analysis and Business Case for Motor Carrier Industry Support of CVISN is to identify and evaluate the economic justifications for motor carriers and their industry partners (such as service bureaus or licensing and registration brokers) to participate in CVISN deployment. The broader goal of the task is to improve the industry’s understanding of the effect that Intelligent Transportation Systems (ITS), including CVISN technologies, can have on the business operations of motor carrier companies.
CVISN, which stands for Commercial Vehicle Information Systems and Networks, includes three functions: interstate credentials administration, roadside electronic screening, and safety information exchange. The analysis in this business case emphasized two of the CVISN functions: electronic screening and electronic credentialing technology. Because safety information exchange applies mostly to government and law enforcement functions, it is not considered within this motor carrier business case.
The intended audience for this report is motor carrier business analysts and related private-sector stakeholders in the commercial vehicle operations industry who may be deciding whether their companies should invest the time, resources, and attention required to participate in CVISN deployment.1 This business case was developed through the collection and analysis of detailed interview data on costs, benefits, attitudes, and beliefs as obtained from representatives of the motor carrier industry and allied organizations. Interview data were supported by a review of relevant literature. Whereas much prior work has focused on federal and state government economics and viewpoints or on societal benefits in general, the objective of this task has been to develop a business case from a private-sector, for-profit motor carrier perspective that combines quantifiable benefits with appropriate evidence, context, and economic analysis.
Data Collection. The main source of data for the business case was a series of 38 in-depth telephone interviews with motor carriers or service bureaus, most of whom are participating in one or more aspects of CVISN deployment. A few respondents are not currently participating in all aspects of CVISN. In this way, the actual experiences of CVISN motor carriers—and the factors that affected their companies’ decisions to participate—were included. Also, the perceptions of carriers who have yet to adopt CVISN technologies in their operations were included, which yields information on the economic and institutional barriers they perceive to such adoption. Credentialing service bureaus (third-party licensing brokers) were included, because of their close involvement in electronic credentialing for many carriers.
The names of motor carrier companies chosen to be contacted were gleaned from various sources. The primary source for the calls was the federally sponsored Motor Carrier Management Information System (MCMIS) census file, from which were selected 200 carriers that were shown in the MCMIS file to be operating more than 20 power units. In all, 25 motor carriers were selected from each of eight states known to be active in e-credentialing and e-screening. This list was supplemented by carriers identified on the PrePass® and Norpass web sites, and by lists of large motor carriers shown on the Hoover’s directory of businesses.
Other calls were placed to carriers and service bureaus using geographically representative lists that 1) were derived from states with active CVISN programs, and 2) reflected carriers that are active on state or national trucking associations’ “tax and registration” committees. Out of 272 calls attempted, 38 interviews were completed, for a response rate of approximately 14 percent, which was lower than anticipated. A customized interview guide was used by data collectors as a calling script (Appendix A).
To supplement the telephone interviews, a literature search from a range of state, federal, nonprofit, private industry, and other sources was conducted. The literature search identified existing data on the economics of CVISN technologies from the motor carrier perspective.
Data Analysis. An economic model was developed and populated, with information from the telephone interviews of motor carriers, supplemented by information from the literature review. The purpose of the economic data analysis was to document (1) startup and annual recurrent costs associated with CVISN deployment for motor carriers; (2) the economic benefits of CVISN deployment, as perceived by motor carriers; and (3) the returns on investment (ROIs) made by motor carriers who choose to deploy CVISN technologies. The model is based on a 10-year life cycle, and includes appropriate discount rates. The model focuses on comparing monetized benefits with dollar costs to the motor carrier industry, as opposed to societal benefits and costs. Investments and cost savings to state agencies are not included in this analysis. The model’s output includes ROI ratios, net benefits estimates, and payback periods for the industry.
Characteristics of Respondents. All of the 38 responding companies reported working across state lines as interstate carriers or as service bureaus that work with interstate carriers. The numbers of states the carriers operate in ranged from 7 to 50, with most carriers reporting 48 states. The vast majority of carriers were for-hire, as opposed to private (company-dedicated) carriers. Fifteen respondents were primarily truckload carriers, eight were less-than-truckload, and 11 reported carrying both kinds of loads. Most respondents used predominantly dry freight vans, followed in frequency by refrigerated vans and straight trucks. Other trailer types were much more rarely reported. The mean number of power units among the respondent population was 7,451, with a range from 22 to more than 50,000 power units per company. These counts include company-owned, leased, and owner-operator power units. Figure 1 summarizes the characteristics of the motor carriers surveyed for this study.
Figure 1. Characteristics of surveyed motor carriers
Results. The motor carriers surveyed for this study indicate that both the startup ($275 per carrier) and annual recurrent ($125) costs associated with electronic credentialing are negligible. The most significant benefit of electronic credentialing considered in this study is the time value of increased fleet utilization, or the ability to expedite the process for placing trucks into service. Respondents indicated that electronic credentialing allows them to place new trucks into service an average of 3.5 days sooner than would have otherwise been possible under paper-based systems, at an average savings to motor carriers of $371 per truck. The cost savings associated with increased fleet utilization are based on the finance charges accruing on vehicles as they await credentials. On average, this benefit translated into $413,065 in annual cost savings per carrier for the motor carriers interviewed for this study. The second most significant benefit associated with electronic credentialing is the labor savings per transaction, which was estimated at $4.13 per transaction (10 to 12 minutes per transaction). Respondents also identified benefits associated with reduced materials and postage costs of $1 per transaction. When the full range of benefits are considered, total net benefits per company interviewed for this study were estimated at $3.6 million over a 10-year analysis time horizon (average annual net benefits of $360.5 thousand), resulting in an overall ROI ratio of 2,971:1 and a payback period of less than one month.
The majority of the motor carriers contacted for this study indicated that they had incurred no up-front costs associated with the transponder acquisition, redistribution to drivers, and driver training when entering electronic screening partnerships and programs. On a recurrent basis, most motor carriers incurred monthly costs ranging from $7 to $14 per transponder, based on the number of trucks enrolled in the electronic screening program and the negotiated rate. Time savings per bypass in this study are estimated at 3 to 5 minutes, and average motor carrier operating costs are valued at $2.16 per minute. Thus, cost savings associated with electronic screening are valued in this study at $8.68 per bypass. Based on the assumptions outlined in Section 6 of this report, net benefits to motor carriers examined in this study range from $3.2 to $219.4 million per company over the 10-year study time horizon. With the exception of one company, all ROI ratios range from 6.1:1 to 15.9:1. Payback periods for all motor carriers contacted for this study were less than one year. The annual net benefit per transponder-equipped truck was estimated at $1,169.
Conclusions and Implications. The economic analysis of CVISN from a motor carrier perspective indicates significant, near-immediate financial benefits to carriers from taking part in electronic (web-based) credentials administration, and substantial benefits to carriers from enrolling their trucks in electronic screening programs or partnerships. The study targeted large motor carriers in states known to be active in CVISN. Almost all of the responding companies (97 percent) participate in electronic credentials administration, and a strong majority of responding companies (75 percent) use some kind of transponder-based preclearance or e-screening technology in their trucks. The following key findings emerged from the economic and qualitative analysis.
- Motor carriers expressed a high degree of satisfaction with their experiences in using electronic credentialing. The respondents unanimously agreed that electronic credentialing had generated net financial benefits to their company. Most indicated that the acceleration of credentialing and labor time savings were the most significant reasons.
- Startup and annual recurring costs associated with electronic credentialing are minimal. Motor carriers reported in some cases the need to improve hardware, obtain computer technical support, and incur other training-related costs. Total startup costs are estimated at $275 per carrier, and annual recurring costs are estimated at $125 per company.
- On the benefit side, motor carriers indicated that on average, electronic credentials accelerated the time required to place new trucks into service by an average of 3 to 4 days, at a savings of $371 per truck. Increased fleet utilization is the most significant benefit associated with electronic credentialing.
- The second largest benefit associated with electronic credentialing is reduced labor costs. On average, companies save 10 to 12 minutes per transaction resulting in labor cost savings of $4.13 per transaction. Over the 10-year ROI time horizon, total net benefits per carrier for participating in electronic credentialing are estimated at $3.6 million, resulting in an overall return on investment of 2,971:1 and a payback period of less than one month.
- For electronic screening or weigh station bypass/preclearance, time savings and labor cost savings were the top two reasons cited for participating. The time savings per bypass was estimated at 3 to 5 minutes based on prior studies.
- The operating cost savings (for the motor carrier company) per bypass was estimated to be $8.68, which is the product of the estimated time savings per bypass and documented heavy truck operating costs per minute. Total net benefits associated with electronic screening over the 10-year analysis time horizon ranged from $3.2 million to $219.4 million per company.
- Enrolled motor carriers are experiencing significant returns on their investment in electronic screening technologies, with ROI ratios for all but one of the companies evaluated ranging from 6.1:1 to 15.9:1.2 In all cases, the payback period for e-screening was less than one year. The annual net benefit per transponder-equipped truck was estimated at $1,169. Electronic screening is perceived as a significant enhancement for driver satisfaction and morale improvement, helping motor carriers recruit and retain drivers.
This business case has provided an outline of the reasons—both pro and con—that carriers use when deciding whether to adopt CVISN technologies for their companies. Survey respondents may have many motives, beyond the reasons given in a brief telephone interview, for the complex business decisions they make. Future market-type research could attempt to tease out the underlying business principles and practices that attract some companies to new technology for safety, administration, and operations, while causing other companies to delay their adoption. Results of this research could be used in planning ITS deployments in both the public and private sectors to match carriers’ business needs, and in representing the service offerings through outreach, education, and information exchange intended to appeal to the motor carrier industry. The results may also be useful in refining services offered by states and vendors in plans for Expanded CVISN, the FMCSA’s Comprehensive Safety Analysis (CSA) 2010 initiative, vehicle-infrastructure integration (VII), Electronic Freight Management, Wireless Roadside Safety Inspections for Trucks and Buses, and other initiatives.
State transportation, public safety, and law enforcement officials can use the results of this business case to aid in planning the kinds of credentialing and screening programs to make available to motor carriers operating within their states, and to help decide which features or services should be included in future modifications of existing ITS initiatives such as CVISN.
Federal transportation officials and commercial vehicle operations analysts can use the results of this business case when deciding which technologies show the greatest promise of providing tangible benefits to the motor carrier industry, relative to the costs companies incur in deploying and operating such technologies. The industry perspective in turn feeds into a fuller understanding of how ITS can benefit society in general, through increased transportation safety, efficiency, and mobility.
1 A briefer, summary version of this motor carrier business case is also being prepared, directed more toward industry executives, planners, and decision-makers (FMCSA 2007).
2 One motor carrier reported much higher than average costs associated with transponder maintenance (including labor), annual subscription fees, and weigh station bypass fees totaling $780,000 annually ($780 per enrolled power unit). The ROI ratio for this carrier was estimated at 1.5 based on reported costs.