Comparing 4 Methods for Fixed Cost Allocation in Transport Fleets: Pros, Cons, and How to Choose the Right Fit

In transport fleet management, accurate fixed cost allocation not only affects the ability to calculate transport costs but also determines precision when evaluating business performance across routes and service types. Many transport companies struggle when selecting an appropriate allocation method, leading to pricing distortions that don't reflect actual costs.

This article provides a detailed analysis of the 4 most common fixed cost allocation methods—allocation by km, allocation by trip, allocation by revenue, and allocation by weight—along with a criteria matrix to help you select the method most suitable for your fleet's scale and operational characteristics.

Overview of Fixed Costs in Road Transport

Classification of Fixed Costs in Transport (insurance, depreciation, fixed driver/dispatcher salaries, management fees, yard rental...)

Fleet fixed costs are periodic expenses that do not directly depend on the number of trips or actual distance traveled in the short term. Major fixed costs include:

Vehicle and Equipment Depreciation: Periodic depreciation of transport vehicles, journey monitoring equipment, refrigeration equipment (if applicable), calculated based on usage time or fixed asset regulations.

Insurance Costs: Mandatory civil liability insurance, vehicle hull insurance, cargo insurance per year or payment period, typically calculated in advance for the entire cycle regardless of whether the vehicle operates.

Fixed Personnel Salaries: Base salaries of drivers (portion independent of trip count), dispatcher salaries, fleet manager salaries, transport accountants, and other administrative staff serving transport operations.

Yard/Depot Rental Costs: Costs of renting parking yards, cargo consolidation yards, operational offices on a monthly or annual basis.

Management and Administrative Fees: Office costs, utilities (electricity, water, internet), TMS management software, documentation costs, periodic vehicle inspections, and other general expenses.

Periodic Taxes and Fees: Road usage tax, road fees, taxes and fees payable periodically according to current regulations.

Why Fixed Cost Allocation is Important for Costing and Performance Evaluation

Accurate transport fixed cost allocation is the foundation for transport companies to make correct business decisions. When not allocated or incorrectly allocated, companies face many consequences:

Inaccurate Transport Costing: If fixed costs are not reasonably allocated to each shipment or route, companies may price too low (leading to hidden losses) or too high (losing competitiveness). Accurate transport costing helps determine reasonable service prices, ensuring sustainable profits.

Incorrect Business Performance Evaluation: When fixed costs are not allocated using the right method, a route or service type may appear highly profitable but is actually losing money, or vice versa. This leads to wrong decisions about expansion, reduction, or operational adjustments.

Difficulty in Resource Optimization: Without knowing the exact costs of each route and vehicle, companies struggle to identify areas needing improvement, investment, or elimination.

Internal Conflicts and Lack of Transparency: Without a clear allocation method, sales, operations, and finance departments may have different understandings of costs and performance, causing coordination difficulties.

Common Mistakes in Fixed Cost Allocation

Many transport companies make typical mistakes when allocating fleet fixed costs:

Completely Ignoring Fixed Costs: Only calculating variable costs (fuel, trip-based wages, road fees...) without including fixed costs in the cost price, leading to pricing below full cost.

Equal Distribution Across All Trips: Dividing fixed costs equally among all shipments regardless of distance, weight, or service type, causing unfairness between short-long routes and heavy-light cargo.

Arbitrary Changes in Allocation Method: Inconsistent calculations, applying different methods each period or for each route, making data incomparable.

Not Updating Periodically: Using old allocation ratios while cost structure, fleet size, or operational characteristics have changed significantly.

Choosing Method Unsuitable for Characteristics: Applying km-based allocation for fleets primarily running short-distance urban routes with many trips, or trip-based allocation for long-distance fleets with large distance variations.

Method 1: Fixed Cost Allocation by Actual Kilometers

Calculation Method and Allocation Formula by Km

Allocation by km is a method of allocating fixed costs based on the actual kilometers each vehicle or shipment travels. Basic formula:

Step 1: Calculate total fleet fixed costs for the period (month, quarter, or year)

Step 2: Calculate total actual km the entire fleet traveled during the same period

Step 3: Calculate fixed cost unit price per km

Fixed cost per km = Total fixed costs / Total actual km

Step 4: Allocate fixed costs for each trip/route

Fixed costs allocated for trip X = Fixed cost per km × Km of trip X

Example calculation: If total fleet fixed costs for the month are 200 million VND, total km traveled by the entire fleet is 40,000 km, then the fixed cost unit price is 5,000 VND/km. A shipment traveling 300 km will be allocated 1.5 million VND in fixed costs.

Advantages of Allocation by Km Method

The allocation by km method has distinct advantages that make it a popular choice:

Reflects Direct Connection to Transport Operations: Distance traveled has high correlation with vehicle usage level, wear and actual depreciation.

Easy to Understand and Transparent: Simple allocation logic, easy to explain to stakeholders (sales staff, accountants, managers).

Easy Data Collection: Most current vehicles have km counters, GPS journey monitoring devices allow accurate tracking of actual km.

Fair for Long-Distance Trips: Shipments traveling farther will be allocated more fixed costs, consistent with the reality of using more resources.

Encourages Route Optimization: When costs are calculated by km, dispatch teams are motivated to optimize routes, reduce empty running to decrease costs.

Disadvantages and Limitations of the Km Method

Alongside advantages, the allocation by km method also has notable limitations:

Does Not Reflect Trip Complexity: A 100 km trip on the highway may be completed in 1.5 hours, while 100 km in the city with multiple delivery points may take all day, consuming more driver and dispatcher effort, but allocated fixed costs are the same.

Disadvantageous for Short High-Value Trips: Short shipments (e.g., 20 km) carrying high-value cargo requiring specialized vehicles will be allocated very low fixed costs, not reflecting actual investment.

Difficult to Apply with Multiple Delivery/Pickup Points: When a vehicle has multiple delivery stops (consolidated cargo, urban distribution), allocating km to each customer or order becomes complex.

Does Not Account for Waiting Time, Traffic Jams: Fixed costs related to time (driver wages, daily yard rental) are not reflected through km.

May Create Negative Incentives: Drivers or sales departments may intentionally extend distance to increase revenue if service prices are calculated by km but actual costs don't increase proportionally.

Suitable Situations for Applying the Km Method

Allocation by km is most suitable in the following situations:

Long-Distance Inter-Provincial Fleets: When most shipments have long distances, relatively uniform characteristics (few stops, mainly on highways or national roads).

Full Truckload (FTL) Cargo: Each trip serves one customer, from point A to point B, few transshipment points.

Transport Types with High Correlation Between Km and Depreciation Costs: Vehicle types with depreciation and maintenance heavily dependent on distance traveled.

Medium and Large Fleets with GPS Tracking Capability: Have journey monitoring systems, accurate km data, easy to aggregate.

Relatively Stable Operations with Little Service Type Variation: No excessive differences in shipment characteristics (same vehicle type, same cargo type, relatively same geographical area).

Method 2: Fixed Cost Allocation by Number of Trips

Calculation Method and Allocation Formula by Trip

Allocation by trip is a method of evenly dividing fixed costs for each completed shipment, regardless of distance or weight. Formula:

Step 1: Calculate total fleet fixed costs for the period

Step 2: Count total shipments completed during the same period

Step 3: Calculate fixed cost unit price per trip

Fixed cost per trip = Total fixed costs / Total trips

Step 4: Allocate fixed costs for each trip

Fixed costs allocated for trip X = Fixed cost per trip

Example: If total monthly fixed costs are 150 million VND, the fleet completes 300 trips in the month, then each trip is allocated 500 thousand VND in fixed costs, regardless of whether that trip is 50 km or 500 km.

Advantages of Allocation by Trip Method

The allocation by trip method has noteworthy strengths:

Simplest Among All Methods: Only need to count trips, no need to collect complex data like detailed km, weight per trip, or revenue.

Easy to Deploy for Small Fleets: Suitable for startup businesses, without professional TMS systems, limited data collection capability.

Reflects Administrative and Dispatch Costs: Each shipment requires equivalent dispatch work, document preparation, customer service; equal fixed cost allocation reflects this reality.

Fair When Trips Have Similar Characteristics: If the fleet mainly runs short routes, similar distances, weight not varying much, equal allocation is reasonable.

Avoids Internal Disputes: No distinction between easy-difficult, short-long trips; every trip contributes equally to fixed costs.

Disadvantages and Limitations of the Trip Method

This method has obvious limitations when applied broadly:

Unfair Between Short and Long Trips: A 20 km urban trip and a 300 km inter-provincial trip are allocated the same fixed costs, not reflecting the large difference in resource usage.

Does Not Reflect Actual Weight: A trip carrying 1 ton of cargo and a trip carrying full load of 10 tons have the same fixed costs, lacking fairness in vehicle capacity utilization.

Lacks Optimization Incentives: Does not encourage cargo consolidation or route optimization because each trip, efficient or not, is allocated the same costs.

Easily Exploited: Sales staff may split one large shipment into multiple small trips to increase revenue (if calculated by trip) while actual costs don't increase proportionally.

Unsuitable for Diverse Service Types: When companies have both long-distance, urban, consolidated cargo, and full truckload services, equal allocation leads to large distortions.

Suitable Situations for Applying the Trip Method

Allocation by trip is appropriate in these cases:

Small Fleets Running Urban or Narrow Areas: Shipments have relatively uniform distances, trip completion time doesn't vary much.

Last-Mile Delivery Services: Many delivery points, short distances, costs mainly arise from dispatch work and multiple deliveries rather than distance.

Startup Phase Without TMS System: Haven't invested in detailed monitoring technology, need simple method to start cost management.

Special Transport Types Where Service Value Doesn't Depend on Km: For example, document transport services, high-value cargo, specialized transport requiring special vehicles.

Trips with Equivalent Complexity: Number of stops, processing time at delivery points, safety requirements, documentation procedures similar among trips.

Method 3: Fixed Cost Allocation by Revenue

Calculation Method and Allocation Formula by Revenue

Allocation by revenue is a method of allocating fixed costs proportionally to the revenue each trip or route generates. Formula:

Step 1: Calculate total fleet fixed costs for the period

Step 2: Calculate total transport revenue of the fleet during the same period

Step 3: Calculate fixed cost allocation rate on revenue

Allocation rate (%) = (Total fixed costs / Total revenue) × 100%

Step 4: Allocate fixed costs for each trip/route

Fixed costs allocated for trip X = Revenue of trip X × Allocation rate (%)

Example: Total monthly fixed costs are 180 million VND, total revenue is 900 million VND, allocation rate is 20%. A shipment with 5 million VND revenue will be allocated 1 million VND in fixed costs.

Advantages of Allocation by Revenue Method

This method brings certain benefits:

Simple in Financial Reporting: Easy to integrate into accounting systems; fixed cost/revenue ratio is a familiar metric in financial analysis.

Automatically Balances with Business Scale: As revenue increases, allocated fixed costs increase accordingly, reflecting larger operational scale.

Partially Reflects Service Value: High-revenue shipments are usually due to greater added value (special cargo, premium services, complex requirements), so it's reasonable to allocate higher fixed costs.

Suitable for Value-Based Pricing Models: When companies price services based on cargo value or added service value rather than just km or weight.

Easy to Explain to Customers: Can present total fees including variable and fixed costs as a percentage of service value.

Disadvantages and Limitations of the Revenue Method

The allocation by revenue method has many serious limitations:

Confuses Cause and Effect: Revenue is the result of pricing, not the cause of fixed cost generation. This method can lead to reverse logic: trips have high revenue due to high pricing but are allocated more fixed costs, distorting actual profit information.

Does Not Reflect Actual Costs: Two identical trips in km, weight, and time but with different selling prices (due to negotiation, different customers, different timing) will have different allocated fixed costs, lacking cost logic.

Distorts Performance Evaluation: Shipments sold at high prices (large profit margins) bear more fixed costs, may show low or negative profits incorrectly, while low-priced trips appear more profitable.

Creates Negative Incentives in Pricing: Sales staff may hesitate to raise prices for fear of increased fixed cost allocation reducing apparent profits, or conversely lower prices to reduce allocated fixed costs.

Difficult to Apply with Multiple Price Structures: When there are many different price levels for customer segments, promotions, long-term contracts, this method increasingly lacks cost logic.

Suitable Situations for Applying the Revenue Method

Allocation by revenue is truly suitable only in very specific situations:

Highly Integrated Logistics Services: When revenue comes not just from pure transport but includes many value-added services (packaging, warehousing, insurance, customs procedures...), fixed costs relate to the entire value chain, difficult to separate each part.

Turnkey Contract Business Model: Customers pay fixed monthly/annual fees for a service package; allocating fixed costs to specific trips has little meaning; instead allocate by contract revenue proportion.

Serving High-Level Management Reporting: Used as a supplementary financial analysis tool, not the primary method for detailed transport costing.

Already Have Other Accurate Allocation Methods: Use revenue-based allocation in parallel as a cross-check, ensuring total fixed costs are sufficiently "recovered" through revenue.

Very Uniform Operations: All shipments have similar cost structures; revenue differences are mainly due to scale (cargo volume, km) rather than different pricing policies.

Method 4: Fixed Cost Allocation by Weight/Actual Load Capacity

Calculation Method and Allocation Formula by Weight

Allocation by weight is a method of allocating fixed costs based on the actual weight of cargo each shipment transports or the work volume the vehicle performs. Formula:

Step 1: Calculate total fleet fixed costs for the period

Step 2: Calculate total weight (tons or kg) or ton-km (weight × km) the entire fleet transported during the period

Step 3: Calculate fixed cost unit price per weight unit

Fixed cost per ton = Total fixed costs / Total tons transported
or
Fixed cost per ton-km = Total fixed costs / Total ton-km

Step 4: Allocate fixed costs for each trip

Fixed costs allocated for trip X = Unit price × Weight of trip X (or ton-km of trip X)

Example: Total monthly fixed costs are 240 million VND, total transport volume is 600 tons, unit price is 400,000 VND/ton. A trip carrying 8 tons will be allocated 3.2 million VND in fixed costs.

The "ton-km" variant combines both weight and distance: if total ton-km is 120,000, unit price is 2,000 VND/ton-km. A trip carrying 8 tons traveling 50 km (= 400 ton-km) will be allocated 800,000 VND.

Advantages of Allocation by Weight Method

This method has significant advantages:

Reflects Capacity Utilization Level: Trips carrying more cargo, better utilizing vehicle capacity, are allocated more fixed costs, fair to resource usage level.

Encourages Load Optimization: Motivates cargo consolidation, full-load transport to maximize capacity, reduce unit costs.

Suitable for Bulk and Mass Cargo Transport: When weight is the main factor determining business efficiency (transporting construction materials, agricultural products, industrial goods...).

Easy to Combine with Km (ton-km): The ton-km variant combines both weight and distance factors, more comprehensive in reflecting actual work.

Has Clear Physical Basis: Weight affects vehicle wear, fuel consumption, maintenance requirements, actually relates to part of fixed costs (depreciation).

Disadvantages and Limitations of the Weight Method

The allocation by weight method also has limitations:

Difficult to Collect Accurate Data: Not always possible to accurately weigh each trip, especially with consolidated cargo, small parcels. Estimation may lead to errors.

Does Not Reflect Volume and Space: Cargo may be light but occupy much volume (cotton, bulky goods), filling the vehicle before reaching maximum weight, but allocated low fixed costs.

Ignores Distance Factor (if using tons only): Carrying 5 tons for 20 km and carrying 5 tons for 200 km have the same allocated fixed costs if calculated purely by tons, lacking reasonableness.

Disadvantageous for High-Value, Light Cargo: Electronics, pharmaceuticals, luxury goods are usually light but require high security and monitoring; related fixed costs (insurance, monitoring equipment) are high but allocated low.

Complex in Deployment: Requires weighing systems, accurate trip weight recording, data integration into TMS cost management systems.

Suitable Situations for Applying the Weight Method

Allocation by weight is appropriate in these cases:

Bulk, Uniform Mass Cargo Transport: Cement, sand, gravel, coal, agricultural raw materials, water, chemicals... when weight is the main factor determining work.

Accurate Weighing Capability: Have weighing stations at warehouses, yards, or load-weighing equipment on vehicles; reliable data.

High-Density Cargo with Low Volume: Cargo reaches maximum weight before filling volume; weight accurately reflects vehicle utilization.

Combined with Km (using ton-km): Apply ton-km variant when operations have both short and long trips, both heavy and light loads, to balance both factors.

Specialized Fleet for Specific Cargo: Container trucks, dump trucks, fuel tankers, material carriers with design optimized for weight.

Overall Comparison of 4 Fixed Cost Allocation Methods

Comparison of Accuracy in Reflecting Actual Costs

Allocation by km: High accuracy when depreciation and maintenance costs depend heavily on distance. However, ignores time factor, delivery complexity, weight.

Allocation by trip: Lowest accuracy regarding actual physical costs. Only accurate when trips have very uniform characteristics. Well reflects dispatch and administrative costs per transaction.

Allocation by revenue: Low accuracy, even distorting cost information. Does not reflect actual costs but reflects price structure. Only meaningful in some specific business models.

Allocation by weight: Quite high accuracy when combined with km (ton-km), reflects both work volume and vehicle usage intensity. Limited when cargo is light but occupies volume or has high value.

Conclusion: Regarding overall accuracy, allocation by ton-km is usually most comprehensive, followed by allocation by km, then allocation by trip, and finally allocation by revenue (except special cases).

Comparison of Deployment Complexity and Data Requirements

Allocation by trip: Simplest, only need to count completed trips. No special technology required, suitable for small businesses, initial stages.

Allocation by km: Medium complexity. Need GPS journey monitoring equipment or start/end trip odometer recording. Currently common and easy to deploy with available technology.

Allocation by revenue: Medium-low complexity technically (revenue data available in accounting systems), but complex in logic and result interpretation.

Allocation by weight: Highest complexity. Requires accurate weighing systems, trip weight recording, data integration into TMS management systems. Ton-km variant is even more complex when combining multiple data sources.

Conclusion: If prioritizing simplicity, choose allocation by trip. If having basic GPS technology, choose allocation by km. If having complete TMS system and good data collection capability, can apply allocation by weight or ton-km.

Comparison of Fairness Among Routes/Service Types

Allocation by trip: Least fair when there is diversity in distance, weight, complexity. Fair only when trips are very uniform.

Allocation by km: Good fairness with routes having different distances. Lacks fairness when short but complex trips (many stops, traffic) compared to long but simple trips (straight highway).

Allocation by revenue: Seriously lacking fairness. Routes/customers paying high prices bear more fixed costs despite possibly lower actual costs, and vice versa.

Allocation by weight: Good fairness regarding capacity utilization. When combined with km (ton-km), achieves highest fairness as it reflects both work volume and usage intensity.

Conclusion: Ton-km has highest fairness, followed by km, then weight (tons alone), then trip, and finally revenue.

Summary Comparison Table of 4 Methods

Criteria	By km	By trip	By revenue	By weight
Cost accuracy	High	Low	Very low	High (if using ton-km)
Deployment complexity	Medium	Very low	Medium-low	High
Data requirements	GPS/odometer	Only count trips	Revenue	Weighing + GPS (if ton-km)
Fairness	Good	Poor	Very poor	Very good (ton-km)
Suitable fleet	Medium & large	Small	Specific	Medium & large
Suitable type	Long-distance, FTL	Uniform urban	Integrated logistics	Bulk, mass cargo
Optimization incentive	Good (reduce km)	Poor	Poor (causes distortion)	Very good (increase load)
Technology cost	Medium	Low	Low	High

Criteria Matrix for Selecting Suitable Method

Selection Criteria by Fleet Size (small <10 vehicles, medium 10-50 vehicles, large >50 vehicles)

Small fleet (under 10 vehicles):

• Main recommendation: Allocation by trip or simple allocation by km
• Reason: Few vehicles, easy manual management, no need for complex system investment. Prioritize simplicity, easy deployment.
• Note: If having many different service types (both short and long runs), should use allocation by km from the start to avoid changing methods after expansion.

Medium fleet (10-50 vehicles):

• Main recommendation: Allocation by km or combine km + trip for different types
• Reason: Scale large enough to invest in GPS equipment, basic TMS management systems. Need higher accuracy to compete and optimize costs.
• Note: Can apply different methods for segments: km for long-distance, trip for urban.

Large fleet (over 50 vehicles):

• Main recommendation: Allocation by ton-km or km, with professional TMS system support
• Reason: Large, complex scale, need highest accuracy. Have capability to invest in technology, collect detailed data, in-depth analysis.
• Note: Should combine multiple methods by service segment, have multidimensional reporting system to comprehensively evaluate effectiveness.

Criteria by Operational Characteristics (long-distance vs urban, consolidated vs full truckload)

Long-distance inter-provincial:

• Recommendation: Allocation by km or ton-km
• Reason: Distance is main factor, large differences between routes (some 100 km, some 1,000 km). Allocation by trip would be very unfair.

Urban, last-mile distribution:

• Recommendation: Allocation by trip or by number of delivery points
• Reason: Short, relatively uniform distances. Costs mainly from dispatch work, handling multiple delivery points.

Full Truckload (FTL):

• Recommendation: Allocation by km or ton-km
• Reason: Each trip serves one customer, from A to B, easy to determine separate costs. Km or ton-km accurately reflects work.

Less Than Truckload (LTL):

• Recommendation: Allocation by weight or ton-km, divide among customers
• Reason: Multiple customers on same vehicle trip, need fair allocation by usage level (weight, individual km per point).

Criteria by Data Collection and Management Capability

No TMS system, manual management:

• Recommendation: Allocation by trip
• Start simple: Only need ledger recording trip count, easy immediate deployment.
• Upgrade plan: Prepare to switch to allocation by km when equipped with GPS.

Basic GPS, no professional TMS:

• Recommendation: Allocation by km
• Utilize GPS data: Export km reports from journey monitoring devices, calculate using Excel or accounting software.

Complete TMS system, automated weighing, integrated:

• Recommendation: Allocation by ton-km or combine multiple methods
• Maximize technology: Automate data collection, calculation, multidimensional analysis.
• Flexible testing: Compare multiple methods, adjust to find most suitable approach.

Plan to invest in system in near future:

• Recommendation: Start with allocation by km, prepare data for ton-km
• Be ready: Establish data recording procedures (km, weight, time) even when not automated yet, so when deploying TMS have historical data for analysis.

Trend of Combining Multiple Methods (Hybrid Approach)

When to Combine Multiple Allocation Methods

In practice, many transport companies don't use only one fixed cost allocation method, but combine different methods depending on service segment characteristics:

When having diverse service types: Company provides both long-distance (FTL) services, urban distribution services (last-mile), and consolidated cargo (LTL). Each type has its own characteristics, should apply suitable method.

When fleet has complex structure: Many different vehicle types (light trucks, heavy trucks, specialized refrigerated trucks, container trucks), each type has different fixed cost structure and operating method.

When wanting to evaluate effectiveness from multiple perspectives: Use multiple methods in parallel as analytical tools, cross-compare for more comprehensive view of business effectiveness.

When transitioning from simple to complex method: Transition period, maintain old method for comparison while deploying new method for testing.

When having different reporting requirements: Detailed internal management reports use complex method (ton-km), reports for senior management or partners use simpler method (revenue, trip).

Principles and Effective Combination Methods

When combining multiple allocation methods, must follow these principles to ensure effectiveness and avoid confusion:

Principle 1: Clearly define scope of application

• Clearly determine which method applies to which service type/route/vehicle type
• Avoid overlap or omission
• Example: Allocation by km for long-distance (>100 km), allocation by trip for urban (<50 km), allocation by ton-km for bulk mass cargo

Principle 2: Ensure consistency within each scope

• Within same segment, apply UNIFORMLY one method
• Don't change arbitrarily between periods unless justified and fully documented

Principle 3: Control total fixed costs

• Regardless of how many methods applied, total allocated fixed costs must EQUAL actual incurred total fixed costs
• Periodically reconcile to ensure no omissions or duplications

Principle 4: Separate fixed costs by group if needed

• Some fixed costs can be directly allocated to each vehicle/service group (example: container truck depreciation only for container service)
• Common fixed costs (management salaries, office) can be allocated by revenue proportion or number of vehicles per group

Implementation methods for combination:

1. Classify services/routes/vehicles into uniform groups: Each group has similar characteristics regarding distance, weight, complexity
2. Select suitable method for each group: Based on criteria matrix analyzed in previous section
3. Establish clear calculation formulas: Document in writing, detailed instructions for accounting and operations departments
4. Integrate into TMS system: Configure software to automatically apply correct method for each transaction type
5. Train relevant staff: Ensure everyone understands the logic, knows how to input data correctly, can explain to customers when needed
6. Monitor and adjust periodically: Quarterly or annually, review effectiveness, adjust if operational structure changes

Recommendations and Implementation with DeliTMS

5-Step Process for Implementing Fixed Cost Allocation Method

To successfully implement fixed cost allocation method for transport, companies should follow a systematic process:

Step 1: Collect and classify all fleet fixed costs

• Make complete list of fixed costs by groups: depreciation, insurance, fixed salaries, yard rental, management fees, taxes...
• Determine occurrence cycle (monthly, quarterly, annually) and convert to same time unit (usually monthly)
• Separate common fixed costs and specific fixed costs for each vehicle/service group if any

Step 2: Analyze operational characteristics and select suitable method

• Classify service types, routes, vehicle types by characteristics (long/short distance, FTL/LTL, bulk/container...)
• Evaluate current data collection capability (have GPS? Have scales? Have TMS?)
• Apply criteria matrix to select method for each segment
• Decide to use one single method or combine multiple methods

Step 3: Establish calculation formulas and data recording procedures

• Build detailed calculation formulas, specific illustrative examples
• Design forms or software functions to record necessary data (km, trips, weight...)
• Determine calculation frequency (after each trip, end of day, end of week, end of month)
• Assign responsibilities: who inputs data, who checks, who approves

Step 4: Pilot implementation and adjustment

• Run new method in parallel with old method (if any) for 1-2 months
• Compare results, detect errors, unreasonable points
• Collect feedback from related departments (sales, operations, finance)
• Adjust formulas and procedures to fit reality

Step 5: Official application and periodic monitoring

• Officially announce new method, retrain all relevant staff
• Apply uniformly throughout the system, stop old method (if any)
• Establish periodic reports (monthly/quarterly) to monitor effectiveness: fixed costs per km, per trip, per ton, allocation ratio, compare between routes...
• Review quarterly or annually, adjust when there are major changes in scale or operational structure

DeliTMS Features Supporting Automatic Fixed Cost Allocation

DeliTMS transport management system provides features supporting companies to effectively implement and manage fixed costs:

Flexible fixed cost category management

• Allow setting fixed cost items by group, by vehicle, by time
• Automatically allocate periodic costs (depreciation, insurance, yard rental...) according to configured cycle
• Alert when fixed cost items are due or haven't been allocated

Automatic operational data collection

• Integrate GPS journey monitoring, automatically record actual km per trip
• Record completed trips, start/end time, stops
• Input or integrate weight data from weighing systems or from waybill documents
• Automatically calculate aggregate indicators: total km, total trips, total tons, total ton-km by period

Diverse allocation method configuration

• Support all 4 main methods: by km, by trip, by revenue, by weight (tons or ton-km)
• Allow applying different methods for each service type, route, vehicle type
• Automatically calculate allocated fixed costs for each shipment based on configured method
• Real-time update when there are changes in total fixed costs or work volume

Multidimensional cost reporting and analysis

• Comprehensive fixed cost reports by period, by vehicle, by route, by customer
• Compare actual costs with estimates, detect abnormal fluctuations
• Efficiency analysis: fixed costs per km, per trip, per ton, % ratio on revenue
• Compare efficiency between routes, vehicles, service types for optimization
• Export reports in table, chart, visual dashboard formats

Support full transport costing

• Combine variable costs (fuel, road fees, trip-based wages...) and allocated fixed costs
• Calculate complete costs for each shipment, support accurate pricing
• Compare costs with selling prices, determine actual profit per trip
• Alert when shipments are losing money or have abnormally low profits

Checklist for Evaluating Effectiveness After Implementation

After implementing fixed cost allocation method, companies should use this checklist to evaluate effectiveness:

☐ Completeness and accuracy

• Total allocated fixed costs = total actual incurred fixed costs?
• No shipments omitted without fixed cost allocation?
• Input data (km, trips, weight) accurate, cross-checked?

☐ Reasonableness and fairness

• Do allocated fixed costs correctly reflect actual resource usage level?
• Do similar routes/service types have equivalent unit fixed costs?
• Any routes/vehicles allocated unreasonably high or low costs?

☐ Operational feasibility

• Can staff collect sufficient necessary data without excessive effort?
• Is calculation process performed on time, not delaying reports?
• Any disputes or complaints from departments about allocation method?

☐ Usefulness for business decisions

• Does cost information after allocation help price services more accurately?
• Can identify which routes/types are profitable, which are losing?
• Can make improvement decisions based on cost data (close/open routes, increase/decrease prices, optimize routes...)?

☐ Consistency and comparability

• Is method applied consistently between periods to compare trends?
• When changing method, is there sufficient documentation to explain differences?
• Is historical data stored and retrievable when needed?

☐ Deployment cost optimization

• Are technology and labor costs for deployment appropriate to scale and benefits gained?
• Need to invest more in technology/labor to improve accuracy?
• Can apply simpler method while still achieving objectives?

☐ Continuous improvement capability

• Periodically collect feedback from user departments?
• Monitor best practices, new industry trends for updates?
• Have plan to upgrade system and methods in the future?

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Selecting an appropriate fixed cost allocation method is an important step helping transport companies accurately calculate transport costs, correctly evaluate business effectiveness, and make optimal decisions. No method is perfect for all situations—what's important is understanding the pros and cons of each method, correctly assessing your company's operational characteristics and capabilities, then selecting or combining methods reasonably.

TMS management systems like DeliTMS can provide strong support in data collection, automatic calculation, and effectiveness analysis, helping companies implement fixed cost allocation methods more accurately and efficiently.