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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications

Whitepaper: Conveying vs. Trucking Economics for medium sized Applications
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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 1

Introduction This paper shows how easy it is to perform fundamental economic evaluations of overland conveyor projects and summarizes rules of thumb that make doing the analysis faster. Project engineers frequently miss the opportunity to perform a Net Present Value (NPV) analysis on their new overland conveyor projects because they don't understand how easy it is to do. People get stymied not knowing the magnitude of the variables to input. This paper demonstrates how easy it is to perform fundamental economic evaluations of overland conveyor projects and summarize the rule of thumb that makes doing the analysis faster. The reward is a deeper understanding of the project. The variables that one needs to know are the trucking cost per ton, annual volume of material to move, conveying cost per ton, capital cost of the conveyor system, tax depreciation schedule for that conveyor system, corporate incremental income tax rate, and most importantly, the discount rate or required rate of return. Each one of these variables are difficult to nail exactly and they can be dynamic changing from year to year. Other variables also exist that have less impact on the NPV or rate of return such as project life, salvage value of the investment and inflation rate of the operating costs projected. Doing a simple NPV of the difference between the trucking costs versus conveying cost will generate a yearly difference in operating cost that can be brought back to time zero for the capital amount, but only if the real conveyor capital cost is cheaper will the project be worth doing. After performing this analysis on many projects it becomes obvious, without even running the model, if the project will pay out sufficiently to warrant closer evaluation. In summary this is a valuable tool to utilize.

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 2

Conveying vs. Trucking Economics For Medium Sized Applications Conveying vs. Trucking Economics For Medium Sized Applications Net Present Value on a New Project In this case of a real life example the utility has been using 20 ton Over-The-Road haul trucks which cost $85.00 per hour to operate, including the driver. This cost is obviously debatable based on differences in driver compensation but has been verified. The biggest variable in terms of cost per ton is how many roundtrips this truck makes per hour i.e. how many tons per hour for the $85.00 cost. We have real life data that...

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 3

Co n veyi ng vs. Truck i ng E conom ics For Medium Sized Applications Conveyor Operating Cost per Ton Assumption Optimistic Conveyor Type Pipe Conveyor Power cost Maintenance Operating labor Outage inspection Assumes 1000 kW for conventional & 5 cents per kWH Assumes $200,000 per year for maint. expenses Assumes 1 man at total burdened cost of $175K/yr. Assumes yearly inspection costs of $30,000 All costs divided by 3,000,000 tons per year of volume Pipe Conveyor Power cost Maintenance Operating labor Outage inspection Assumes 1000 kW for conventional & 8 cents per kWH Assumes $250,000 per...

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 4

Conveying vs. Trucking Economics For Medium Sized Applications The operating costs for this pipe conveyor would be $.201 per ton starting in year 1. As with trucking costs we inflate the costs at 3% per year to recognize the affects of inflation. The inflation rate is obviously a variable that companies may differ on. This results in a projection of the difference in operating costs as follows over a ten year period: But we can run an IRR calculation on the investment to see what the true rate of return on capital would be and that is: Volume (tons per year) 3,000,000 Trucking cost per...

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 5

Co n veyi ng vs. Truck i ng E conom ics For Medium Sized Applications Co n vey i n g vs. Tru c ki n g Eco n o m i c s Fo r Med i u m Si zed A p p lic a t ion s At this point in the analysis we would normally fine tune the variables. For this project, that meant examining the future capital requirements of the conveyor system and the working capital for spare parts to keep on hand. It was assumed that we would need a belt replacement in year 9 for this analysis. To be fair, the capital cost of the belt for this project should be shown in year 9 and penalize the savings accordingly....

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 6

Co n veyi ng vs. Truck i ng E conom ics For Medium Sized Applications Other Considerations The economic analysis provides meaningful numbers to gauge the profitability of the project compared to the company’s true cost of capital. But there are other considerations that should be part of the decision tree. They may not be as important as cash flow but they are worth considering. These include: • Minimizing the carbon footprint of the transport over time, • Making the project sustainable by lowering dust emissions and road maintenance, • Improving plant safety and congestion, • Assuming the...

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Whitepaper: Conveying vs. Trucking Economics for medium sized Applications - 7

Co n veyi ng vs. Truck i ng E conom ics For Medium Sized Applications www.beumergroup.com BEUMER Kansas City, LLC 4435 Main Street, Suite 600 KANSAS CITY, Missouri 64111 USA usa_bkc@beumergroup.com +1 816 245 7260

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