Cost of Safety in Transport

Roger OakdenGlobal Logistics

Safety can cost a lot of money.

Have you identified the cost of safety in your road transport businesses or have negotiated 3PL rates in which safety of the fleet has been discussed? It is difficult to quantify safety outside of insurance premiums and training time, so what figures have you used?

As an indication that safety can cost a lot more than you might imagine, there is a current situation with an Australian fuel transport company. It was the largest in the country until one of its vehicles lost control in a Sydney suburb, rolled and caught fire, killing two and injuring five people.

The subsequent investigation of the company’s fleet of trucks found a litany of maintenance problems that were supposedly rectified, but recent spot checks has found the problems continuing, so all 250 fuel trucks have been ordered off the road by the transport authority.

The total cost will most likely never be known, but the published costs are: the loss of three contracts with major energy companies to deliver fuel into service stations at a value of $A92.5m per year, about 60 percent of the company’s business. 150 jobs will go initially and more as the current contracts finish; redundancy payments by the company and unemployment pay from the State will be considerable.

While the fleet is being inspected, short-term hiring of tankers at premium rates is required to meet current contracts. The company says it has increased its payments to a vehicle maintenance company by $A3.5m per year, although the company may have to employ their own inspectors as it appears the maintenance company does not have an effective quality assurance program.

You behave how you are measured

So, a minimum cost to the business of $A100m, loss of jobs and the time of government inspectors and emergency service personnel. A more indirect costs is the loss on the stock exchange of $A131m in the value of the parent company. All this because, most likely, management wanted to improve the bottom line and their annual bonus; that is, behaving how they were measured by the business.

Truck maintenance is about safety, which is a lower order need of people. Without a safe environment employees will not think of productivity and the greater needs of their employer. The continuous emphasis on safety and safe working conditions must be driven by managers within an enterprise; and they must do it because they believe it is the correct thing to do, not because there is a legal requirement.

As shown, managers who do not personally care, will not take notice of legalities, but the end cost to them and to the business can be very high. Make sure this scenario does not happen to your business.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...