BEFORE THE ROAD SAFETY REMUNERATION TRIBUNAL SUBMISSION TO THE THIRD ANNUAL WORK PROGRAM FROM THE TRANSPORT WORKERS UNION OF AUSTRALIA:

Transcription

1 BEFORE THE ROAD SAFETY REMUNERATION TRIBUNAL SUBMISSION TO THE THIRD ANNUAL WORK PROGRAM FROM THE TRANSPORT WORKERS UNION OF AUSTRALIA: PAYMENTS AND ASSOCIATED ISSUES FOR CONTRACTOR DRIVERS COVERED BY THE ROAD TRANSPORT AND DISTRIBUTION AND LONG DISTANCE OPERATIONS ROAD SAFETY REMUNERATION ORDER 2014 (RTP2012/1, RTP2013/1, RTP2014/1, RTO2013/1, RTO2013/2, RTP2013/2, RTO2013/4, RTO2013/5, RTO2014/1) Contents A. Background... 1 B. Omission of certain cost components... 3 C. Hours worked assumption... 4 D. Truck age assumption... 4 E. Profit... 4 F. Crash repair costs... 5 G. Wages and related conditions... 5 H. Insurances... 7 I. Costs omitted... 7 A. Background 1. These submissions address the cost model produced by the KPMG report and published April 2015 (KPMG Model). They should be read in conjunction with the report prepared by Statham Accountants and filed together with these submissions. These submissions avoid dealing with matters addressed by the Statham report. 2. It should be acknowledged at the outset that the KPMG Model represents an excellent starting point. As a mathematical model it supplies an appropriate framework for the calculation of the rates to be contained in the Tribunal s upcoming Road Safety Remuneration Order (RSRO). The Model does however require adjustment, and in some areas significant adjustment, in respect of various assumptions and in respect of Liability limited by a scheme approved under Professional Standards Legislation 1

2 various cost components. As it stands, the Model is apt to understate the costs incurred by owner drivers. 3. Some general matters may be noted before turning to the specific of the Model. 4. First, the Model provides in most cases for significantly lower rates than those currently applying to owner drivers performing local work in NSW and who are covered by the Transport Industry General Carriers Contract Determination (GCCD). Taking the most common example of a bogie axle prime mover where the operator does not own the trailer: KPMG GCCD Per KM $1.13 $1.61 $1.612 Per hour $57.40 $101 $ Distribution work in the Sydney and other metropolitan regions is currently subject to GCCD rates. Any contention that the KPMG cost model produces inflated estimates of cost recovery or are likely to disrupt or distort the market must be viewed sceptically in the circumstances. 6. Second, it is essential that the rate set acknowledges the prospect of contingent and/or irregular expenses. Put differently, the rates should not be designed on the basis that the best case scenario is assumed. The most obvious example of such a contingent expense is crash repair costs. The rates should not be set at a level which means that an owner driver who is involved in an accident and incurs repair costs would thereby fall below the cost recovery threshold. 7. Third, and to state the obvious, the KPMG Model grapples with the large task of synthesising the complex of cost components into a minimum rate. It is inevitable that there will be differences of opinion in relation to various assumptions, costs inputs and methodology of calculation. It is also inevitable that various of the Model s Liability limited by a scheme approved under Professional Standards Legislation 2

3 assumptions and cost inputs may be contradicted by reference to the experience of a particular industry participant driver, transport company or client. 8. Criticism of any particular dimension of the Model on that basis that a particular party simply has a different view, or has had a different experience in some respect, does not advance the debate. Rather a party which contends for a different assumption or approach should demonstrate: (a) (b) (c) (d) the ways in which its particular experience are representative of the industry; the significance of the particular assumption or input in terms of overall analysis; the more appropriate assumption, input or method; and the reasons why the Tribunal should prefer the party s particular approach, bearing in mind that the Tribunal s focus is not on the interests of any particular party but on the industry sector as a whole. B. Omission of certain cost components 9. KPMG indicate that the cost components included in the Model are representative rather than comprehensive, and that only items which are significant with respect to operating costs have been incorporated. It is not immediately apparent what is meant by representative nor is it clear what category of cost is treated as significant, but those questions are in any case academic. It would be wrong to proceed on the basis of a Model which ignores some of the costs likely to be incurred by owner drivers. To do so would defeat the essential object of the rates provisions of the RSRO by failing to ensure full cost recovery for owner drivers. 10. It is essential that the Model is recalibrated so that its treatment of costs is comprehensive rather than representative. As outlined at 6 above, that treatment should recognise the prospect of irregular as well as regular costs. 11. The KMPG material acknowledges but does not incorporate a series of costs including crash repair costs, PPE and work wear, finance administration costs, and ASIC registration fees. It also ignores altogether other categories of costs including Liability limited by a scheme approved under Professional Standards Legislation 3

4 those associated with parking and storage, maintenance of a home office and stationary. Those costs should be included. 12. The full list of costs which should be included in the Model are set out in Part I below. C. Hours worked assumption 13. The KPMG model assumes that employees work 48 weeks a year, taking into account four weeks annual leave. Employees are however entitled to a minimum eight weeks leave per year, taking into account two weeks of personal leave and ten days of public holidays The correct assumption is that workers are engaged for 44 weeks of the year. The Model should be adjusted accordingly. D. Truck age assumption 15. For the reason identified in the Statham Report at pages 7 8, the age assumption for long distance trucks in particular is inappropriate. As suggested, the appropriate measure would be the finance cost of a new truck over five years with a 30% residual. E. Profit 16. The Model makes no provision for profit margin. This is a substantial omission. 17. It is trite to say that owner drivers bear a high level of risk. That level of risk is appropriately compensated for by a profit margin. In this sense owner driver businesses are no different to any other business in the economy. 18. It is conventional for cost models to allow a profit margin: see for example the cost model set out at Appendix A to the Hanson Construction Materials Pty Ltd Concrete Carriers Contract Determination. 1 Various employees are of course entitled to more leave seven day shift workers are generally entitled to five Liability limited by a scheme approved under Professional Standards Legislation 4

5 F. Crash repair costs 19. The KPMG model excludes crash repair costs. That is understandable at first glance, given the initial difficulty in quantifying a cost which is by definition unpredictable, but should not prevail. To the extent the intention of the RSRO is to ensure that all owner drivers are paid an amount sufficient to ensure cost recovery, it is essential that all costs, whether regular or irregular, are captured. 20. It is likely that every owner driver will incur crash repair costs at some time. An accident will mean not only costs of repair but time off the road. A road accident is a prime example of an event that may drive operators from profitability into unprofitability (or worse, into unsafe practices). It is necessary that the assigned rate allow for such events. 21. It may be accepted that the quantification of such irregular costs is not straightforward, but nor is it impossible. There is sufficient data available to allow for the quantification of crash repair costs over the medium to long term. G. Wages and related conditions 22. The Model adopts as the basis of labour cost calculations the rates contained in the Road Transport and Distribution Award 2010 and the Road Transport (Long Distance Operations) Award That is the obvious starting point, but is not necessarily the most appropriate. At a minimum, two features of the modern award rates should be borne in mind: (a) (b) Modern award rates are minimum rates in the strict sense of the phrase. That is, are by design set at a level which will encourage rather than discourage bargaining. They operate in the context of an extensive statutory machinery designed to facilitate enterprise bargaining. Enterprise bargaining in the owner driver sector is not unknown but is rare. It is doubtful whether the probargaining logic of award minimum rates is apt in respect of owner driver operations. The wage rates in modern awards are accompanied by a suite of other entitlements to leave, loadings for antisocial hours and so on. Those Liability limited by a scheme approved under Professional Standards Legislation 5

6 conditions are an essential feature of the fair and relevant minimum safety net of terms and conditions Despite the foregoing, the TWU does not at this stage contend that a different wage level should be employed. It is however important to recognise that award minimum rates are the lowest possible measure of labour costs. That already low measure should not be further diminished by the exclusion of complimentary conditions such as penalty rates, loadings and allowances. 24. It has not been contended by any party to date that an owner driver should be paid less than the minimum award standard for his or her labour. That is however the effect of the Model s exclusion of the variety of standard award conditions from its labour cost calculations. The Model should, at a minimum, take into account the following labour costs: (a) (b) (c) (d) (e) overtime penalties; loadings for work performed at antisocial hours and weekends; annual leave loading; meal and overnight allowances; and long service leave. 25. There is no obvious difficulty involved in the inclusion of these components. They should be added to the analysis. 26. Some of these items are addressed, to a degree, in respect of long distance operations by the inclusion of the industry allowance and overtime allowance. It may be that the 1.3x and 1.2x loadings are a passable approximation of the value of the overtime and shift/weekend penalties otherwise payable. If the full list of components is not to be included, the overtime and industry allowances should be applied to all operators including distribution drivers. 2 See section 134 of the Fair Work Act 2009 (Cth). Liability limited by a scheme approved under Professional Standards Legislation 6

7 H. Insurances 1. A majority of owner drivers are incorporated and obliged to take out (and in any case should take out) workers compensation insurance. For reasons which are unclear, the not insignificant cost of workers compensation protection has not been included in the model. It should be. 2. Similarly the model excludes the cost of income protection insurance (although it does include the less comprehensive sickness and accident insurance). Loss of income, for whatever reason, is properly viewed as a contingency which represent a cost to owner drivers. Income protection insurance goes some way to moderating the risks borne by owner drivers in this respect and is an appropriate inclusion in the Model. I. Costs omitted 3. The costs to be added include: Item Category Various wagerelated entitlements Labour costs Profit margin Finance Cost of air conditioned sleeper cabin Finance Income protection Insurances and registration Workers compensation Insurances and registration Crash repair costs Repairs and maintenance ASIC registration fees Other Finance administration fees Other Liability limited by a scheme approved under Professional Standards Legislation 7

8 PPE and work wear Other Parking and storage Other Home office Other Stationery Other Liability limited by a scheme approved under Professional Standards Legislation 8

9 a STATHAM A ceo tttzta1l ts Statham Accountants Pty Ltd ABN ANALYSIS OF KPMG REPORTS FOR TRANSPORT WORKERS UNION PREPARED BY: BRAD STATHAM B.Com CA CHARTERED ACCOUNTANT 24TH APRIL ~ Chartered ~ Accountant Llaboi IY lomoted by a sdleme approved under ProfesSJOnal Standards Leg.slalion

10 Scope of review I have been engaged by the Transport Workers Union (TWU) to provide analysis of the following KPMG reports as published by the Road Safety Remuneration Tribunal as research material : KPMG guidance material Cost model outputs (single hourly rate) KPMG guidance material Cost model outputs (per hour and kilometre rates) KPMG detailed guidance material KPMG road transport contractor driver cost model (Excel workpapers) This report has been prepared for the TWU based on the information from the publications listed above, to determine whether the methodology and cost inputs used in the KPMG reports are appropriate, complete, accurate and relevant. This report has been prepared for this purpose only, and should not be used by any third parties, or substituted for different purposes, as it contains analysis which is specific to the KPMG reports listed above. The purpose of the report is to identify the strengths and weaknesses in the financial analysis of t he KPMG reports, and where appropriate provide commentary on what I believe would be a more appropriate measurement. The procedures I have performed have been limited exclusively to those related to the purpose of this report, ie to identify the strengths and weaknesses in the financia l analysis of the KPMG reports and determine whether the cost model is appropriate, complete, accurate and relevant. As a result: no formal audit has been conducted on the KPMG reports as source documents were available to verify certain assumptions used in the KPMG reports; and our engagement cannot be relied upon to disclose irregularities including fraud or misrepresentation of information which may be contained in these reports and calculations. No source documents were available to verify certain assumptions used in the KPMG reports. This report has been prepared based on the analysis of the KPMG reports listed above. It should be noted that whilst the Excel workpapers were made available these reports were locked to editing and as a result it was not possible to accurately verify some of the calculations. This engagement will be conducted in accordance with the relevant standards and ethical requirements of The Institute of Chartered Accountants in Australia. Our report will be prepared for distribution to the TWU official representatives. The report is not available for distribution to any third party without the prior written consent of the author. We disclaim any assumption of responsibility for any reliance on our report to any person other than those parties mentioned above, and for any purpose other than for which it was prepared. I 1:1 STATHAM Accountants Statham Accountants Pty Ltd ABN Relative Responsibilities The conduct of this engagement in accordance with the standards and ethical requirements of The Institute of Chartered Accountants in Australia which means that information acquired by us in the course of the engagement is subject to strict confidentiality requirements. That information will not be disclosed by us to other parties except as required or allowed for by law or professional standards, or with express consent of the relevant parties. Our files may, however, be subject to review as part of the quality control review program of The Institute of Chartered Accountants in Australia which monitors compliance with professional standards by its members. 2 1~ Chartered l~ Accountant U.bol ty ~rnted by a scl1eme approved Ullder ProfessiOOal Slanda<ds Lejllslabon

11 STATHAM Overall summation of the reports Accountants It is my opinion that KPMG have prepared a comprehensive analysis of the cost to operate trucks as an owner driver in Australia. I have however identified a number of omissions or adjustments which I would like to see amended in the original analysis. It is my opinion that once these amendments have been included in the KPMG cost model, the amended costing and resultant rates could be used as the basis for the determination of a minimum rate for owner drivers. The KPMG reports are t he most comprehensive analysis provided to the RSRT to date. There are some issues with the presentation of the KPMG reports which should be addressed to ensure the reports are better received by the owner driver community and easier to understand. c Statham Accountants Ply Ltd ABN The four step process for an owner driver to determine his/her appropriate minimum rate could easily be adapted to an online calculator or an App. Approach to modelling It is my opinion that the methodology adopted by the KPMG reports is appropriate in that the cost model seeks to calculate the following individual components to determine the total costs of operation: Cost of labour as per Award standards Costs of owning and operate the vehicle separated into categories of trucks Cost of owning and towing a trailer (where the trailer is owned by the contractor driver) Cost of towing a trailer (where the trailer is provided by t he hirer of the contract driver) Cost of operations in the Northern Territory, Tasmania and regional Western Australia. I note however that no profit margin has been included or applied to these costs. Key inputs into KPMG calculations The KPMG report seeks to calculate the annual operating costs of each classification of vehicle by aggregating the cost of labour, plus the cost to operate the truck, plus the cost to operate the trailer, plus any adj ustments required for operating in Tasmania, Western Australia and the Northern Territory. For the single hourly rate, the total costs operate the vehicle are divided by the assumed average number of hours worked per annum to arrive at a cost per hour. I agree this methodology is sound in converting the total costs into a manageable unit of measurement (hourly rate). I believe the kilometres travelled annually for a local vehicle is on the low side. Whilst I acknowledge the figures used in the KPMG report were sourced from t he Australian Bureau of Statistics, typically my clients doing local work are travelling around 40,000 60,000 km pa, whereas the KPMG report uses 35,000 km per annum. If the total actual kms travelled exceeds the kms in the cost model, the variable costs of the operator will be higher, resulting in a higher hourly rate than quoted in the KMPG cost model. For hourly rate + kilometre rate the calculations separate out the annual fixed costs into the hourly rate, and the variable costs into the kilometre rate. I believe the kilometres travelled annually for a long distance vehicle is on the low side. Whilst I acknowledge the figures used in the KPMG report were sourced from the Australian Bureau of Statistics typically, my clients doing long distance work are travelling around 180, ,000 kms per annum. Also, the typical number of hours worked for a long distance driver would be more in the order of 60 hours per week, not 45.2 hours as per the KMPG report. The effect of increasing the kilometres travelled and hours worked for long distance work would be a reduction in the fixed costs on an hourly basis, and an increase in the variable costs on a per kilometre basis. 3 ~ Chartered ~ Accountant LlaboMy '"'ted by a scheme awovoo Ullder ProlesSIOilal Standards legislatoo

12 STATHAM A ceo tl1ztants Item Description KPMG report My recommendation Distribution km pa 35,000 40,000 60,000 Distribution weeks worked pa Distribution avg hours worked per week Distribution annual hours worked Long distance km travelled pa 150, , ,000 Long distanceweeks worked pa Long distance avg hour worked per week Long distance annual hours worked , LABOUR COSTS 1:1 Statham Accountants Ply Ltd ABN Analysis of labour costs used by KPMG The KPMG cost model uses casual rates of pay per hour as per the Award conditions for labour which I agree is an appropriate method. The labour component incorporates casual loadings of 25% for local work and 15% for long distance work as per the relevant Awards. Superannuation is calculated on 38 hours per week at the current superannuation guarantee rate of 9.5%. This represents superannuation paid on ordinary times earnings which I agree is appropriate and in accordance with superannuation regulations. In relation to the cost of labour on page 6 of the KPMG report cost model outputs (single hourly rate), the labour rate incorporates and hourly rate for labour plus superannuation into single hourly rate. This is not clearly identified in the report. Labour in the cost model is based on 45.2 hours per week which I believe is a reasonable assumption. However in calculating the total labour costs the KPMG report assumes casual rate of pay for each 45.2 hours per week. The report is missing a provision for overtime at x1.5 time for the hours worked each week over 38 hours per week (ie in the model an average of 7.2 hours per week should be at x1.5 time the casual hourly rate of pay). This would increase the average hourly rate in the calculations by about 8%. It is my opinion that this is a significant issue which needs to be addressed Following on from the omission of the xl.s overtime rate for 7.2 hours per week, the calculation is also missing the casual loading on overtime in accordance with Clause 12.5 (d) of the Award: (d) A casual employee shall be paid for all overtime worked at overtime rates specified in clause For each hour of overtime worked a casual must also be paid 10% of l /38th of the minimum weekly wage specified for their classification in clause 15Classifications and minimum wage rates. A casual employee will not receive the 25% casual loading referred to in clause 12.5(c) whilst working overtime. Example: Assuming the hourly rate is $10 per hour, a casual employee would be paid $12.50 per hour for ordinary hours of work and would be paid according to the following methodology when working overtime: _ Time and a half a payment of $15 plus I 0% of $10, as the hourly rate, giving a total payment of$16. = Double timea payment of $20 plus 10% of $10, as the hourly rate, giving a total payment of $21. 4 I!\) Chartered \i) Accountant IJal>illty llmted by a sdleme approved under ProfessiOnal Standards LegiSialion

13 STATHAM A ceo zt~ttants Allowances The overnight travel allowance for long distance drivers has not been included in the calculation of the labour component. Current rate is $36.53 per occasion. The inclusion of the overnight travel allowance could add an additional cost of up to $8, pa. It is my opinion that this is a significant issue which needs to be addressed Loading for public holidays The KPMG report calculations are based on operating the vehicle for 48 weeks work per annum (52 weeks less 4 weeks annual leave for the driver). If the model is calculated on this basis then loadings should be applied to labour cost for work on public holidays. c Statham Accountants Ply Ltd ABN 35 t If it is the intention to exclude loadings on labour for public holidays, then the number of weeks the truck works per annum should be reduced by the number of public holidays per annum, and as a result total weeks worked in the cost model would be 46 weeks per annum, not 48 weeks per annum. This is important because number of hours worked as an effect on the hourly rate determined by the cost model. The final hourly rate is determined by total costs I hours worked per annum. An alternate methodology, and the one I see frequently, would be to have the truck available 52 weeks of the year, and include the cost of a relief driver for the four weeks the main driver is on holidays. In this case, the total cost to operate the truck would be spread over 52 weeks of the year. This would give a lower hourly rate as the fixed costs are spread over more hours per annum. It is my opinion that this is a significant issue which needs to be addressed 2. FINANCE COSTS The finance costs used in the KPMG reports require the cost of the vehicle for each category, the financing term, the annual interest rate and residual value. Truck categories and purchase prices I do not agree entirely with the type of vehicle selected for each category and as a result the truck purchase prices. As the categories are separated based on the gross vehicle mass (GVM) on the vehicle it would be my recommendation that the vehicle selected should have the GVM relevant for that band. For example, the vehicle for category C2 has a GVM or between 4.5 tonnes and 9.0 tonnes, therefore the truck selected should have a GVM of 9.0 tonnes. The KPMG report has used an average of the low point and the high point of the GVM range for each category as being appropriate. It is my opinion that this not appropriate as it results in the selection of a vehicle that does not necessarily have a GVM up to the maximum threshold of the band. For example, category C2 is a truck with GVM of between 4.5 & 9 tonnes. The vehicle for category C2 in the KPMG report is an lsuzu NPR300 Medium which has a GVM of only 6.5 tonnes. A more appropriate truck would be the lsuzu NQR450 Medium which has a GVM of 8. 7 tonnes. I have provided what I believe would be a more appropriate use of the representative truck per category: 5 ~ Chartered I~ Accountant Llab>lity limned by a scl1eme approved under ProfesSIOnal Standards Leg~lallon

14 STATHAM Class Vehicle as per KPMG My recommendation Accou1ltants Local Long Distance LCV Toyota Hilux Toyota Hilux Toyota Hilux C1 Mercedes Benz Sprinter 310CDI lsuzu 200 Short lsuzu 200 Short C2 lsuzu NPR 300 Medium lsuzu NQR 450 Medium lsuzu NQR 450 Medium C3 lsuzu FSD 700 lsuzu FSR 850 lsuzu FSR 850 C4 lsuzu FTR 1000 Medium lsuzu FVR 1000 Medium lsuzu FVR 1000 Medium C5 lsuzu FVR 1000 Medium lsuzu FXL 1500 Long lsuzu FXL 1500 Long CG lveco Distributor * lveco Acco 8 x 4 Volvo FMX 8x4 C7 lveco Stralis ATi 450 4x2 prime lveco Stralis A Ti 450 4x2 lveco Stralis ATi 450 4x2 mover prime mover prime mover C8 Kenworth T409 Gx4 prime Volvo FM prime mover Kenworth K200 6x4 prime mover** mover C9 Kenworth T409 8x4 prime mover Ken worth K200 8x4 prime Kenworth K200 8x4 prime mover mover There is no such truck as an lveco Distributor {category CG). I note in the Excel workpapers it is referred to correctly as an lveco Acco. "* I note in the Excel workpapers that C8 category truck is a Kenworth T359 whereas the report states a Kenworth T409. This should be clarified. c Statham Accountants Pty Ltd ABN There is a paragraph on page 43 of the KPMG Detailed Guidance Material which states, 'capital values were also collected for vehicles where the manufacturer provided the option for the addition of a sleeper cabin. There values were then used in the model to indicate vehicles in 'Long Distance' operations and allow finance values to reflect the difference in prices based on the operating model of the driver.' The accompanying KPMG Excel worksheets had a single purchase price for each truck category. I was unable to determine from the calculations whether different truck purchase prices were in fact a pp lied to local trucks versus lon g distance trucks. There may be a valid argument to swap the C8 prime mover to another brand of prime mover for the single hourly rate analysis to reflect the fact that a lesser priced prime mover is generally used for local work, as opposed to long distance operations. For example a Volvo FMO or Scania R480 may be more appropriate selection. When speccing a prime mover for local work there is generally no requirement for a bunk/sleeper berth, whereas this is a commonly accepted inclusion for long distance operations. As a result I believe it would be more appropriate to have different trucks in categories CG, C8 & C9 for local and long distance operations. For example, it is unlikely an lveco Acco 8x4 would be used for long distance work as it is generally not suitable for this type of application and as a result a more appropriate truck should be used. Effect of proposed changes to trucks The effect of using a lower specced truck in the KPMG report is that for each category where this has occurred the capital value of the truck, and therefore the financing costs applied to this truck, will be understated. Specifically, in the KPMG report the cost price of the C8 & C9 prime movers are significantly below the cost of the truck which I believe is a more appropriate truck for this application. Eg the KPMG report has the cost of Kenworth T359 6x4 prime mover at $218,215, whereas the retail cost of a K200 Kenworth is around $300, ~ Chartered ~ Accountant Ltabtftly ltn>led by a scheme approved onder Prof sional Slandanls Leg;slalion

15 Similarly, in the KPMG report the cost price of the C6 truck (lveco Acco) is $161,781. This truck would not be suitable for long distance work. A comparable truck in this category for long distance work would cost over $200,000. I would be interested to sight the quotes for the truck prices assumed in the KPMG report as the current market prices do not seem to reflect the values applied in the KPMG Excel worksheet. For example, according to the Excel worksheet supporting the KPMG reports, the price of the truck for category C6 (lveco Acco) cost is $161,781. The representative vehicle according to the KPMG Detailed 1 Guidance Material is an lveco Distributor (sic Acco) with curtainsider body. A search of the latest lveco Acco prices (which I have substantiated with a client's similar recent purchase) has this truck price at approximately $174,000 ex GST for the cab chassis version only. I c STATHAM Accountants Statham Accountants Ply Ltd ABN Trailer categories I don' t believe the trailer configuration categories have adequate detail. The categories included could possibly be expanded to include light trailers towed by light trucks as well as additional subcategories for semi trailers. With the current trailer categories being quite narrowly defined it is difficult to determine where some common trailers apply. For example, the category T3 should be expanded to 3 & 4 axle rigid trailer to account for a wider variety of dog trailer eg quad dogs. The purpose of having additional categories within the semi trailer category would be to account for trailer purchase costs where there is a significant cost variance to the representative trailer wh ich is a curtainsider in the cost model at $81,137. For example category T5 could be expanded to include a category T5.2 trailer cost $100,000$150,000, T5.3 cost $150,000$200,000, T5.4 cost >$200,000. The current trailer categories and costs in the KPMG report throw up some anomalies for small trucks towing light trailers eg: a two car carrier. The appropriate category for this work would be Grade 2 driver with a C2 truck. If the driver supplies only the truck with no trailer his rate is $42.28 per hour. If they then supply a trailer the hourly rate increases to $ This is a 75% increase in hourly rate for towing a light trailer which may be the size of a car trailer. Method of applying financing cost to the total costs The total cost of financi ng in the KPMG report consists of a calcu lation of truck repayments, plus depreciation on the truck. I don't entirely agree with this methodology, however I acknowledge that the method adopted by KPMG results in a greater cost of finance, and therefore a higher hourly rate overall than alternate methods. The KPMG report assumes the truck purchased is a four year old truck in each category. The justification for using this is that it has been used as an assumption in other existing models. The report states that KPMG model uses 5 year term, 30% 7.6% interest rate. In addition, the KPGM model assumes depreciation on the equipment on a straight line basis over the effective life of the asset. My referred method of determining the financing costs would be to calculate the monthly repayments based on the recommended retail price of a brand new truck over a five year period with a 30% residual at say 6% interest rate. For local trucks I would assume a useful life of 10 years, so the remaining term of five years (term from the end of the initial finance contract to the end of the effective life) will be financed at 0% residual at the higher interest rate of 7.6%. I would therefore exclude depreciation as a cost item, replacing it will only the cost of financing over the effective life on the vehicle. 7 ~ Chartered ~ Accountant

16 STATHAM Acco untants For long distance truck I would assume a useful life of only five years, which would assume the truck is sold for the residual value and a new truck purchased at the end of the finance period. In this scenario the truck fi nance cost for long distance will be the brand new truck price financed over a five year term with 30% residual at 6% interest rate. 3. FUEL Statham Accounlanls Ply Lid ABN The KPMG report contained the now outdated diesel fuel rate of cents per litre. The KPMG report should be updated to the new rate of cents per litre. Oil costs appear reasonable if oil is bought in bulk. Oil consumption I have no expertise to determine whether this is appropriate. Ad blue 5% of diesel usage is reasonable for long distance work Ad blue consumption for local work is generally higher but not statistically significant. Fuel consumption rates are reasonable for each class of vehicle. 4. REGISTRATION & INSURANCE Registration costs appear reasonable Truck insurance costs appear reasonable Sickness and accident insuran ce costs seems high. A more appropriate insurance type may be income protection insurance as a substitute for sickness and accident insurance. 5. TVRES The KPMG report has the category C6 truck with 10 tyres. This truck is an 8x4 and therefore the number of tyres should be 12, not 10. Tyre disposal costs do not appear to have been factored into the calculations. Detailed analysis of tyre usage is difficult to analyse in the KPMG report spreadsheet due to the methodology undertaken. It wou ld simpler to evaluate the costs of these items if the tyre usage was presented as: a. Number of steer tyres per vehicle, price per steer tyre, estimated kms for steer tyre, number of replacements per annum b. Number of drive tyres per vehicle, price per steer tyre, estimated kms for drive tyre, number of replacements per annum c. Number of trailer tyres, price per trailer tyre, estimated kms for trailer tyre, number of replacement per annum. d. Number of punctures per annum, cost per puncture 6. MAINTENANCE Maintenance has been determined based on a cpk method. There may be a valid counter argument for local trucks to have their maintenance costs determined on an hourly basis rather than on a cpk basis as these trucks may do more engine hours relative to kms travelled. Many of my clients with local trucks use engine hours as the appropriate method to determine service intervals eg service intervals at 450 hours. 8 1:1\1 Chartered \i)' Accountant L ab<hty hitoted by a scheme approved under Professional Slandards Legisla~on

17 AJ AHAtMt The KPMG report has cpk rates for ma;ntenance of pr;me movers at a h;sr contract mamtenance contracts 1 h ave seen f or my c 1 tents runnmg. 1 ong d. 1stances. As a resu 1 t t h e ccoun an s maintenance costs in the KPMG report are reasonably generous. 7. ADMINISTRATION I c Statham Accountants Pty ltd ABN Accounting and taxation costs in the KPMG report are too low. The KPMG report has the total accounting and tax cost at $667 per annum whereas the true cost should be approximately $1,500 $2,000 per annum Ongoing administration costs in the KPMG report are too low. The KPMG report has $300 per annum. The true cost is more like $1,200 per annum based on 1 hour per week of administration time. Accreditation fees are reasonable in the KPMG report Blue/White Card costs are reasonable in the KPMG report ASIC fees are reasonable in the KPMG report Truck washing costs in the KPMG report are too low. The report has $80 per wash and 26 washes per annum (total $2,080}. Costs vary from $70 $130 per wash as a result this cost should be more like an average of $100 per wash on a weekly basis ($5,200 per annum) Truck parking costs are not included. Many local councils will not allow trucks to be parked at homes or on the roads. As a result truck parking should be included unless depot parking is available. Where applicable truck parking should be included at $100 per week ($5,200 per annum) There is no allowance in the KPMG report for uniforms and protective clothing eg gloves, hard hat, protective eye wear etc. There should be an allowance added for these items of say $500 $1,000 per annum. There is no allowance in the KPMG reports for stationery including log books. There should be an allowance added for these items of say $500 per annum. 8. OTHER ADDITIONAL COSTS There are additional annual costs applicable to some owner drivers that have not been covered in the report. This may be because they are sector specific, difficult to quantify or they may have been inadvertently omitted: Tolls Membership & subscriptions to associations Food safe accreditation Cost of permits Truck rental costs for vehicle downtime Accommodation costs for long distance owner drivers operating trucks in categories LCV, Cl, C2 & CG as these vehicles do not have complying sleeper compartments. Omission of Profit margin I note that no profit margin has been included or applied to these costs in the KPMG reports. I consider it appropriate that a profit margin is applied to the total costs as determined by the cost model. The lack of a profit margin fails to take into account the risk of being in business. It is my opinion that this is a significant issue which needs to be addressed 9 (G Chartered ~ Accountant!Jablhly imoled by a scheme appmved under PtofessiMal Siandanls Leg'slatioo

18 9. REPORT PRESENTATION ISSUES ll c STATHAM Accou11ta1lts Finally, I wanted to make some comments in relation to the presentation of the KPMG reports. If they become adopted by the RSRT I would like to the following changed so the reports are more concise and j more relevant. Statham Accountants Pty Ltd ABN The example of page 5 of the KMPG guidance material Cost model outputs (single hourly rate) has a single drive lveco prime mover towing a bdouble set of trailers. This could be changed to a bogie driver prime mover towing a bdouble set of trailers which is more common/ likely configuration in the real world Similarly, the worked examples of page 20 of the KMPG guidance material Cost model outputs (single hourly rate) has at Example #1 a T359 Kenworth prime mover, however in the KMPG detailed guidance material the actual representative prime mover used for this category is a T409 Kenworth (1 note in the KPMG Excel worksheets the truck is a T359 Kenworth prime mover). Which is it a T359 Kenworth or a T409 Kenworth? Also on the worked examples of page 20 of the KMPG guidance material Cost model outputs (single hourly rate) has at Example #2 has an lsuzu FVR 1000 rigid with a semi trailer. It would be more appropriate that this trailer was a dog trailer (T3) as it is my understanding that this type of rigid truck is unable to tow a semi trailer (TS), certainly unable to without a dolly. I would like to see detailed descriptions of the trailers incorporated in the table labelled trailer and trailer combination types on page 24 of the KMPG guidance material Cost model outputs (single hourly rate). With respect to the presentation of the rate schedules, I believe these could be presented in a more concise manner. In relation to the tables from page 31 onwards of the KMPG guidance material Cost model outputs (single hourly rate), these tables could be reduced in size so for each labour category, each table only has the trucks and trailers relevant to that labour category. For example a Transport Worker Grade 1 can only drive the class of vehicles LCV. As result there is no need for the remainder of the table. Similarly, a Transport Worker Grade 2 can only drive the class of vehicles LCV & Cl. There is no need to have the categories C2 C9 on this table. (this could reduce the size of the document substantially and make it easier to read) Whilst these matters may seem minor, in my opinion it's better to get them right. Leaving them 'as is' could risk having the KPMG reports viewed by the owner driver community as being prepared by people with no practical experience in the industry which may lead to the owner drivers undermining the good work that has been done by KMPG in the preparation of these reports. In the final document it would be helpful to publish a table the total estimated annual cost for each truck category. It would be helpful as the owner driver could use this as a budget to compare their actual annual costs using their annual financial statements: 10 ~\ Chartered \II' Accountant L abihty hmtled by a scheme approved unde Protess10nat Standards Legislation

19 Example: c STATHAM A ceo U1l ta11 ts Cost Category LCV Cl C2 C3 C4 cs C6 C7 cs Labour Finance Fuel & Oil Registration & Insurance Tyres Maintenance Administration Other Total Costs Summary In summary, the KPMG reports and analysis is good and could form the basis of a consensus cost model once the amendments outlined above have been considered. Statham Accountants Pty ltd ABN If you have any questions regarding the matters outlined above, please direct them to Brad Statham on or to Regards, BRAD STATHAM Chartered Accountant 11 ~ Chartered ~~ Accountant Uabololy km.ted by a stheme awoved under ProfessiOnal Standanls Leg!slatoo