With so many different operating models, collection technologies, and regulatory frameworks, our survey highlights a lack ofconsistency in the way operators account for and calculate their cost to collect tolls. Some do not even try to calculate their cost to collect. However, despite such diversity, our data clearly indicates that – of the prevalent collection methods – On Board Units (OBUs) offer far lower cost per transaction than any other modes of collection.
Based on the data gathered and our own calculations on tolling operating margins, we have developed benchmarks to allow organizations to assess the efficiency of their tolling operations. And while margins are indicative of both pricing power and cost efficiency, the results suggest that cost efficiency may be as much about location and labor costs as it is about choice of toll collection technology.
Likely the greatest challenge in measuring cost efficiency in the tolling sector is a lack of consistency in the way costs are accounted for. Given that the cost to collect tolls is one of the major metrics driving operating profit, it is interesting that the majority of respondents (58 percent) said that they had no documented methodology to measure collection costs consistently and almost a quarter said they have no documented methodology for depicting the toll collection process.
As a result, our survey has found significant variations in what operators include in their cost to collect calculations. Some costs – such as toll operations, call centers, credit card processing, utilities and image review – tend to be widely viewed as a component of the cost to collect and are therefore included in more than 81 percent of organizations’ cost calculations.
Notwithstanding these significant variances, we analyzed the reported total collection cost and cost per transaction information provided by our respondents to gain some insight into the effective cost ‘range’ of each tolling method prevalent in the market today.
We first looked at the tolling operating margins as an aggregate measure of the efficiency of a toll road operation, combining its pricing power and its cost efficiency. Essentially, we subtracted the reported toll operating costs from the total reported revenues and divided the result by the total revenues to find the individual tolling operating margin for each respondent.
Due to the lack of consistency in accounting for toll operations, we grouped together all toll operating costs, customer account management costs and administrative costs under a single bucket of ‘toll operating costs’. This analysis indicates that some tolling operators’ cost to collect can be as low as 13 percent of revenues, whereas others may be as high as 60 percent or more.
Not surprisingly perhaps, the top margins were reported by operations that are either full ETC systems or that collect a high proportion of their revenues through ETC. At the other end of the scale, a large proportion of the lowest-margin operators tend to operate cash-only facilities.
While the sample size is somewhat small to develop a sound comparison across geographies, our data also suggests that location may influence operating margins for tolling operators. In part, this is likely due to the high correlation between geography and labor costs. At the same time, issues related to affordability and – most importantly – the pricing power of the toll agency which is often limited by regional rate setting schemes.
Another method of measuring the efficiency of a toll road operation is through an examination of toll collection cost per transaction; a metric that also provides a more detailed view of cost efficiency across different modes of toll collection while simultaneously being independent of pricing power. And while the sample size may be somewhat small, and the list of‘inclusions’ somewhat varied, we believe that this data provides one potential guide for benchmarking the efficiency of toll operations.
Overall, the most cost efficient toll operations tend to report costs of less than US$0.26 per transaction (corresponding to the top quartile of respondents). Conversely, respondents reporting costs in excess of US$0.59 per transaction (corresponding to the bottom quartile of respondents) can be considered inefficient in their toll operations. On average the industry spends US$0.43 for each transaction.
Looking at the cost per transaction across collection modes, results are not surprising: those with On Board Units (OBUs) reported an average cost per transaction of US$0.29, clearly influenced by the level of automation afforded by OBUs (and, it must be noted, by the small sample size included in this research). Those with cash transactions reported an average cost to collect of US$0.85, while video tolling represented an average cost of US$0.97.
The continued evolution of technology and its wider adoption by tolling operators (such as OCR capabilities) coupled with the growing number of operators participating in interoperability arrangements should help facilitate data exchange between facilities and jurisdictions. And, as a result, operators and owners should start to see labor and other ancillary costs associated with video transactions start to decline, thereby greatly improving the cost efficiency of video tolling.
KPMG International’s Road Tolling Survey 2015 aims to bridge that gap.