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The Cost Breakdown — CapEx vs. OpEx for Shipment Tracking

The Cost Breakdown — CapEx vs. OpEx for Shipment Tracking

May 10, 2019 - Premsai Sainathan

Read Time 6 Mins.

If you want to track your shipments using the Internet of Things (IoT), the big question is about whether to go the capital expenditure (CapEx) or Operational Expenditure (OpEx) way when implementing new systems.

A quick search on Google “GPS vehicle trackers” can be quite tempting. You’re staring at hundreds of search results with devices that will cost you $100 or less, including shipping costs.

CapEx seems attractive, doesn’t it?

Hang in there!

The device cost may look tempting, but when you break down the solution into its bare basics and then sum it up to a “per shipment cost,” it will work much higher than a Roambee-type OpEx model.

The other aspects to consider are scale and financial predictability.

When you have leaner and tighter months in terms of shipment volumes, especially when your assets are lying idle and your finance team is questioning their utilization. They like numbers, and you do too, as every strong organization is built on scale, financial predictability, lower borrowings, agility, and higher ROI.  

Therefore, to get an accurate picture in terms of numbers, let’s compare a standard CapEx model of shipping tracking with the $20 per shipment that Roambee’s customers are currently paying on an average to monitor at a container-level using a completely-managed OpEx model. Roambee bundles hardware, software, and value-added services into a simple per-shipment, per asset or per month cost.

TABLE-1

*Note: Pricing stated is based on the specific type of shipment monitoring package that customers are using, geography, and other local variables. Roambee pricing varies based on application, geo, and scale.

So, how did CapEx end up being so expensive?

Let’s drill-down into each of these line items.  

The Real Cost of CapEx

1. Cost of Hardware Cost of hardware

The IoT game begins with collecting good data.

So, let’s look at a how much the shipment tracking hardware to do that would cost. An exhaustive Google search followed by testing samples of the 100+ vendors on Alibaba would land you at a device cost of about $100, if you are looking for something reliable with enough battery life, minus any sensor functionality like temperature, humidity, or pressure.

This works out to $4.16 per device per month over a 24-month device lifecycle and it doesn’t include the cost of setting it or configuring the devices.

2 — Cost of Hardware Technology Upgrade

Cost of hardware update

A 24 or 36-month lifecycle for your devices is only on paper.

What if a better technology comes out in 12 months or less? In the cell phone industry today, there is a significant upgrade every year, and IoT hardware is not very different. Do you want to say no to a drastically beneficial technology that will come your way in less than 2 years, especially if it can make your organization smarter and more efficient? 

Geo-political changes are happening faster than ever as well, countries are launching their own GPS satellites, new technologies like Nb-IoT and Sigfox are taking over the market, and hardware needs to be replaced, and replaced fast.

A classic example lies in cold chain monitoring. Companies started implementing GPS vehicle tracking systems to get real-time data of their vehicles, to compliment data loggers providing temperature at the end of every trip. Suddenly, IoT package-level monitoring solutions like the BeeBeacon Cold Chain tracker enabled visibility into both with a single-solution.

If you take a 1-year device technology lifecycle, and even with a 20% salvage value, the cost per month per device climbs to $8.33.

3 — Cost of Hardware Reverse Logistics

Cost of logistics-1

Here is where the math starts hitting you the most, especially when you opt for an unbundled model.

For calculations purposes, let’s say your average shipment is 5 days in length. You would need to budget at least 3 days for reverse logistics. Add a day for the device to get picked up and another 2 days in transit back to your locality, and another 2 days to re-charge its battery.
Factor 20% inefficiency into this as nothing happens perfectly when it comes to reverse logistics, and you will end up accomplishing about 3 shipments per month per device.

The cost of reverse courier pickups may sound inexpensive, but the cost of coordinating and managing the reverse logistics of hundreds or thousands of devices is not. It needs dedicated personnel to do this, even if you are using just 300 devices to monitor 1,000 shipments every month.

  • Cost of a full-time employee per annum: $60,000
  • Cost of servicing a trip: $5.55 per device
  • Cost of courier per device per trip: $4
  • Cost per device per trip: $12,200

This works out to $9.55 per shipment in managing a device’s reverse logistics alone.

4 — Cost of Data Plans

Cost of data plans

Cost of a data plan is about $2 per month per device, but there is more you need from your telco. What about the following?

  1. When your cellular signal is weak and unable to transmit a data packet, you still need to be able to locate your device. Telcos offers what they refer to as Location Based Services (LBS) where they tell you the last tower that your device contacted. 
  2. When your existing cellular provider cannot offer you coverage in an area where your shipment is passing through, you need to rely on an alternative cellular carrier. 

Therefore, bundling the networking solution into the service is more art than science, and doing it yourself or relying on systems integrators may not cut it, especially at a global scale.   

5 — Cost of Software

Cost of software

This component is almost always OpEx as most software is now offered as a service.

In this example, assuming the cost of building a software to support a meager 300 devices to take 3 experienced engineers and 3 months to build, test, and deploy. It will cost you upwards of $50,000 and it needs a 10% cost of upgrade year on year for a 24-month period. So, you’re looking at a cost of software is about $6.95 per device, per month.

It doesn’t end there though. You need to pay for hosting, APIs for reverse geo-coding, integrating external data streams like mapping services, and anything else that goes into providing you with actionable data, which is why you opted to monitor your shipments in the first place.

So, add about a 25% to the software cost to support these APIs and you are looking at a software cost of around $8.68 per device, per month.

6 — Cost of Integration

Cost of hardware integration

Systems integrators make most of their money here. When you go CapEx, here are the places where you will spend repeatedly on:

  • Software updates
  • Device upgrades
  • Additional functionalities you have requested which affect an existing integration

7 — Cost of Overheads

Cost of overheads

Now add the support costs, maintenance costs, training costs, and everything else in-between. The tech industry mark-up is typically no lesser than 65% to cover these, but that’s with a profit. Assuming you eliminate the profit part from the calculation, you are still looking at half of it to keep things running, which is 32.5%.

Net Cost of CapEx

Net Cost of Capex

  • Summing up the per device operating cost, you are looking at about $15 per device per month.
  • Assuming one device does 3 trips per month and you spend $9.51 per shipment, you are looking at a per trip shipment tracking cost of about $23.94 or close to $24 per shipment.
  • Add the 32.5% cost of overheads and you are looking at about $22.67 per shipment as your tracking cost.
  • Add the bank rate of interest in financing this through a CapEx model and you will land up at $24 per shipment.   

Net-Net — The Hidden Discount of OpEx

NET NET The hidden discount of opex

Compare $24 to Roambee’s $20 per shipment, per month.
Plus,  

  • No devices to configure
  • No missing out on technology upgrades
  • No device logistics to manage
  • No missing out on software upgrades
  • No future bugs to worry about
  • No justification of capital expenditure in your budgets
  • No hassles

The OpEx bundle builds on seamlessly with value-added services like a 24x7 control tower, on-site personnel, or anything else that may be helpful towards your business case, eliminating the hassles of piecing together a solution that takes so much effort to just make it work.

So, how does Roambee make this happen?

It boils down to economies of scale and a whole lot of automation. For example, Roambee’s network optimization algorithms route devices to other customers once they finish a trip to maximize utilization. Our platform is built to service upwards of 100,000 devices, and at this scale, the cost of APIs and software building has reached a point of inflection. Our algorithms also predict network dead-zones that your device could run into, and it works out an alternate mode or network to save data plan costs.

So, the next time an IoT vendor proposes a CapEx model, think again!

The device cost will seem low, but you WILL end up spending 2x or 3x that when it comes to implementation.  

Get a Free Demo of Roambee's OpEx Model

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