Maxiella Rose M.

Berdos Financial Analysis and Reporting

BSBA FM 2-4 Final Requirement

JEEPNEY MODERNIZATION PROGRAM

1. How much is the daily boundary of a jeepney driver which income of the
operator? What are the fixed costs of the operators of the public utility jeepneys?
What the corresponding variable costs? Given this input, and if you were to do a
breakeven analysis, is it still viable to invest in this type of business? There will
be additional expense but there should also be additional benefits.
 The "boundary" system of compensation is a common practice for jeepney
drivers in the Philippines. Under this system, the driver "leases" the unit
from the vehicle owner and pays a fixed amount, known as the boundary,
to the owner each day. The boundary varies depending on the route and
location, but it is typically around PHP 800-1,000 per day. The relationship
between jeepney owners/operators on one hand and jeepney drivers on
the other under the boundary system is that of employer-employee.

In 2020, a jeepney driver in the Philippines used to earn around P1,800 to

P1,900 per day before the pandemic. However, when public transportation
was allowed to resume operation, some jeepney drivers had to collect
P500 per day from other drivers under the "boundary" system to augment
their earnings.

The fixed costs of public utility jeepney operators in the Philippines refer to
the capital costs of the jeepney, which include the cost of the vehicle itself.
According to a 2023 article, modern jeepneys can cost anywhere from
P1.3 million to P2.6 million, which is a steep cost for drivers earning only a
few thousand pesos per day. However, the government is offering to
subsidize the cost of each modern jeepney, with subsidies ranging from
P160,000 to P360,000. In addition to the cost of the vehicle, there are
other fixed costs that jeepney operators must consider, it is the fixed costs
of operating a jeepney which include expenses that do not vary with the
number of passengers or distance traveled. These costs include vehicle
registration fees, insurance, and permits.

The corresponding variable costs are expenses that increase as the

number of passengers or distance traveled increases, such as fuel costs
and maintenance expenses. The corresponding variable costs of jeepney
operators can vary depending on different factors. These include fuel
consumption, operations and maintenance cost, electricity consumption,
price of diesel, passenger fare, and other variable fees.

Investing in a jeepney business can be a viable option, but it requires

careful consideration of the factors such as cost and investment, where
the cost of acquiring a jeepney and the investment required to operate the
business should be considered. This includes the cost of the unit, permits,
registration fees, and insurance. Maintenance and repair costs: Jeepneys
require regular maintenance and repairs to keep them in good condition.
This includes oil changes, engine repairs, and other maintenance
expenses. Deterioration of the jeepney: Jeepneys are subject to wear and
tear, which can lead to deterioration over time. This can affect the value of
the unit and the quality of service provided. Revenue and profitability: The
revenue generated by the business and the profitability of the venture
should be considered. This includes the number of passengers, the fare
charged, and the competition in the market. Government regulations: The
government has regulations that govern the operation of jeepneys,
including safety standards, routes, and fares. Compliance with these
regulations is important to avoid penalties and fines. Modernization: The
government is pushing for the modernization of jeepneys, which could
require a significant investment from operators and drivers. This should be
taken into account when considering investing in a jeepney business.
Competition: The jeepney business is highly competitive, and operators
need to differentiate themselves to attract passengers. This includes
providing good service, maintaining the units in good condition, and
offering competitive fares.

The cost of modern jeepneys is said to be anywhere from PHP 1.3 million
to PHP 2.6 million, which could be exorbitant for drivers earning only a few
thousand pesos per day. Local jeepney manufacturers, on the other hand,
are being supported for modernization, and some have already prototyped
modern jeepneys that have been approved by the government. Overall, a
more comprehensive analysis is needed to determine the viability of
investing in this type of business.
2. What is the average take home income of driver? What are the corresponding
fixed costs and variable costs of the driver? How many trips does he have to do
in order to make a decent living?
 The average take-home income of a driver can vary depending on several
factors, such as maintenance costs, fuel price fluctuations, freight broker
costs, load board fees, and other fixed and variable expenses. A jeepney
driver interviewed in 2022 said that he makes P450 to P500 per trip, or a
gross daily earning of P2,250 to P2,500. After deducting expenses for fuel
and meals, he is left with only P50 net per trip, or about P250 daily. This is
a drastic drop from the P1,800 to P1,900 he said he used to earn as both
driver and operator before the pandemic.

Fixed costs are expenses that drivers have whether they are driving their
truck or not, such as truck mortgage payments and insurance payments.
Variable costs are the expenses drivers pay when they drive their truck,
such as fuel and driver pay. Driver pay can fit into either fixed or variable,
depending on how it's calculated. A flat salary would be a fixed cost, and a
per mile pay structure would be variable. The corresponding fixed and
variable costs of the driver can vary depending on several factors, such as
the type of truck, the distance traveled, and the driver's experience. Some
examples of fixed costs include truck mortgage payments, insurance
payments, truck maintenance costs, truck lease payments, truck/trailer
insurance premiums, cargo insurance, health insurance premiums,
permits, licenses, professional services (bookkeeping, accounting
services) and taxes. Variable costs, on the other hand, include fuel costs,
driver pay (can fit into either fixed or variable, depending on how it's
calculated), toll fees, load board fees, freight broker costs, accessorial
pay, workers comp, health insurance and retirement benefits.

According to an interview, the total driving labor expense per mile ranges
from $0.49 to $0.83 ($0.67 per mile on average), which includes base
wages, incentive compensation, per diem, accessorial pay, workers comp,
health insurance, and retirement benefits. The same source also states
that fuel costs range from $0.40 to $0.55 per mile. If a driver has
determined a set driver's income, they can tell what gross income level
they must hit to support that income given their annual expenses. If a
driver wants to make a certain amount of money, they can use a cost-per-
mile calculator to determine how many miles they need to drive to reach
that income level. Reducing variable costs can also help increase a
driver's take-home revenue.
 Determining the number of trips a jeepney driver needs to make to have a
decent living is difficult because it depends on the driver's expenses and
other factors. However, many jeepney drivers are struggling to make ends
meet due to rising fuel prices and other costs that are eating into their
earnings.

3. Did the planned modernization of the transportation sector undergo the proper
procedures in introducing changes to an existing way of doing business? Was
there proper consultation from the stakeholders- operators, jeepney drivers,
commuters, and traffic enforcers?
 The Public Utility Vehicle Modernization Program (PUVMP) was launched
by the Department of Transportation of the Philippines in 2017 with the
goal of making the country's public transportation system efficient and
environmentally friendly. The program involves the phasing-out of old
jeepneys, buses, and other public utility vehicles (PUVs) that are at least
15 years old and replacing them with newer, more environmentally-friendly
alternatives.

In terms of the proper procedures and consultation with stakeholders, it is

mentioned that the program has received support from various
government agencies and transport groups across the country. There are
at least twenty government agencies and twenty-four transport groups
from across the country supported the launch of the program. However,
there have been concerns raised about the program. A policy brief
prepared by the UP Center for Integrative and Development Studies
highlighted the risk of corporate takeover of the transport sector and the
marginalization of jeepney drivers and operators. Some of the concerns
raised by the stakeholders are: Impact on livelihoods: Some transport
workers have raised concerns about the impact of the program on their
livelihoods. The phasing-out of old jeepneys and other PUVs may result in
job losses for drivers and operators who cannot afford to purchase new
vehicles. Cost of new vehicles: The cost of new vehicles is a significant
concern for many operators and drivers. Some have argued that the
government should provide subsidies or financial assistance to help them
purchase new vehicles. Lack of consultation: Some stakeholders have
raised concerns about the lack of consultation and participation in the
decision-making process regarding the program. They argue that the
government should have consulted with them more extensively before
implementing the program. Infrastructure: Some stakeholders have
pointed out that the program's success is dependent on the availability of
proper infrastructure, such as well-maintained roads and charging stations
 for electric vehicles. Environmental impact: While the program aims to
introduce more environmentally-friendly modes of transport, some
stakeholders have raised concerns about the environmental impact of the
production and disposal of new vehicles

Overall, this program has been met with both support and opposition.
Some transport workers have chosen to comply with the government's
modernization efforts, while others have raised concerns about the impact
on their livelihoods and the need for a just transition.

4. What were considered during the strategy formulation stage? Are these
amendments practical and achievable?
 During the strategy formulation stage, several factors were considered,
including the consolidation of jeepney drivers and operators, the number
of e-jeepney units per fleet, the price of electricity, the average annual
electricity consumed by the fleet, the average annual operations and
maintenance cost for e-jeepney, the government subsidy for e-jeepney
fleet, the annual amortization for e-jeepney fleet, the effective lifetime of e-
jeepney, the expected net present value, the net present value of e-
jeepney fleet project, the average annual earnings from diesel jeepney,
the number of diesel jeepney units per fleet, the average annual fuel
consumption of diesel jeepney fleet, the average annual operations and
maintenance cost for diesel jeepney, the average investment cost for
diesel jeepney, the effective lifetime of diesel jeepney, the decision-
making period, the initial diesel price, and the current price of diesel.

The practicality and achievability of these amendments is not guaranteed.

Some argue that the program's rushed timeline neglects the drivers' woes
and that the lack of available financial support and safety nets for jeepney
modernization makes it difficult for small-scale operators to transition to
the new vehicles. On the other hand, others argue that the program is
necessary to reduce the environmental impact of jeepneys and improve
their safety and efficiency.

5. What are the perceived benefits and advantages of the modernization program?
Do they fall within the “SMART” qualification of plans, goals and objectives?
What are the possible negative effects of this impending change?
 The jeepney modernization program has both advantages and
disadvantages. Some of the perceived benefits of the program includes
the increased of job demand, lessened carbon emissions, improved
safety, and enhance comfort for both drivers and passengers. These
 benefits align with the SMART criteria of plans, goals, and objectives, as
they are specific, measurable, achievable, relevant, and time-bound. It
also improved efficiency: Modernization programs often involve the
adoption of new technologies, tools, and techniques that can improve the
overall efficiency of a system. Increased flexibility: Modernization can
make a system more flexible, allowing it to provide a wider range of
services and adapt to changing needs. Enhanced security: Modernization
programs can improve the security of a system by incorporating new
security measures and technologies. Cost savings: Modernization can
lead to cost savings over time by reducing maintenance costs and
improving efficiency

The program also possesses possible negative effects including loss of

livelihood, government control, and loss of cultural identity. Not to mention
the disruption: Modernization programs can cause disruption to existing
systems and processes, which can be costly and time-consuming to
manage. Resistance to change: Some stakeholders may resist
modernization efforts, which can slow down or derail the program. Cost
overruns: Modernization programs can be expensive, and there is a risk of
cost overruns if the program is not managed effectively. Security risks:
While modernization can enhance security, it can also introduce new
security risks if not implemented properly. Overall, modernization
programs have the potential to bring significant benefits, but they also
come with risks and challenges that must be carefully managed.

6. Do you believe that this program is a good measure towards progress? Do you
have other suggestions on how to further improve the program? If you have the
needed capital and other resources, would you invest in the transportation
industry, particularly the public utility jeepneys?
 According to Deloitte, the transportation industry is at an inflection point,
and success will be determined largely by the ability to navigate five major
forces. These forces include nearshoring efforts, advances in technology,
and changes in public policy. To address these challenges, transportation
companies will need to modernize their systems and address
inefficiencies in the transportation ecosystem. This will require a broader
use of data and analytical tools to drive decision-making in both policy and
investment. Additionally, there is a need to modernize transportation
systems inclusively and equitably, to make opportunities in employment,
education, healthcare, shopping, and recreation more accessible to
underserved communities
 According to The Zebra, technology is advancing, and dramatic changes
to urban transportation are coming to our roads and skies. Some of these
changes include electric vehicles, autonomous vehicles, and drone
delivery. National Grid Group predicts that the next decade will see a
revolution in transport, with radical new inventions powered by renewable
energy, in response to the twin concerns of pollution and congestion.

Given that I have the needed capital and other resources, investing in the
transportation industry, particularly the public utility jeepneys, could be a
good measure towards progress. However, it is important to consider the
current challenges and opportunities in the industry, as well as the need
for modernization and inclusivity. I should also keep in mind and take into
consideration the range of people that benefit from the business. Overall,
this modernization is a great step into progress but it should not disregard
even one of the significant factors that could be affected. This project
should bring success to every Filipino citizen, hence, will be considered a
progress.

7. What are the related/allied issues that must be addressed in order to attract more
investors to this sector?
 Institutional environment: Improving the institutional environment is
essential to attract foreign direct investment (FDI) . Governments need to
create a favorable environment for investors by providing clear policies,
regulations, and legal frameworks.

Private sector participation: Private sector participation is essential to

transport infrastructure development. Governments need to create an
enabling environment for private sector participation in transport
infrastructure development.

Competition: Allowing foreign private investment in infrastructure can

positively influence competition for the PPP contract or bidding in the
privatization. Governments need to create a competitive environment to
attract more investors.

Innovation: Attracting investments for innovation in logistics and

transportation is essential. Investors are interested in startups that offer
innovative solutions to logistics and transportation challenges.

Market structure: The market structure of the transportation industry is

characterized by a large number of fragmented providers. Investors are
interested in startups that offer solutions to the challenges posed by the
fragmented market structure.

Last-mile delivery: Last-mile delivery businesses are attracting more

funding than others. Investors are interested in startups that offer solutions
to the challenges posed by last-mile delivery.

Road-freight marketplaces: Road-freight marketplaces and solutions

remain an area of interest for VC investors. Investors are interested in
startups that offer solutions to the challenges posed by the fragmented
market structure of the road-freight industry.
References:

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