By Mike Antich
Overall operating costs for medium-duty trucks in calendar-year 2007 increased compared to 2006 and earlier years. Key reasons for the increase in operating costs were a more than 3-cents-per-mile (CPM) jump in fuel costs and a 4- to 7-percent increase in the cost of replacement tires.
This assessment is based on a study of the operating expenses of 6,560 medium- duty trucks in three fleet segments — service, utility, and delivery fleets. The study, conducted by GE Capital Solutions Fleet Services, tracked operating expenses between Jan. 1 to Dec. 31, 2007 for Classes 3-6 trucks rated 10,001 to 20,000 lbs. GVW in 16 fleets.
According to the GE study, fuel costs rose three or more cents per mile compared to 2006.
“This is a huge increase for any individual variable expense line item,” said Kate Wesley, fuel product manager for GE Capital Solutions Fleet Services. There has also been an indirect impact caused by the high cost of fuel in related areas such as replacement tire costs, mobile fueling, towing, etc.
“The rising cost of oil was also a factor in the 4 to 7-percent tire cost increases for medium trucks,” said Eric Strom, maintenance product manager for GE Capital Solutions Fleet Services. “The good news is that preventive maintenance and repair costs are fairly flat overall, although the individual incident cost per repair has risen moderately.”
One reaction to higher prices for replacement tires is a greater willingness to use retread tires.
“Fleets are more receptive to looking at using retread tires, although there is not a huge shift. Fleets are becoming more aware of tire casing credits, too, as this may be money left on the table,” said Dave Mellon, truck customer specialist for GE Capital Solutions Fleet Services. “Replacement tire costs are a common theme among many fleets. Our studies have shown, depending on the fleet, that a higher price, longer tread life maybe a better value as these tires may eliminate the need for the last set of tires. The customer’s vehicle lifecycle replacement policy may drive tire selection.”
Major tire manufacturers are developing fuel-efficient tires, however the first step in reducing tire and fuel costs is a process to monitor tire inflation,” adds Mellon.
Fleets are actively looking for ways to minimize fuel spend. “As a result of the increases in fuel costs, more fleets are researching, piloting, and implementing telematics solutions to optimize routes and strategies to reduce or eliminate idling,” said Wesley. “We have also seen more inquiries regarding driver training courses and use of low-rolling resistance tires.”
Fuel costs are also having an indirect impact in other areas. “For example, many mobile and towing vendors are billing a fuel or call-out surcharge to cover their costs,” said Mellon. “The fuel impact chain goes even deeper as truck dealers and independent garages are paying their parts suppliers for fuel surcharges for delivery charges.”
Fuel prices are forecast to remain high for the foreseeable future.
“Global oil markets will remain tight with OPEC determining, in its view, that worldwide supplies areadequate. Whether due to supply or speculation, fuel prices will continue to rise to new record levels,” said Wesley. “This means it will be imperative for fleet managers to look beyond pump prices for fuel savings.
Truck engineering specs, control or monitoring of driving habits combined with keen awareness of the fueling decisions the driver can make will need to be employed in order to manage the fuel expense line.”
IMPACT OF 2007 DIESEL STANDARDS
The impact of the 2007 diesel emission standards on fuel expenditures has been minimal. Likewise, the preliminary impact of the new standards on preventive maintenance (PM) and other maintenance expenses has been nominal.
“Fuel economy has been impacted slightly downward by the new diesel standards. We are optimistic that PM costs will remain flat in 2008, as they did in 2007. The cost of an oil change service is more, but service intervals have been extended in many cases and have helped control the costs,” said Dan Kratz, truck maintenance operations manager for GE Capital Solutions Fleet Services.
Service interval (and cost) increases are largely due to the engine manufacturers increasing the oil capacity of the engine to cope with the additional demands imposed by the emission-related changes. A secondary impact to PM cost relates to the new engine oil formulation that’s more expensive and necessary for the 2007-compliant engines.
In 2007, there was a minor shift in the Class 3 market from diesel to gasoline engines by a few fleets.
“The cost of the 2007 emissions standards and the high cost of diesel has some customers looking at gas engines. However, the lower acquisition cost and fuel cost need to be balanced with power requirements, longevity, and maintenance,” said Mark Stumne, truck engineer for GE Capital Solutions Fleet Services.
Some fleets have switched to gasoline engines on a selective basis. “More fleets are taking advantage of total cost of ownership models to analyze the differences between gasoline and diesel engines. These models will calculate the differences between up-front costs, fuel, and maintenance expenses, as well as life expectancy assumptions and resale estimations to determine the best mix of gas and diesel trucks,” said Stumne. “This methodical total cost of ownership analysis can assist in the gas/diesel decisions.
An extra measure of caution should be employed in the analysis. Traditionally, the gas vs. diesel analytical process revealed a rapid return on the increased initial cost for the optional diesel. In today’s environment, the option cost is exponentially higher due to the 2007 emission compliance costs and the per-gallon cost for the required ultra low sulfur diesel is significantly more than gas. In an application where the annual mileage is low the payback may not exist for the higher cost diesel engine.
MODIFYING TRUCK SPECS
In an effort to reduce fuel expenditures, fleets are modifying truck specs to increase miles-per-gallon fuel economy.
“We are seeing fleets in certain industries making changes to their truck and upfit specifications to help improve fuel economy. We are also recommending items that may help them improve truck fuel efficiencies,” said Stumne.
According to Stumne, there are four areas to consider in improving fuel economy:
1. Truck transmission and drive axle ratio: By gearing a truck so the engine is running at a slower RPM at a given speed, less fuel is burned. This must be balanced with meeting “startability and gradeability” requirements.
2. Engine horsepower and torque: When taking advantage of the first point (gear fast, run slow), it may be necessary to increase engine horsepower and torque to meet power demands at lower RPMs.
3. Drivers’ influence on fuel economy: Fleets are using driver training, in-truck displays, and telematics reporting as tools to help reduce fuel consumption.
4. Aerodynamics: Customers with van bodies are adding front domes to the bodies. These domes can reduce wind resistance by up to 10 percent at highway speeds.
“Other items that fleets are requesting to decrease fuel expenditures include specific brand-model tires, aerodynamic mirrors, moving air filters under the hood, dropping fender-mounted mirrors, and in-cab electronics for drivers to monitor fuel economy performance,” said Stumne.
Overall, the driver influences fuel economy more than all the other factors combined. Sustainable improvements typically come as a result of implementing a driver incentive program where the improvements garner monetary rewards for the driver. To embark on an incentive program, a fleet must first have a dependable means to collect and analyze mileage and consumption data. A telematics product is one option fleets are considering for a consistent means to gather the data.
SERVICE LIFE REMAINS STATIC
The average service life of medium-duty trucks, in terms of months-in-service and overall mileage, has remained static.
“While most truck fleets continue to evaluate their replacement policies, many private fleets still look to replace trucks between five to eight years with 150,000 to 200,000 miles on the unit,” said Kratz. “Utility fleets with significantly more upfit and low-mileage usage can sometimes extend the life expectancy to 10–15 years with around 150,000 final miles on the truck.”
The utility segment medium-duty truck fleets had the highest incident ratio and CPM for tires and the lowest per-incident cost when compared to service fleet and delivery fleet segments. “These utility segment fleets tend to have upfit work trucks and may be in off-road conditions that may cause tire damage,” said Strom.
Another reason fleets continue to replace trucks on a regular basis is to minimize the truck downtime caused by older, higher-mileage trucks.
“As companies continue to improve efficiencies and telematics solutions become more common, consistent-running trucks are needed to remain competitive,” said Kratz.
“Companies find the cost savings of running an efficient delivery processmore than covers the extra capital expenditures for trucks.”According to Kratz, OEMs have made some changes to their scheduled maintenance programs or the trucks themselves that impacted maintenance expenses in 2007 and may impact maintenance expenses in future years. For instance, PM schedules on medium-duty engines have increased up to 15,000-mile intervals depending on the OEM.
“The OEMs are not necessarily recommending traditional AB- C services. GE is working with customers to extend B-PM intervals and not schedule A or C PMs. Of course, we continue to complete annual DOT/BIT (biennial inspection of terminals) inspections as well,” said Kratz.“
Future years will require additional emissions-related maintenance, such as particulate filter replacement and possible component wear due to engine compartment heat. The engine maintenance indicators are triggering more dashboard displays, which should help extend some service intervals, yet the reliance remains on the driver to escalate the issue,” added Kratz.
Several common service problems were experienced in Class 3-6 trucks during the 2007 calendar year.
“We have seen a number of maintenance repair trends including fuelinjector failures, de-laminating fuel tanks, premature diesel engine failures, biodiesel-related fuel gelling, turbo failures, and oil leaks from high-pressure oil pumps. These were primarily on 2006 model-year Class 3-6 trucks,” said Kratz.
Overall, the initial quality of 2007 trucks compared to prior years appears to be higher; however, it is still too early to make a final assessment. “It’s too early to make broad judgments on the 2007 model-year truck quality. Truck quality will continue to improve, we believe, and the OEM technology enhancements will challenge a reduced truck technician workforce. The whole driver experience will improve in comfort and ergonomics, reliability, and by providing more operating information via dashboard displays,” said Kratz.
OTHER OPERATING COST TRENDS
A number of other key trends are impacting medium-duty truck operating costs besides the high cost of fuel.
"Operating cost trends in 2007 also included flat PM costs, as some fleets are stretching PM intervals and/or eliminating some services,” said Strom. “The OEM manufacturing quality improvements are paying big dividends by reducing the incident rate of component failures, which has offset the rise in costs of the actual individual repair,” added Strom.
LOOKING AHEAD TO 2009-2010
What is the trend in overall operating expenses for the medium-duty truck market going forward into 2008 and beyond?
“The next year or two will see continued increase in OEM service interval recommendations and greater acceptance and adoption of these by truck fleets,” said Kratz. “The extended intervals will help offset the per-repair incident, rising cost of fuel, and increased labor and parts costs. We also expect original truck purchaseprices will continue to increase, so the 2010 models will not have as dramatic an increase as the 2007 trucks.” Other future trucks in medium-duty truck operations include:
2010 diesel emission standards. “The new standards are looking to be less of an event than the 2007 emission changes for Class 3-6 trucks. This is due to small-bore diesel manufacturers finding ways to meet the 2010 emissions without the use of urea injection into the exhaust,” said Stumne. “As technology improves, the impact is looking to be less than first expected. Fleets should review what impact this change may have on their specifications, operations, driver training, and maintenance.”
Driver training. Fleets will continue to increase their focus on driver training geared towards educating their drivers on how to drive for improved fuel economy,” said Stumne.
More fleets will consider use of alternative fuels and hybrids. “Corporate clean air initiatives are requiring fleet managers to consider environmentally friendly vehicles. Unfortunately, the current lack of available alternative fuels and truck hybrids will make it difficult for truck fleets to comply,” said Kratz.