Proven Strategies to Mitigate Rising Fuel Costs
Compensatory strategies to reduce fuel costs involve the adoption of a multi-prong strategy. This includes downsizing to smaller displacement engines, implementing idle reduction programs, and modifying driver behavior.
Recurring fuel price volatility is changing the equipment composition of many fleet operations.
The recent volatility in gasoline and diesel prices gives us a reality check as to how quickly fuel can dramatically increase fleet operating expenses. From January 2011 to March 2012, the average nationwide price of a gallon of regular unleaded gasoline increased 25 percent (from $3.08 to $3.84), which represents, on an annualized basis, an average increase of more than $650 per vehicle driving 2,000 miles per month.
A recent GreenRoad survey showed that, for 61 percent of 1,066 fleet leaders surveyed, fuel represents more than 25 percent of their fleet costs, and almost all expect fuel costs to rise in the next year. More than half of the GreenRoad survey respondents cited having goals to lower fuel costs, with the most conservative aiming for a 2-percent reduction and the more aggressive targeting 25-percent reduction over multiple years.
Recurring fuel price volatility has begun to change the equipment composition of many fleet operations. The cyclical volatility of fuel prices during the past decade has been the catalyst for many companies to switch to smaller displacement engines. Engine downsizing is an industry-wide trend, which first gained widespread momentum in 2006. The number of four-cylinder engines in fleet operations has increased every year since.
Switching to four-cylinder engines allows fleets (that primarily operate automobiles) to maintain the same-size vehicles necessary to meet fleet applications without downsizing to smaller vehicle classes. Helping facilitate the migration to smaller engines has been incremental horsepower improvements in smaller displacement, fuel-efficient engines. Some high-volume fleet models are now only equipped with four-cylinder engines, without a V-6 option.
Fleets are also adopting a number of other strategies to mitigate fuel-cost increases. Fleet managers are attempting to offset rising fuel costs by rightsizing their fleets with the most cost-effective class of vehicle per job application, more aggressive vehicle cycling to take advantage of the strong resale market, and exploring the use of hybrids and alternative-fuel vehicles.
One fleet in the midst of a multiyear rightsizing initiative is OTIS. “We started the vehicle downsizing process two years ago. This process will continue and no opportunity will be ignored to downsize vehicles,” said Phil Schreiber, fleet manager, North America for OTIS Service Center in Bloomfield, Conn.
Other fleets have adopted a minimum fuel economy target for new models entering their fleets, such as Red Bull North America, Inc. “We have downsized our vehicles and put a minimum 23 mpg combined restriction,” said David McCauley, fleet manager for Red Bull North America in Plano, Texas.
Another reason to downsize engines has been to achieve goals established in corporate-wide sustainability programs requiring greenhouse gas (GHG) emissions reductions. One example is Merck, a multinational pharmaceutical company headquartered in Whitehouse Station, N.J., which established a corporate-wide initiative to reduce GHG emissions of its global fleet by 12 percent in 2012 from base-year 2005. One prong of Merck’s multipronged strategy is to increase the number of four-cylinder models in its U.S. fleet.
Spec’ing Lighter-Weight Vehicles
Ultimately, fleet application dictates vehicle size. However, it is possible to spec a lighter vehicle without going down a class. When spec’ing vehicles, compare the weight of major components. For example, some engines weigh several hundred pounds less than others with the same horsepower and torque. Some engine pumps are much lighter than others for similar flow and pressure ratings. Aluminum wheels can save hundreds of pounds over steel wheels, especially for trucks, depending on the number of axles.
Every pound of extra weight requires an engine to work harder, decreasing fuel economy. Similarly, every pound deleted from truck curb weight not only reduces emissions, but can be directly converted into revenue-generating payload. Vehicles get better fuel mileage when not loaded with unnecessary weight. An extra 100 lbs. in a vehicle could reduce mpg up to 2 percent. However, rightsizing a payload-carrying truck to improve fuel economy requires caution. Some fleets, for example, have sought better fuel economy (and lower acquisition cost) by replacing larger trucks with lower gross vehicle weight (GVW) trucks. However, this increases the risk of overloading.
Individual weight savings start adding up, and proper specifications can eliminate unnecessary weight before a vehicle goes into service. For instance, an oversized fuel tank adds unnecessary weight. Unless the vehicle will be used in an area where fuel isn’t easily accessible, why carry around three or four days’ worth of fuel? A gallon of gasoline weighs 6 lbs. and a gallon of diesel fuel weighs 7 lbs. Factor in the weight of the fuel tank, and carrying 50 extra gallons of fuel could mean needlessly hauling up to 400 lbs. Similarly, look closely at upfit equipment and consider alternative, lighter versions to get the job done, such as lighter-weight bodies using high-tensile steel or composites.
Probably the best strategy to mitigate fuel costs is to maximize the fuel economy of vehicles being placed in service to take advantage of improvements OEMs are making in fuel efficiencies. Utilizing fewer cylinders, higher-speed transmissions, 4x2 instead of 4x4, and smaller vehicles in general are factors widely being implemented.
Another strategy is fuel-price hedging, which is getting interest among some centrally domiciled fleets that buy fuel in bulk for in-house refueling operations. These fleet managers are exploring implementation of fuel-price protection or hedging strategies to protect against future fuel-price volatility.
As fuel costs have increased, many fleets are scrutinizing additional ways to lower their total fleet spend. One way has been short-cycling into new, more fuel-efficient vehicles. Leveraging today’s historically strong resale market has helped companies offset rising fuel costs by cycling older, less fuel-efficient vehicles.