Fleet Operating Costs Remain Flat In 2013
Stable fuel prices and maintenance costs, combined with a decrease in total fuel consumption due to increased use of more fuel-efficient vehicles, resulted in less volatility in fleet operations during the 12 months ending August 2013.
Illustration by Armie Bautista.
Operating costs for fuel, replacement tires, maintenance/repairs, and preventive maintenance (PM) oil drains were flat in the 12 months ending August 2013 compared to the prior 12 months.
These findings and others are revealed in Automotive Fleet's 22nd annual operating cost survey, based on data provided by seven survey partners, including ARI, Donlen, Emkay, Inc., GE Capital Fleet Services, LeasePlan USA, PHH Arval, and Wheels Inc.
This year's survey is based on analysis of actual operating costs incurred by 775,556 vehicles operated by commercial fleets, which are managed by these seven fleet management companies.
Fuel Price Trends
The most notable occurrence was that gasoline and diesel costs for commercial fleets were stable compared to 2012.
"From a pricing standpoint, the market has remained relatively flat through most of the year, but we continue to see fleets heighten their focus on overall cost reduction strategies. Fleets are becoming increasingly sensitive to fuel costs and are initiating more fuel-saving programs this year over last," said Tony Piscopo, director fleet management services for ARI.
Although pricing volatility has moderated, fuel continues to represent fleets' largest operating expense.
"Fuel continues to be the No. 1 fleet spend. As new engines and new transmissions become available, fleets are evaluating these and their impact on fuel costs," said John Bauer, manager of fleet analytics for Wheels Inc.
The forecast for fuel prices is to remain stable throughout the 2014 calendar-year.
"After years of increasing fuel prices, gasoline prices moderated a bit in 2013, while diesel prices held relatively steady. However, both are expected to decline marginally in 2014, according to the U.S. Energy Information Administration (EIA). Seeing fuel spend decline slightly after years of increases was a welcome relief to fleets in 2013," said Amy Blaine, VP, consulting, analytics, and sustainability for Donlen.
The moderation of fuel prices has resulted in a tangible decline in per-gallon prices.
"Favorable trends in fuel price are reducing the cost of fuel for fleets in 2013. The average national price of gasoline in 2013 is expected to be 2 percent, or 8 cents, lower than 2012. Through August, the average price of gasoline was 5 cents lower year-over-year. The price of diesel is only half of 1 cent higher and is expected to end the year 1 cent lower or a 0.2 percent decline," said Jayme Schnedeker, fuel product manager for GE Capital Fleet Services.
In addition to price declines, fleets have experienced a decrease in overall fuel consumption as a result of operating more fuel-efficient vehicles.
"Gallon consumptions have decreased 0.62 percent for diesel and increased 2.47 percent for gasoline. Current portfolio fleets have utilized newer-vehicle technologies, implemented appropriate driver behavior measures, and rightsized their fleets," said Mark Donahue, business analyst for Emkay.
Some trace the current stabilization of fuel prices back to the summer of 2012. In fact, fuel prices have been stable since 2011.
"Comparing the 12 months ending August 2013 to the prior 12 months, average fuel prices for gasoline stayed relatively flat, while average fuel prices for diesel had a small uptick under 2 percent. Going back four years, fuel prices increased steadily from 2009 through May 2011, then began to stabilize over the next two years. Fleets have become accustomed to this higher, stabilized cost of fuel, and the impact of the last year-over-year change in pump prices has been minimal," said Bob Sandler, vice president of enterprise consulting and analytics for PHH Arval.
One consequence to the stable fuel prices has been a decreased interest in hybrid models. As has happened in the past, there seems to be a direct relationship between the price of fuel and interest in hybrids and other alternative-fuel vehicles (AFVs).
"When gasoline reaches the $4-per-gallon range, as it did twice in 2012, the fleet industry's focus on hybrids and other alternative-fuel vehicles significantly increases. However, gasoline prices have been below $3.75 so far in 2013, resulting in a decrease in hybrid quotes and orders. Even with the decline in activity around AFVs, fuel economy remains a top focus during the vehicle selection process. Furthermore, the trend towards improving fuel economy through a migration to smaller displacement (non-hybrid) engines continues," said Becky Langmandel, director of strategic modeling and analytics research team at LeasePlan USA.
Strategies to Mitigate Fuel Cost
Not lulled by stable fuel prices, fleets continue to adopt a variety of fuel-reduction strategies. According to Sandler at PHH Arval, the majority of fleets are employing one or more of the following strategies to mitigate the cost of fuel:
- Incorporating more fuel-efficient vehicles in their ordering/replacement cycle.
- Monitoring fuel purchases more closely.
- Educating drivers on the importance of proper vehicle maintenance to their vehicles' fuel economy.
In addition, there are a multitude of other initiatives being adopted by fleets to reduce fuel consumption.
"Improving overall mpg remains a primary fuel cost-reduction strategy for fleets. In addition, fleets are seeking ways to increase driver and operator awareness of cost savings opportunities," said Piscopo of ARI. "They are also becoming more vigilant looking for potential instances of fuel card misuse and fraud."
- Specific cost-saving steps cited by Piscopo include:
- Installing and monitoring vehicle telematics.
- Implementing no-idle policies.
- Modifying fuel-based PM strategies.
- Optimizing routes.
Other strategies include a regular vehicle replacement schedule, the use of alternative fuels where applicable, and the implementation of telematics systems.
"Investment in opportunities to reduce fuel consumption continues to be a focus for fleets seeking to mitigate fuel cost. Replacement of older vehicles or those not meeting efficiency expectations has been an important step. This, combined with implementation of alternative-fuel vehicle programs for select use cases, has been an important action to reducing cost," said Schnedeker of GE Capital Fleet Services. "Finally, installation of telematics to enhance fleet utilization has been essential to fleets seeking to optimize fuel costs. The information generated by telematics to reduce idling, enhance driver behavior, and increase vehicle productivity has contributed to reductions in fuel consumption and overall fuel expense."
Additional fuel-reduction initiatives include downsizing and the use of non-traditional fuels, such as switching to diesel and hybrids.
"There is a continuation of the trend to smaller vehicles, diesel engines, and hybrid vehicles," said Bauer of Wheels Inc.
Chart by Armie Bautista.
Another strategy focuses on the adoption of new technologies and modifying driver behavior.
"Fleets are rightsizing their vehicle selectors to take advantage of fuel-efficient technologies, weight reductions, higher speed transmissions, and appropriate drive types to meet their business necessity. Furthermore, the importance of driver behavior is essential," said Donahue of Emkay. "According to the EPA, a driver can impact fuel efficiency as much as 33 percent. The implementation of driver behavior trainings to reduce speeds, idling, and rapid deceleration, and increase accident avoidance, continue to gain momentum within the industry. When paired with technological GPS solutions, route optimization can reduce miles driven, scheduling, speeds, and personal use."
The proliferation of hybrids and AFVs has given fleets more options when selecting vehicles to help them manage their fuel spend.
"The ROI for hybrids and alt-fuel vehicles are attractive, even at current fuel prices, particularly since conversion costs are declining a bit and there are many more options available on the market today," said Blaine of Donlen. "In addition, OEMs are starting to offer fleet incentives on some hybrid models, so there are many cost-effective options on the market today. Fleets are using telematics as a way to control fuel spend; however, fleets are looking for telematics to bring spend reductions in more areas than just fuel. With fuel prices varying by as much as 10 to 15 cents per gallon within a three-mile radius, fleets are also using online tools and smartphone apps to better control where drivers purchase fuel."
Nowadays, fleets are taking a more broad-based approach to reduce fuel consumption and fuel costs.
"This includes starting with the basics, such as downsizing vehicles where possible, reducing weight and idle time, and increasing driver involvement and education. Concurrent with these relatively simple steps, many more fleets are employing telematics and others are moving to gaseous fuels such as CNG and LPG, where feasible," said Wayne Reynolds, manager of upfit design and consultation at LeasePlan USA.
Forecast of Future Fuel Costs
The biggest impact on future fuel prices is the increasing supply of liquid fuels from non-OPEC countries. For instance, the EIA expects Brent crude oil prices to fall to $102 per barrel in 2014, from $108 per barrel in 2013.
"As fuel efficiencies improve, the EIA projects lower gasoline consumption. The EIA increased the average regular gasoline retail price forecasts during the 3rd and 4th quarters of 2013 to $3.60 and $3.44 per gallon while forecasting an average of $3.43 in 2014 due to falling crude oil prices," said Donahue of Emkay. "These fuel prices can continue to be offset by several defensive and strategic tactics that include, but are not limited to, vehicle selection, driver training, telematics, and proactive operational consulting."
Chart by Armie Bautista.
Others, likewise, foresee current market trends leading to lower prices in the 2014 calendar-year.
"While there are a number of variables that can increase volatility in the marketplace, we foresee relatively flat pricing in the coming months," said Piscopo of ARI. "We are constantly on the alert for potential spikes, so we encourage our fleets to keep a proactive fuel management program in place at all times. Dodd-Frank legislation has changed the fuel-price hedging market; therefore, creating hedging programs for smaller volume clients has become a challenge. As a result, small- and mid-sized fleets are more vulnerable to market price fluctuations."