Trends in Commercial Fleet Management 2008-2010
The high cost of fuel is the No. 1 challenge facing fleet managers. Overall operating costs for commercial fleets increased 3 percent, on average, in calendar year 2007. The increase was directly attributable to higher fuel costs.
In 2007, the price of a gallon of regular unleaded gasoline increased almost 7 percent over record high prices in 2006. The annual fuel cost from 2005-2007 increased $600 per vehicle on an annual basis, based on driving 2,000 miles per month.
Fleets with a heavy concentration of diesel trucks were hardest hit since diesel costs increased more than gasoline. In 2007, use of ultra low sulfur diesel (ULSD), which costs more per gallon than regular diesel, was federally mandated.
The high cost of fuel has caused a domino effect with other fleet costs. For example, there have been multiple price increases for replacement tires due to the high cost of oil. Another example is towing and road service fees. Many tow providers and mobile glass repair services have not only increased fees, but have also added fuel surcharges. High fuel costs have also caused the cost of mobile fueling services to increase, impacting centrally garaged fleets.
Fleets have been experiencing fuel price volatility since 2002 and continue to in 2008. One reason for the ongoing fuel price volatility is the weakness in the nation’s fueling infrastructure. For instance, no new refineries have been built in the U.S. since the Garyville refinery in Louisiana went online in 1976, despite year-over-year increases in gasoline demand. This has resulted in limited refining capacity, especially for the production of reformulated gasoline, which increases the frequency of spot shortages.
Another key factor for higher fuel prices is increasing fuel demand from emerging markets such as China and India.
In January 2008, the Energy Information Administration (EIA) forecast said retail prices for petroleum products are expected to increase in 2008, pushed up by the higher average crude oil prices. Gasoline prices at year-end 2007 were 60 cents per gallon higher than year-end 2006.
Many fuel market analysts are forecasting that the national average could reach as high as $3.75 per gallon. That would be more than 50 cents per gallon higher than the record price set May 2007. Diesel prices have already reached that high. As of March, diesel prices, for the first time ever, exceeded $4 per gallon in several markets.
The contrarian viewpoint by some analysts is that prices could eventually see a large collapse. Year-on-year demand as reported by the Department of Energy is showing a decline. In the background is the wild card factor of ongoing geopolitical uncertainty in oil-producing regions of the world.
Fleet managers developing 2009 model-year selectors are under pressure to shift to more fuel-efficient vehicles. The goal is to increase overall fleet mpg. For instance, more fleets are re-evaluating use of SUVs or moving to smaller SUVs.
Fleets are also taking a multipronged approach to managing fuel spend. This includes spec’ing four-cylinder, instead of six-cylinder, engines. But, at some fleets, these considerations are encountering driver (and management) resistance.
Another approach, especially for truck fleets, is implementing anti-idling programs.
A growing number of fleets are conducting pilot programs to test hybrid vehicles. Several fleets, such as Secura and Toshiba Medical, have made the corporate decision to go to an all-hybrid fleet.
Another aspect of this multipronged approach is the adoption of telematic devices and GPS. Fleet managers are reinvigorating control of fuel costs at the driver level by setting tighter and more frequent exception reporting. They are implementing driver education awareness programs to encourage drivers to maintain proper tire pressure, drive less aggressively, and minimize idling.
One way to offset the higher cost of fuel is to increase personal use charges to recoup fuel costs.
Other fleets are tightening fleet vehicle eligibility requirements to minimize the number of vehicles in the corporate fleet.