The top five challenges are:
- Cost-reduction initiatives.
- Fuel price volatility.
- Driver safety.
- Implementing green fleet initiatives.
- Increasing driver productivity.
Senior management mandates to reduce overall fleet costs continue to be the top challenge facing commercial fleet managers, followed closely by fuel price volatility. Other top challenges include increasing fleet safety and reducing preventable accident rates, finding cost-effective ways to green a fleet, and addressing ways to increase driver and fleet department productivity.
Challenge No. 1: Cost-Reduction Initiatives
Reducing fleet costs is a constant, never-ending struggle for all fleet managers.
Managing costs is always the No. 1 challenge for all commercial fleet managers. The pressure to save money year-over-year is persistent at all companies. However, resale values are offsetting some of the other rising costs, at least for now.
Driving much of the pressure to reduce fleet costs is the overall weak economy, in both the U.S. and internationally.
Many fleet managers report they are given a specific percentage reduction goal in fleet costs and it is up to them to figure out how they are going to achieve it.
“My mandate is to reduce fleet costs by 10 percent, at the same time when fuel and acquisition costs are increasing,” said one fleet manager who asked to remain anonymous.
Invariably, cost-reduction mandates from senior management also involve analyzing the viability of driver reimbursement. “I have gone through three reimbursement-versus-fleet reviews within two years. I’m required to keep my cents per mile below 30 cents. Despite this, I continually have to prove the company-provided fleet is the best deal for the company,” said another fleet manager who also wished to be anonymous.
Currently, the biggest factor contributing to management pressure to reduce fleet expenses is the general business climate. Although the challenges are daunting, a number of cost-reduction success stories are reported by fleet managers.
“Despite the wild swings in fuel prices and continued increases in parts prices coupled with increases in equipment costs, our operation has managed annual increases in overall budget of less than 1-1.5 percent.
This is in a three-year period where fleet has grown in size by approximately 12 percent. While containing costs, we have successfully improved fleet availability to less than 0.5 percent overall for the working equipment, such as bucket trucks, digger derricks, and cranes,” said George Survant, director - fleet services for Florida Power & Light in Juno Beach, Fla.
Cost-reduction initiatives, by their nature, involve tension between fleet and procurement.
“Pressure from procurement to produce savings is a challenge. We plan on looking at fuel in 2012 since it is one of the largest expenditures,” said Rachel Johnson, CAFM, fleet specialist, region Americas for Konecranes, Inc. in Springfield, Ohio.
Another factor driving fleet cost increases is higher vehicle acquisition costs.
“Manufacturers are making better cars and increasing fuel efficiency, but are marketing increased fuel efficiency as a way to increase the sticker price,” said one fleet manager. “We short cycled a number of cars in 2011 to take advantage of current incentives and the strong resale market.”
Lifecycle costing for fleet managers is complicated due to the influence of external market factors.
“How do you plan and manage in a changing aftermarket environment? How will higher used-vehicle prices affect amortization terms for those vehicles coming into service in CY-2012? What will the move to smaller vehicles do to midsize vehicles’ ROI?” asked Michael Bieger, senior director – global procurement for ADP in Roseland, N.J.
Repeatedly, fleet managers cite the economy as the wildcard influencing future fleet costs.
“As the uncertainty about our economic future continues to grow, there are always pressures to reduce spending without reducing resources. As such, fleet is a pretty big target, and usually the first business group to come under fire,” observed Jim McCarthy, director, vehicle management services for CSCM, a division of Siemens Corp. in Iselin, N.J.
Another fleet manager also cited the impact of the national economy on his fleet operation.
“Concerns include the economy in general, election year jitters, and the growing global unrest — I don’t see company revenues growing too much over the next few years or maybe longer. It is inevitable that today’s middle-class quality of life will decline due to unsustainable national and personal spending habits — to what extent is the question. U.S. quality of life is synonymous with domestic trade and we fleet managers will feel the pinch of reduced budgets. Coupled with growing political destabilization in the Middle East, we can expect petroleum supply issues. We’ll feel the pinch from both reduced budgets and substantially higher fuel costs as time passes,” said a fleet manager who wished to remain anonymous.
However, there is a limit on a fleet manager’s ability to impact fleet costs due to the restrictions imposed by fleet application requirements.
“Unfortunately, there is little that can be done to affect the total-cost-of-ownership, other than to continuously review the contractual relationship with our various suppliers, and periodically review our equipment specifications and maintenance programs to ensure we have the most appropriate vehicle to perform the work while avoiding unnecessary over-spec’ing,” said another fleet manager who wished to be anonymous.
The biggest issue in cost management is controlling unexpected expenses.
“For example, we don’t have a centralized maintenance department; we use mostly national chains. So that brings labor costs into the mix, as we now have to ‘jockey’ cars. Bringing in mobile oil change companies that can do minor repair work on cars on site saves time, manpower, and helps control unforeseen expenses by drivers going the long route to take cars in for service,” said Dean Saunders, senior director of purchasing for G4S in Jupiter, Fla. “My fleet is not a one-on-one driver scenario, but has multiple drivers for the same unit. I can’t afford the luxury of having spares, or having a driver sit and wait for their car to be repaired. If the car is not onsite, it is not making money for my company.”
A common strategy to reduce fleet cost is to downsize to smaller vehicles, but the line between downsizing and driver satisfaction is a fine one.
“Selecting vehicles that drivers want and either maintaining or reducing costs for the company is the challenge,” agreed Josie Sharp, CAFM, fleet manager from Shire US Inc. in Wayne, Pa. (Sharp retired Dec. 31, 2011.)
Challenge No. 2: Fuel Price Volatility
Although fuel prices moderated in the second half of calendar-year 2011, fuel is still the second-biggest challenge facing commercial fleet managers.
“There is increasing pressure to reduce fuel costs, with little-to-no capital to accomplish it,” said Ken McKenney, strategic fleet manager for Verizon in Riverside, Calif.
Also citing fuel volatility as a top challenge was Bieger of ADP. “My No. 1 challenge is planning, budgeting, and containing the variable cost of fuel,” said Bieger. “We are working to address driver behavior, choosing high-mileage vehicles, and watching fuel card velocity reports.”
Fleet managers report they are struggling to balance the fleet budget with constant and volatile changes in fuel prices. A growing number of fleet managers are examining fuel hedging. One company that uses fuel hedging is Florida Power & Light. “We are using physical fuel hedging and aggressively reducing our fuel burn through product selection,” said Survant of Florida Power & Light.
However, the biggest issue surrounding fuel cost is the uncertainty of future prices. Most fleet managers are resigned to the fact that fuel prices will remain elevated.
“We predict we will no longer see fuel much lower than $3 per gallon. With this in mind, we must constantly work on the design of better mpg delivery and shuttle vehicles. Again, we are monitoring not only new ones, but current vehicles. We are investigating bulk fuel, truck stop fuel, and wet fueling at night and on weekends. We are doing our best to get the best price on fuel,” said Mike Lahr, director of logistics for LKQ Corp. in Urbandale, Iowa. “With 4,200 vehicles and 400 locations, we must monitor how we fuel at each location to control costs.”
But, perhaps the biggest issue facing fleet managers is fuel price volatility.
“The instability of fuel prices causes a roller-coaster effect on project focus,” said Gregg Hodgdon, CAFM, director of fleet operations for Deli Express/E.A. Sween Co. in Eden Prairie, Minn.
What makes fuel costs difficult to control is that it is under the pressure of external forces.
“Needless to say, fuel is always at the top of our list, primarily because it affects a broad area of spend, and because we have extremely limited control over this expense,” said McCarthy of Siemens Corp. “There is not much we can do about fuel except continue integrating more fuel-efficient vehicles into our fleet, and micro-managing spend involving maintenance, tires, and collision repairs while pushing for increases in goodwill warranty monies where applicable.”
Other fuel-saving initiatives involve expanded idle reduction and fleet size reduction.
“I will continue to review the fuel efficiency of not only the vehicles we are currently using, but other available fleet models to keep our selector at its most efficient while still keeping our drivers satisfied with the vehicles offered,” said Donna Bibbo, manager, fleet and travel for Novo Nordisk in Princeton, N.J. “I will also be looking into possibly charging for personal use, based on the fuel efficiency of the vehicle being driven, and working with our sales operations people to possibly lighten the load of samples and literature being carried around by our drivers.”
Some fleets are also investigating downsizing to smaller classes of vehicles.
“We are looking at smaller SUVs that can achieve better fuel performance, but still allow our people to do their jobs,” said David McCauley, fleet manager for Red Bull North America, Inc. in Dallas. “We are also looking strategically at telematics in certain applications.”
Many fleets have been downsizing to four-cylinder engines for the past several years; however, some have experienced pushback from drivers.
“One of my biggest challenges is educating drivers that four-cylinder engines are as effective and safe as a six-cylinder,” said Mary Pat Crabtree, fleet & relocation specialist for Brown-Forman Inc. in Louisville, Ky.
Fleets are cutting expenses elsewhere in their operations to compensate for the increase in fuel expenses. “We are extending leases to reduce lease expense to offset higher-than-budgeted fuel expense,” said Michael Payette, fleet equipment manager for Staples Inc. in Framingham, Mass.
All aspects of fuel management are being examined, including fraud management processes.
The most common approach is to maximize mpg for models selected.
“We are also limiting the top speed of fleet to 60 mph and installing idle reduction timers,” said Payette.
Challenge No. 3: Driver Safety
The third biggest challenge cited by commercial fleet managers is driver safety. In particular, reducing preventable accident rates and associated repair, downtime, and liability costs.
“Safety will be my key focus for 2012. I expect to dedicate half of my fleet time on the area of safety and making sure our program is working, as well as putting new programs in place for our drivers,” said Bibbo of Novo Nordisk.
For those fleets that are not self-insured, lowering accident rates has a direct impact on lowering insurance costs.
“Lowering our accident rate has helped our risk management department get better insurance rates and increase our deductible,” said Lahr of LKQ.
Some fleets are focusing on driver training to reduce the incident of preventable accidents.
“Training all drivers in a timely manner is helped by tracking the training dates for each individual and allowing enough lead time, as well as the fact that the crews normally work four 10-hour days, giving me most Fridays to set up the training. I have also set up each course so it can be done, as necessary, on the street, in a hotel room, or even in a truck,” said Carl Nelson, fleet manager for AM – Liner East, Inc. in Berryville, Va.
In addition, fleets are also focusing on ways to minimize driver distraction.
“Our accident rates continue to be high, and we had our first fatality in 2011. Particularly in light of how many gadgets and other things cause driver distraction these days, I want to ramp up our safety program to reduce our accident rate and protect our drivers better,” said Bibbo.
In addition, fleets are also working with third-party providers to create new safety training modules and programs.
Fleets, such as Terracon, are focusing on modifying driver behavior as a way to increase fleet safety, said Ginny Liddle, CAFM, fleet manager for Terracon in Olathe, Kan.
Other fleets are focusing on MVR programs and looking to adopt innovative approaches in the use of MVRs.
“I have recommended a tiered-approach to the MVR process for high-, medium-, and low-risk drivers that would produce $15,000 savings the first year and additional savings successively once MVRs on low-risk drivers are conducted every other year. I also recommended that MVR costs for spouse drivers could be employee-paid for an additional $4,000 in savings annually,” said Marianne Stewart, CAFM, sales planning & communications administrator for Swedish Match North America in Richmond, Va.
Challenge No. 4: Green Fleet Initiatives
Despite a slow economy, sustainability initiatives continue to receive strong support at many companies from senior management.
“Like most other companies, Siemens has substantial sustainability objectives, and they take them very seriously. From a fleet perspective, we have already achieved significant results by moving 80 percent of our eligible fleet vehicles from six-cylinder to four-cylinder engines, and we have incorporated hybrid models in several of our business units as well. It is in these two areas where the emphasis will remain over the course of the next 18-24 months,” said McCarthy of Siemens. “I feel that the jury is still out on whole-scale electrification, and, while everyone is jockeying for position, in reality, I believe they are just buying time to see exactly where the real interests and future markets lead.”
One of the biggest issues in fulfilling green fleet initiatives is the lack of capital spending and shrinking fleet replacement budgets.
Most commercial fleets agreed that before any green initiative is implemented, it will need to provide an acceptable return on investment. Sometimes, this is not as easy as it seems.
“The company is interested in green fleets, but we haven’t found an affordable/workable vehicle that will work for us. Currently, we are looking for a service vehicle that provides more mpg and cost efficiencies, but are having difficulty finding one,” said a fleet manager who wished to be anonymous.
This sentiment was echoed by another fleet manager. “All organizations are under significant pressures to improve cash flow and profitability. Most (but definitely not all) major green fleet initiatives are difficult to adopt if they do not create an immediate payback or significant ROI, particularly in those organizations that do not have an inherent ‘green’ culture. I could foresee some selective adoption of technologies under specific circumstances, but a general adoption is not anticipated,” said another fleet manager who asked not to be identified.
Other fleet managers are cautious about blindly adopting green initiatives.
“The basic model for green sustainability will need to be supported by analytical models for corporate support. The green initiative must be supported by a financial model that does not rely on government incentives or believing that putting on a ‘green face’ to the public has a return on investment. The development of products that allow organizations to purchase vehicles that produce a lower cost per mile is essential to complete acceptance in prosperous companies. Justification for alternative-fueled vehicles typically requires a belief that the price of petroleum fuels will escalate and sustain a higher price. New technology in vehicles may simply need to have a price low enough to result in a lower cost per mile than petroleum-fueled vehicles. Let’s hope that whatever we purchase in the future can be incorporated without creating another environmental hazard for future generations to manage,” said Hodgdon of Deli Express/E.A. Sween.
Challenge No. 5: Productivity Initiatives
Implementing productivity strategies in large corporations is very difficult.
“Fleet touches so many stakeholders within an organization, from finance to sales to safety, etc. There are many ongoing programs that need to be managed and reported. With a fairly large fleet, the challenge to meet expectations keeps me up at night,” said one fleet manager who wished to be anonymous.
One solution to increase driver productivity is to enhance route and operational efficiency.
Many fleets are looking at technological solutions, such as GPS and telematics systems, to increase driver productivity. A primary application for GPS and telematics systems is for route productivity. Some fleets are expanding the current telematics being used for safety and fraud detection, which also has significantly improved service delivery times and reduced miles driven.
“For both the past and the future, it’s about the technology. It will allow you to do more and more and get on top of issues before they become crises. Having gone from a manual invoice process looking at every charge and inputting them all, which took a week, to an EDI process that takes minutes on my part — it is amazing,” said another fleet manager.
Other fleets are using GPS to modify driver behavior. “We have added GPS to many of our commuter driver vehicles to improve driver behavior and lower our liability. We are doing a beta test now on our semis with GPS linked to our BlackBerrys to improve driver behavior, capture hours of service, and change to electronic IFTA reporting,” said Liddle of Terracon.
However, cost constraints continue to delay implementation of technological solutions.
“Funding R&D efforts and new technologies (such as telematics or electric vehicles) is a challenge. We have to work toward these enhancements, but building the ROI is difficult,” said another fleet manager who did not want to be attributed.
Even with high unemployment, truck fleets continue to face a shortage of qualified drivers, which directly impacts fleet productivity.
“As strange as it may seem to reference difficulty in hiring people, when unemployment is 9-plus percent, safe and reliable commercial drivers remain difficult to find. The advent of CSA (Comprehensive Safety Analysis 2010) has placed a premium on drivers who understand their responsibilities and adhere to the requirements. An experienced driver with a clean record remains highly sought after, and companies must move quickly to extend offers when one is available,” said a truck fleet manager. “We continue to introduce fresh strategies in the driver recruitment and retention programs, adopting new tactics and continuously adapting to new technologies to attract the best candidates. One strategy may involve the identification of existing employees with exemplary work habits to pursue career advancement into commercial driving roles. They should receive training and sponsorship when learning the job and attempting to obtain the credentials and experience that is required to succeed as a driver.”