At a Glance
- The No. 1 challenge facing commercial fleets is increasing fuel prices, which have reached record highs.
- Pressure for spend reductions at companies are occurring at all levels, and fleet is simply another department requested to cut costs.
- Maintenance costs, overall, have been flat due to the higher quality of vehicles from all OEMs and extended powertrain warranties have covered some expensive repairs at high mileage.
- Despite a slow economy, sustainability initiatives continue to receive strong support from senior management at many companies.
Without a doubt, the No. 1 challenge facing today’s fleets continues to be the increased cost of fuel. As the largest cost component of operating expenses, fleet managers are focusing on a multitude of fuel-reduction strategies, which often morph into corporate sustainability initiatives. In many ways, fuel-efficiency initiatives and sustainability initiatives are very much intertwined.
Sustainability continues to gain importance as a top job focus for many fleet managers. The degree of sustainability pressures from management is often commensurate with fleet size. Corporations, especially multinationals, have publicized their corporate mission statements to shareholders and customers, committing to reducing their corporate greenhouse gas (GHG) footprint. Since vehicle fleets are key contributors to corporate GHG emissions, a quick way to meet emissions-reduction goals is to modify the fleet program.
Another significant and ongoing challenge facing fleet managers is pressure from senior management to reduce fleet costs. Looking at the big picture, pressure for spend reductions at companies are occurring at all levels within these organizations, and fleet is simply another department requested to cut costs. As any fleet manager will tell you, reducing fleet costs is a constant, never-ending struggle for all fleets.
Although already prominent on the fleet manager’s radar screen, driver distraction promises to take center stage as senior management becomes increasingly concerned about potential liability consequences.
Universally, senior management is viewing driver distraction as a significant liability exposure, especially as drivers bypass corporate restrictions and serendipitously use their own mobile devices in company-provided vehicles.
Ongoing Fuel Price Volatility
As stated earlier, the No. 1 challenge facing commercial fleets is increasing fuel prices, which have reached record highs. A corollary concern is the ongoing fuel-price volatility, which has kept managing fuel spend a top concern for fleet managers, who, in turn, are being pressured by management to search for ways to improve overall fleet fuel efficiency.
For businesses that rely on their fleets to move products to market, higher fuel prices not only impact fleet operations, but also business in general. Margins are further squeezed by the additional cost of mandated diesel emissions technology, which has increased truck acquisition prices.
At companies relying on truck fleets to move products, higher fuel prices are a concern because the price margins are already tight, forcing companies to explore less costly ways to distribute products.
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. Forecasting fuel prices is difficult due to pricing volatility and sensitivity to external variables. The challenge for fleet managers is planning, budgeting, and containing the variable cost of fuel.
Not only are fleet budgets feeling the impact of higher fuel prices, they are also being stretched by an across-the-board increase in almost all other fleet expenditures. The price of crude impacts many areas, such as tires, plastics, lubricants, oil, solvents, etc., in addition to fuel. The impact of higher fuel prices to fleets is far bigger than just the price at the pump.
One silver lining to higher fuel prices is that it has prompted many companies to reinvigorate fuel-efficiency initiatives. All aspects of fuel management are being examined, including route efficiency, vehicle payload, territory coverage to reduce miles driven, and fraud management processes.
Companies are implementing programs to train employees to drive their vehicles in a more fuel-efficient manner. This means eliminating fast starts and hard stops and avoiding excessive idling. Some studies have shown that fuel efficiency can be improved by as much as 19 percent simply by reducing a vehicle’s idling time. Encouraging drivers to drive within the posted speed limit, especially on highways, can also help with fuel efficiency.
“We just raised our combined threshold to 26 mpg for company vehicles,” said David McCauley, fleet manager for Red Bull North America, Inc.
Estimates show that every 10 mph a driver does over 60 mph reduces fuel economy by about 4 mpg.
“We are limiting the top speed of fleet vehicles to 60 mph and installing idle-reduction timers,” said Mike Payette, director, fleet equipment for U.S. and Canada for Staples.
Fleets are also looking at telematics as a way to control fuel spend, along with other expenditures, in certain applications. Fleets are looking at telematics as a way to change driver behavior and improve fuel efficiency. With fuel prices varying by as much as 10-15 cents per gallon in a five-mile radius, fleets are also starting to use tools to better control where drivers purchase fuel.
The most common approach is to maximize mpg for models selected. There has also been an ongoing trend to downsize to smaller vehicles and engines. Some fleets have moved out of SUVs to crossovers. For many fleets, rightsizing initiatives have been in the works for a number of years. However, the option to rightsize is not viable for all fleets.
“Being in the agriculture business, I cannot downsize vehicle type. We just have to try and make more profit to offset costs,” said one fleet manager who wished to remain anonymous.
Pressure for spend reductions at companies is occurring at all levels within these organizations, and fleet operations is simply another department requested to cut costs. Reducing fleet costs is a constant, never-ending struggle for all fleet managers. The pressure to save money year-over-year is persistent. However, higher resale values are offsetting some of the other rising costs, at least for now.
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. As a result, fleets are adopting a multiprong approach to cost containment.
Another factor driving fleet cost increases is higher vehicle acquisition costs. In the longer term, fleet managers are concerned that new CAFE requirements will put upward pressure on prices to meet the new fuel economy standards.
“Vehicle acquisition costs will increase, resale values are not sustainable at the current rates, and interest rates will increase, not decrease,” said one fleet manager who wished to be anonymous.
Lower incentives have prompted some fleets to expand their selectors and look at non-traditional fleet vehicles.
“Lower OEM incentives from select domestic manufacturers have increased lifecycle costs to where they are no longer competitive. Expanding our research with more manufacturers has provided more opportunities for savings and a larger selector for our drivers,” said Bill Forsythe, global procurement/fleet administrator for ADP.
Another strategy to reduce costs is by modifying the vehicle selector. Many fleets are adopting minimum mpg requirements for vehicles to be added to the selector. Some fleets are focusing on utilization rates and eliminating vehicles that are underutilized. In addition, there is a limit as to a fleet manager’s ability to impact fleet costs due to the restrictions imposed by fleet application requirements.
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. Other cost-control strategies include a shift to different classes of vehicles. Another example is to only permit four-wheel drive or AWD vehicles in snowbelt territories.
However, some fleets are finding it advantageous to migrate to larger GVW trucks. One example is Terracon.
“I encouraged management to change from small trucks to a 1/2-ton fleet. As most fleets were downsizing, we realized the need to move to a larger truck for load capacity and safety. We were having problems with overloading the small trucks, causing rollovers and the increased weight required additional maintenance. The 1/2-ton was the right truck for our off-road projects,” said Ginny Liddle, fleet manager for Terracon.
Safety a Hot Topic with Fleets
Driver safety is a major challenge cited by commercial fleet managers. In particular, the challenge is to reduce preventable accident rates and associated repair, downtime, and liability costs. Some fleets are focusing on driver training to reduce the incident of preventable accidents.
In addition, fleets are also focusing on ways to minimize driver distraction. Fleets view driver distraction as a major challenge affecting their fleet operations. One challenge is ensuring drivers are compliant with company distracted driving policies.
Fleets, such as Terracon, are focusing on modifying driver behavior as a way to increase fleet safety, said Liddle of Terracon.
In an era of higher expenses, the cost to repair accident damages is often an eye-opener for many fleet managers. Often, what appears to be minor to moderate damage can turn into a substantial expense.
Strong Support for Sustainability
Sustainability initiatives continue to receive strong support from senior management at many companies. Consequently, sustainability continues to gain importance as a top job responsibility for many fleet managers. Since most companies replace approximately one-third of their fleet vehicles each year, they can tailor selectors to favor the selection of more fuel-efficient vehicles. For most fleets, anything that increases fuel economy and allows them to be green at the same time is viewed as a positive.
“The real issue is balancing this with the actual cost of the vehicle, as current green vehicles tend to be much more expensive and, when the total cost of ownership is run, there is no actual cost savings to using a green vehicle versus a regular fuel vehicle,” said one fleet manager.
Increasingly, fleet managers are reporting that management has asked them to report on the environmental impact of the company’s fleet. A growing number of multinational corporations are measuring overall emissions and establishing baselines to track reduction of their GHG footprint.
“Since we are a global company, there is a focus on green initiatives and measuring our global footprint. For our industry, I believe the focus will be on maximum fuel efficiency,” said Rachel Johnson, CAFM, fleet specialist, Region Americas for Konecranes.
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.
Green fleet initiatives continue to gain priority at many corporate fleets and political subdivisions. A growing number of companies have made public commitments to green their fleets. However, not every fleet is a believer in the viability of fleet sustainability.
“I think, for us and for many fleets, it is all just talk. The technology and infrastructure is just not where it needs to be to make a difference,” said one fleet manager who wished to remain anonymous.
This sentiment is shared by other fleet managers. “I don’t see much more focus being placed on ‘greening’ the fleet in my company. Improved fuel economy will always be a focus and something we can easily affect as manufacturers are required to improve mpg for CAFE standards. Other alternative-fuel vehicles will not be a big focus for our company until the necessary, national infrastructure is in place and the overall ROI makes it too attractive to ignore any longer,” said one fleet manager who wished to be anonymous.
In addition, as internal combustion engines become more fuel efficient, in the minds of some companies, it negates the need to examine alternative fuels.
“With four-cylinder engines being so efficient, I do not see any alternative-fueling solutions taking hold until the costs fall into line. Once this happens, I see a broad interest in extended-range electric vehicles,” said Shawn Dusosky, manager – fleet financial services for General Mills.
Implementing productivity strategies in large corporations is very difficult, since fleet touches many stakeholders within an organization, ranging from finance to human resources to sales and risk management.
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.
One solution to increase driver productivity is to enhance route and operational efficiency. Other fleets are using GPS to modify driver behavior. However, for some fleets, cost constraints continue to delay implementation of technological solutions.
Flat Maintenance Expenses
The good news for maintenance costs is that, overall, they have been flat as the quality of vehicles from all OEMs continues to steadily improve and extended powertrain warranties have covered some expensive repairs at high mileage.
One current fleet maintenance issue has been the increased cost of replacement parts. In many cases, a parts price increase is a result of a raw material costs increase, especially those built of materials that are oil-based, such as plastic parts. Also, OEM proprietary systems require national account vendors to source parts from the OEMs rather than the aftermarket.
Another operating expense that has been on the rise is the cost for replacement tires. A key factor to higher tire prices is commodity price increases for raw materials, in particular the higher cost of oil, which is a key ingredient in tire manufacturing. While the industry forecast is for passenger tire costs to remain stable for 2013, unpredictable raw material costs will continue to be a wild card in determining future costs.
In addition, more OEMs are extending oil drain intervals beyond the standard 5,000-mile or even the 7,500-mile mark. Also, oil life monitors are allowing fleets to extend PM intervals beyond traditional norms — both of which are helping to moderate PM expenses. But, this is partially offset by the new GF-5 and Dexos motor oils, which have raised oil change prices for newer vehicles that require these motor oils.
New GM vehicles use Dexos oil, while Ford and Chrysler are switching to the GF-5 oil standard. These oils cost more, but have superior protection properties, allowing for longer mileage intervals between oil drains.