To get the pulse of the vocational truck and van market, I reached out to a wide cross-section of fleet managers around the country to find out what's on their minds. Here's a snapshot of what they told me.
Rising Fixed Costs: Vehicle acquisition costs are steadily increasing and some fleet managers report a lack of capital for replacement units, prompting companies to extend the cycling of trucks for longer periods. However, as study after study shows, extended replacement cycling has the unintended consequence of greater long-term expenses, reduced resale values, and higher operating costs.
Truck Availability: Another big frustration fleet managers cite is truck availability. Trucks are already difficult to find and production dates keep getting pushed farther and farther out, creating unpredictability in lead times.
Order-to-Delivery (OTD) Times: Strong retail demand for light-duty trucks has reduced production allocation for fleets, which is lengthening lead times. Vocational fleets are vulnerable to OTD delays because most new-vehicle orders are concentrated among a handful of models with limited secondary choices.
Upfitting Backlog: With today's high volume of upfits driven by the strong economic activity in most business sectors, fleet managers cite extended OTD times, requiring them to be more flexible in their scheduling. Many upfitters are operating at capacity, meaning fleet managers need to be extra attentive to upfit specifications because any engineering changes will further delay OTD. Contributing to the backlogs is the tight labor market for skilled workers, which has reduced upfitter throughput of completed upfits and an increase in missed ship-thrus.
Operating Costs are Increasing: This is being driven by higher fuel prices. Also, upward pressure on maintenance labor rates and higher commodity prices, in particular the cost of oil, are impacting the cost of replacement tires and retreads.
More Fleet Transaction Fees: One cost factor challenging fleets is the increase in fleet transaction fees. Many fleet management companies are using third-party vendors to manage ancillary programs, such as tolls, registrations, and MVRs, whose additional transaction fees get passed on to fleet customers.
Initiatives to Reduce Fuel Spend: Gasoline and diesel fuel prices have been gradually, but steadily, increasing over the past 12 months and have been the No. 1 factor contributing to the increase in total fleet operating costs in calendar-year 2018. Fuel spend reduction initiatives are being implemented, such as "rightsizing" vehicles and making drivers more conscious of their fuel consumption. Another ongoing challenge has been the uptick in fuel card fraud.
Management Pressure for Cost Containment: A key challenge is finding new ways to drive out cost, especially in well-managed fleets where the low-hanging cost savings have already been removed. Management demands have become more strident in the wake of rising fuel prices. The challenge is balancing expense reduction initiatives without negatively impacting employee morale.
Strong Economy Fueling Corporate Business Growth: More and more companies are seeing growth in their business sectors. The fleet segment where this is a recurrent refrain is the energy sector, which is experiencing increased business activity. After a long period of depressed fleet purchases due to low crude oil prices, the energy sector continues to ramp up its new-vehicle orders. Another key segment of the economy that is a large purchaser of vocational vehicles is the new-construction market. All industry indicators, such as the issuance of building permits and starts for new-home and commercial construction are increasing, which bode well for the fleet sales of pickups and full-size vans, the primary vehicles acquired by construction companies. One consequence of this growth is the difficulty of finding additional or replacement drivers. Many fleets experience annual turnover of 80% or greater. Today's tight job market is making it difficult for vocational fleets to find drivers.
Initiatives to Reduce Preventable Accidents: Driver distraction and fatigue continue to be major concerns for vocational truck fleets. Driver distraction is the key reason behind the uptick in preventable accidents.
Increase in Repair Costs: Vehicle complexity is increasing the cost to repair accident-damaged units. When a vehicle sustains damage in an accident, the additional electronics and components in the vehicle increase repairs costs dramatically.
Asset Utilization: More fleets are conducting studies to identify vehicles with low utilization for removal from the fleet. Besides not attaining their full revenue potential, under-utilized units consume money with ongoing registration fees and PM expenses.
Productivity vs. Cost Savings: Fleet managers struggle to reduce costs without impacing driver morale, especially when there is driver pushback against cost-saving measures that negatively impact job productivity.
These are just a fraction of the challenges facing today's truck fleets. But as they say, what doesn't kill you makes you stronger.
Let me know what you think.
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