Operating costs are increasing primarily due to higher fuel prices and maintenance costs. Also, upward pressure on maintenance labor rates and higher commodity prices are impacting the cost of replacement tires and retreads.
Fuel is the second largest total cost of ownership expense after depreciation. In terms of operating costs, fuel represents, on average, 60% of a company’s total fleet operating budget, which makes it crucial to manage this expense to keep fleet budgets from getting out-of-kilter. The good news is that fuel price volatility, while still present, has receded tremendously in the past several years and, in calendar-year 2019, the nationwide average price per gallon of gasoline and diesel was lower than the year prior. While fuel prices may fluctuate by metro areas, the higher cost areas are balanced out by lower cost metro areas, creating an average nationwide fuel price that is relatively flat.
The biggest factor impacting fleet managers is the price of fuel, which many fleet managers, such as Denise Cross, senior commodity manager for Carrier Corporation, cite as one of the primary challenges facing her fleet. Others likewise identify the cost of fuel as being the primary challenge facing their fleet operations.
“One of the greatest challenges related to fuel costs is accurate planning, budgeting, and mitigating the variable cost of fuel. This can be achieved more easily by a combination of addressing driver behavior and monitoring fuel usage reports. The other way to achieve a better outcome related to rising fuel costs would be to look into various fuel-saving technologies, including electric vehicles, hybrids, and diesel, as well as fuel-saving devices,” said Joshua Chamuler, director, transportation/fulfillment at ThriftBooks in Seattle, Wash.
However, there is a resignation that the price of fuel simply boils down to the cost of doing business. “Fuel is a topic that will likely always challenge fleets. It’s out of our control and a recurring cost,” said Lauren Parker, fleet safety and project coordinator for Vivint Smart Home in Lindon, Utah.
The key consternation about rising fleet costs is that, for the most part, they are uncontrollable. “How do we control the rising cost of running a fleet? Vehicles are getting more complex with added sensors and safety features that are driving up the cost of repairs. While the newer units are getting better fuel economy, fuel prices seem to fluctuate wildly from month to month,” said David McCauley, North America fleet manager for Service Experts.
Selecting models with higher mpg than the predecessor model continues to drive many fleet acquisition strategies, along with corporate sustainability initiatives. As a consequence, some fleets have elected to expand on this fleet initiative by increasing their acquisition of hybrid vehicles.
Other fuel spend reduction initiatives are being implemented such as “right-sizing” vehicles and maintaining awareness of fuel consumption among drivers.
Maintenance Trending Upward
Maintenance costs have steadily trended upward over the past 12 months as a result of more complex vehicle technology, the ongoing skilled labor shortages, increased replacement tire prices, and the proliferation of engines that require higher cost synthetic motor oils.
“Maintenance costs are on the rise. What bothers me is, we have no control of it,” said Tom Armstrong, director of fleet at thyssenkrupp Elevator.
In 2019, maintenance and repair costs have increased faster than the rate of inflation year over year. However, these cost increases have been somewhat mitigated by ongoing improvement in vehicle build quality and longer-lasting components.
However, what is somewhat dampening this trend is that the build quality of new vehicles has never been higher. With each successive model-year, fleets are operating better-built vehicles that may be driven longer without reaching catastrophic system failures. Nowadays, these failures are fewer and trending toward later in life, which is a good object lesson justifying the implementation of set vehicle replacement parameters to schedule an ongoing rejuvenation of a fleet by removing those units that have a higher propensity to incur future maintenance issues.