There is ongoing pressure to contain fleet costs due to corporate cost-cutting initiatives. Pressure for spend reductions is occurring at all levels within corporations, and fleet operations is simply another department mandated to cut costs. Reducing fleet costs is a constant, never-ending struggle for all fleet managers. Despite an improved business climate, many companies continue to remain cautious in terms of capital expenditures. Most fleets are seeking cost reductions by increasing operational efficiencies.
For instance, fuel efficiency considerations have become a greater factor in vehicle selector decisions. Many fleets are mandating minimum mpg requirements before a vehicle can be added to a selector. In addition, companies are looking to rightsize vehicles in reaction to cost containment and fuel-efficiency initiatives.
Truck fleets continue to focus on aerodynamics, reduced rolling resistance tires, revising vehicle specifications, and use of engine governors to maximize fuel economy. There is also widespread adoption of idling reduction policies, route optimization, tire pressure monitoring, and driver behavior modification.
Operating Cost Trends
An ongoing challenge facing today’s fleets continues to be the elevated cost of fuel. As the largest cost component of operating expenses, fleet managers are focusing on a multitude of fuel-reduction strategies. The shock from fuel-price spikes in prior years prompted many fleets to downsize to smaller vehicles and engine displacement to increase overall fleet fuel economy.
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 fuel efficiency.
The industry has been experiencing fuel-price volatility since 2002. A key reason is that there are pre-existing weaknesses in the nation’s refining infrastructure. For example, no new refineries have been built in the U.S. since the Garyville, La., refinery went online in 1976. This has resulted in limited refining capacity, especially for the production of reformulated gasoline, which increases the frequency of regional spot shortages.
Fleets are taking a multi-pronged approach to control fuel costs, such as spec’ing four-cylinder, instead of six-cylinder, engines, implementing anti-idling programs, and increasing the number of hybrids in operation. Other fleets are using telematics and GPS to improve route optimization and gain the ability to locate nearby low-cost fueling stations while on the road. Some are increasing personal-use charges to recoup higher fuel costs.
Fleet managers are also seeking to control fuel costs at the driver level by setting tighter and more frequent exception reporting. A parallel approach involves driver education/behavior modification by encouraging drivers to maintain proper tire pressure, drive less aggressively, and minimize unnecessary idling.
One bright spot has been maintenance costs, which have remained flat as the quality of vehicles from all OEMs continue to steadily improve, and extended powertrain warranties have covered some expensive repairs at higher mileages. However, one 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.
Another positive trend is with resale values, which continue to remain strong. Today’s resale values are strong, as dealer demand continues to exceed wholesale supply. It’s not that demand is substantially greater for used vehicles; rather, demand is strong because the inventory of used vehicles in the wholesale market is low. However, used-vehicle supply will increase in reaction to increased new-vehicle sales. This will cause resale prices to moderate as supply matches demand in the wholesale market.
Sustainability and Safety Still Strong with Fleets
Fleet sustainability initiatives remain important to commercial fleets, but many fleet managers report that corporate management is now viewing “green” increasingly through an economic perspective. Despite these economic concerns, many companies remain fully committed to achieving self-imposed sustainability targets, especially multi-national corporations.
Cost continues to be the largest challenge to reducing a fleet’s environmental impact. In today’s economic environment, many companies are cautious about spending money without a quick, proven payback. However, corporate sustainability initiatives will play a greater role in vehicle acquisition. The increased number of hybrid models and body styles available from OEMs will facilitate this trend.
There is increased concern about vehicle and driver safety and minimizing liability exposure, which is often being driven by senior management. Fleets are seeing an uptick in preventable accident frequency, primarily due to driver distraction. Driver distraction has become a major issue due to employees multitasking behind the wheel and the widespread proliferation of smart phones and other handheld data devices.
Despite some negative trends, the 2013 calendar-year, on the whole, promises to be a good one for the commercial fleet management industry.
Let me know what you think.
mike.antich@bobit.com
