TANK fleets and other companies in the heavy-duty trucking industry continue to deal with many of the same issues it has experienced in recent memory. Company executives and operators remain focused on areas such as driver retention, safety regulations, diesel prices, electronic driver logs, tax law, and total cost of ownership, to name a few. Additionally, industry professionals continue to keep a watchful eye on the broader economy to identify trends that may impact the transportation industry.
One area that links all of these is leasing. There are clear signs that point toward more industry executives changing their business philosophy and moving toward a shorter asset lifecycle to lower their total costs, with leasing as the preferred mode of equipment acquisition.
A new accounting standard instituted during 2015 is expected to continue the movement toward leasing. The Financial Accounting Standards Board (FASB) voted to institute a new standard for reporting lease obligations.
Under the new rules, leases used to acquire trucks must be shown on the balance sheet as Right Of Use (ROU) asset and corresponding liability. Under these new rules, trucking companies will remain incentivized to lease their equipment, mainly to maintain cash flow, preserve capital, and to obtain flexible financial solutions to avoid economic obsolescence.
This economic obsolescence is on the radar of more executives today. Leasing represents a new opportunity for truck fleets in general. Business intelligence now offers data that can show that a shorter asset lifecycle of between three and four years can actually lower overall operating costs, driven largely by the newer engine technologies that are making noticeable enhancements to lower maintenance costs and to improve fuel economy.
Industry observers have taken notice. According to recent industry insight from renowned research firm Frost & Sullivan, which monitors and analyzes the transportation sector, leasing companies will capture more business in the Class 8 truck market over the next five years.
With the recently passed electronic logging device (ELD) mandate, remote access to the truck’s engine computer has made never-before-available information, accessible to transportation executives. Combined with advanced business analytic software, new truck technologies that offer reductions in maintenance costs and fuel consumption, and corporate directives to equip trucks with the latest safety features are motivating factors supporting the move.
While safety initiatives have always been in the crosshairs for fleet managers and drivers, safety advancements are also having a ripple effect into other aspects of the industry. In addition to keeping drivers from accidents, injury, or even death, safety advancements are also helping with driver recruitment.
The American Trucking Association estimates the current driver shortage at between 35,000 and 40,000 people, as mentioned in The Wall Street Journal. The newspaper was reporting on the Council of Supply Chain Management Professionals’ annual “State of Logistics” report. The story also reported that retiring Baby Boomers aren’t being replaced by younger drivers. However, added safety and even technology features in newer Class-8 heavy-duty trucks might help reverse the driver shortage by attracting younger drivers.
Technology features directly enhancing the performance capabilities of heavy-duty trucks were on great display at the 2015 Mid-America Truck Show. At the show, manufacturers such as Kenworth announced TruckTech+, a real-time truck health monitoring system, while Peterbilt launched its fully integrated SmartLinq remote diagnostic system. These features are designed to keep trucks on the road, which in turn will keep drivers productive.
All of these new technology features are a great example of the advancements that have been made, but the data we’re able to extract from this technology is the business intelligence fiber that’s truly adding to the changing mindset.
Safety, analytical, and fuel technologies are pieces of a much larger puzzle. The evolution of today’s fleet operation mindset also revolves around the way trucks are financed. Fleet managers are realizing that a shorter asset management lifecycle can positively impact their operational costs, and business intelligence has a lot to do with why and how this mindset is shifting.
Fleet executives are not turning to leasing solely as a form of financing, but rather to address the need for a more flexible financing solution conducive with cost effective asset management. Leasing reduces operating costs by allowing fleets to operate shorter life cycles and upgrade trucks more frequently—enabling them to take advantage of lower maintenance costs and improved fuel economy of new models.
At the forefront of the leasing resurgence are asset management lessors providing expertise in new truck specifications, real-time data analysis and precise management of a vehicle’s “all-in” costs to determine the optimum equipment lifecycle and used equipment disposition timing. By utilizing shorter equipment life cycles fleet managers are experiencing greater cost savings, better driver retention, improved corporate image and overall productivity.
Data can help with maximizing the trucks in service, but it can also help determine the optimal time to remove trucks from service and place back on the market. Business intelligence is now used to analyze industry trends and it’s being used as a leading indicator for remarketing and truck financing. Data can tell the direction of the market, and when and how to remarket a truck. It can also show if market prices are dropping or rising, which can determine how soon you place the truck back on the market or how much longer you hold onto it.
In a broader sense, it can tell the relative value of trading in versus the new equipment acquisition cost. What’s more, data can show the longer-term gain potential that may offset what appears to be an unattractive trade off in the short-term.
For years fleet operators have attempted to rein in overall costs using the logic that operating a truck until it becomes functionally obsolete will avoid incurring the replacement cost of a new truck. However, as noted in the Frost & Sullivan report, maintenance costs continue to escalate.
There is a moment in each truck’s lifecycle where it reaches a point of economic obsolescence—a tipping point—when the truck maintenance and fuel expenses are greater than the cost of replacing it with a new, more fuel efficient model that carries a new truck warranty and significantly reduces maintenance.
Maintenance costs have been a thorn in the side of fleet operators for years. And while these costs can erode profit potential, the ability to track truck health through data is allowing fleets the possibility of stronger cost management on maintenance and repairs.
The ability to assess the truck’s operating condition and schedule predictive maintenance and warranty recovery is allowing fleet executives to contain costs throughout the life of the asset. The shorter lifecycle afforded by flexible lease financing will dramatically lower vehicle maintenance costs and more thoroughly monitor warranty recovery from the original equipment manufacturer.
Maintenance in years six and seven are calculated to be between 15 to 20 cents a mile, while maintenance costs of new equipment run only six to eight cents per mile. This equals to an average savings of $12,000 per year per truck in a 100,000 mile per-year operation.
Data from onboard computers and electronic control module settings is also proving to be a game-changer, not only for what it can do to minimize maintenance costs, but overall costs. There were a lot of unknowns in a truck’s performance years ago, but the ability to get closer to truck performance data through business intelligence is rapidly changing that.
In addition to repairs and service, truck costs can be impacted by everyday performance metrics. Historically, after a truck went through the specification process, it was often difficult to realize additional performance gains, even on the same route.
However, fleet managers can now read data that shows everything from driver speed in different topographies, shift and idle time, RPMs and a host of other data that can be tweaked in order to enhance the performance of the truck. Additionally, fleet managers can have a better dialogue with their drivers, who also can have a dramatic impact on the truck’s performance.
Ultimately, these changes, all driven by data, can help improve the bottom line for a truck fleet operation. And as further evidence of this impact, better dialogue between the driver and fleet manager can help improve driver retention.
The true power between business intelligence and the leasing model lies in the impact on the overall lifecycle of a vehicle—both from a financial standpoint and in sustainability levels.
Forward thinking fleet executives are leveraging technology and data analytics to gain visibility into the total cost of operations. By aggregating and analyzing real-time information, they can now prepare a cohesive profit and loss statement per vehicle and adjust their vehicle lifecycle strategy accordingly. Rather than continually purchasing new equipment and reselling used equipment, a well-planned lease structure allows fleet operators to seamlessly exchange older models for newer, more efficient models. Although logic may tell you that a new truck will cost more, the reality is that it is much less costly when compared to the ever escalating maintenance, repair and fuel degradation costs of continuing to operate the older vehicles.
Furthermore, in addition to the intangible benefits associated with new transportation equipment like corporate image and the concern for the planet due to CO2 emissions, government mandates to reduce CO2 and improve fuel economy in heavy duty trucks are adding to the demand for the flexibility a lease-finance solution provides. Exclusive of driver wages, fuel cost is 65% of the total operating cost of a vehicle and a chief concern of fleet operators.
Even a seemingly small improvement in fuel economy—at today’s low diesel price—can yield large-scale savings year after year. At current fuel prices, every two-tenths improvement in miles per gallon will save approximately $2,000 in annual fuel expense per vehicle. Across a large fleet, this can equate to millions of dollars in annual savings.
The heavy-duty truck industry and fleet executives are changing their view on how trucks are acquired, operated, and how long they’re kept in service. There are new financial incentives for shifting to a shorter asset management lifecycle model, driven by a leasing philosophy.
This change is being driven by the proximity fleets now have to advanced business intelligence that can provide better visibility into everything from truck performance, safety, maintenance and repairs, fuel economy, remarketing, and even sustainability. As a result, fleets are benefitting from better relationships with drivers yielding improved retention levels, a more profitable bottom line, and a reduced carbon footprint.
With the many new transportation and business intelligence technology advancements on the horizon, the future looks bright for fleet executives leveraging a flexible leasing solution. ♦
About The Author
Brian Holland is president and chief financial officer of Fleet Advantage, a Fort Lauderdale, Florida-based data and analytics company for the fleet trucking industry that offers EXchangeIT, a proprietary leasing solution designed specifically for America’s corporate fleets.