During the lean times of the Great Recession, every organization from households to corporations began taking a serious look at trimming the fat out of their budgets. For fleets this trend continues today.
The largest focus tends to be on the largest costs on the balance sheet: fuel, equipment and drivers. But these are not the only areas where dollars can be saved. Some of the biggest back-office areas that offer potential savings include insurance, worker's comp and healthcare costs.
We talked to a number of industry experts and consultants to develop these tips and suggestions on how to control some of these back-office costs.
Vehicle insurance costs
According to the American Trucking Associations' research arm, American Transportation Research Institute, truck insurance premiums averaged 4% of motor carriers' total costs in 2012.
In ATRI's 2013 update of its Analysis of the Operational Costs of Trucking report, fleets reported premiums in 2012 averaged 6.3 cents per mile out of a total average cost per mile of $1.63. It further broke down insurance costs for carriers and reported that specialized carriers had the highest insurance cost per mile at 8 cents, and less-than-truckload fleets had a cost per mile of 5.2 cents.
One of the first things to consider when reviewing your insurance costs is to avoid what CEO Joe White of CostDown Consulting calls "relationship purchasing."
Too often trucking company executives rely on relationship purchasing where ‘best price’ contract renewals offered by long-time vendors are accepted without challenge due to a trusting relationship, he says.
"Regardless of how much a vendor’s best price claims are trusted, the cost and terms of every major contract should be tested in the marketplace. If better pricing is found (and often it is) yet you still want to remain with your current vendor, give them a chance to match or beat the offer," White explains.
Bill Caudill, commercial auto product manager at Progressive, also advises fleets and owner-operators to check for discounts they might be eligible for.
"There are many kinds of discounts, including having three years of business experience, paying your policy in full and having a commercial driver's license. Ask your insurer or independent agent plenty of questions to ensure you’re getting the most for your money, especially if you have an excellent driving history," Caudill says.
One thing to keep in mind, says Timothy Brady, a consultant for owner-operators and small trucking companies, is the diminishing value of your equipment.
"Equipment depreciates in value over time, and insurance will only pay up to the current market value on a truck or trailer," he explains. "Paying insurance rates on an inflated value is one area where many small and micro-carriers pay too much in premiums."
Safety Technology and Insurance
Adopting safety technology to reduce the frequency and severity of incidents can also help fleets in their pursuit to find savings in their insurance costs. However, companies generally must have the metrics and statistical information, such as losses per million miles, to prove the technology has had an impact.
"It is not enough for companies to say, 'We made these changes and adopted this safety technology,'" explains Jeff Woodcock from insurance broker Marsh. "Particularly for the underwriters, companies need to show how the investment is making the company a better company. They need to show how that has decreased crashes or the impact of crashes."
Along the lines of safety technology potentially having an impact on what a fleet pays for insurance, Bob Benefiel with AITA Insurance Inc. says companies should take a "big picture" approach that encompasses both insurance and worker's compensation.
"Most companies look at their benefits offering and their liability (or property and casualty related) coverages as two distinct categories that should be treated separately," he says. "The savvy risk manager and/or HR professional will recognize that a good benefits program can have a net positive impact on a company’s worker’s comp rates and beyond."
Controlling Business Costs, Part 2: Worker's Comp
Controlling Business Costs, Part 3: Healthcare