Depreciation is the No. 1 cost expense since expensive, higher GVW assets equipped with...

Depreciation is the No. 1 cost expense since expensive, higher GVW assets equipped with specialized equipment are typically needed to fulfill difficult vocational applications.

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Operating costs for vocational work trucks are forecast to continue to experience upward pressure during the balance of the 2019 calendar-year. The key reason for this forecast is that fuel prices, both diesel and gasoline, are expected to be higher in the 2019 calendar-year. In addition, replacement tire expenses are increasing and there is an ongoing nationwide trend to higher labor rates to maintain trucks. 

Fuel and maintenance costs represent the top expense line items for companies that operate vocational fleets after depreciation expense. Depreciation is the No. 1 cost expense since expensive, higher GVW assets equipped with specialized equipment are typically needed to fulfill difficult vocational applications, along with OEM increases in the initial acquisition cost of chassis.

Management’s goal is to reduce these fleet costs to increase profitability. As a result, many vocational fleet managers are conducting more detailed specification reviews to ensure fleet vehicles are appropriately matched to job functions.

Below are the top trends in the operation and total cost of ownership of vocational truck fleets.

Trend 1: Longer Vehicle Lifecycles

Depreciation is a fleet’s No. 1 expense. Typically, the more expensive the asset, the longer it will be kept in service, especially units upfitted with expensive auxiliary equipment. The trend is to add even more equipment on medium-duty trucks to make employee activity more productive at the work site. For example, service and utility fleets often have the highest capitalized costs, primarily due to upfitting, and tend to be those companies that keep their vehicles in service the longest. 

“The right replacement cycle is needed to ensure a fleet truck is replaced at the right time to avoid high maintenance cost and increased downtime,” said Collin Reid, senior strategic consultant for Element Fleet Management.

Trend 2: Fuel Conservation Strategies

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.

“As in past years, there is a continued drive to “lightweighting” assets in all classes of vehicles. By moving down in GVWR fleets are looking to increase payload, improve fuel economy, and (try to) reduce regulatory burdens,” said Mark Stumne, director, truck and upfit for Element Fleet Management. 

Partially offsetting higher fuel prices is that today’s chassis used for vocational applications have the best fuel efficiency in the history of this vehicle segment, which is being achieved not only by powertrain efficiencies but a host of other engineering improvements, such as improved aerodynamics and lightweighting initiatives.

Trend 3: Maintenance Costs Increase

After depreciation and fuel, the next largest component of vocational truck costs is scheduled and unscheduled maintenance expenses.

One factor putting upward pressure on maintenance costs is the nationwide shortage of technicians at dealerships and independent repair facilities. It is expected that maintenance costs will continue to be slightly above the rate of inflation as qualified mechanics continue to be in short supply. This is especially true with diesel mechanics and, as a result, Class 3-6 fleets are becoming more receptive to gasoline engines as an alternative powertrain to the traditional preference to diesel engines.

The shortage of skilled labor in the vehicle maintenance and repair industry is forecast to increase as technicians in the Baby Boomer demographic retire in greater numbers than those replacing them. The skilled labor shortage requires shops to pay more for skilled technicians, which translates into higher shop labor rates. 

“We expect to continue the 3-5% maintenance inflation due to mechanic wage pressures,” said Reid of Element Fleet Management.

Trend 4: Increased OTD Times

Strong retail demand for trucks has put stress on truck production allocation for fleets and lengthened lead times. In addition, a robust national economy has stimulated strong fleet order volume for trucks and vans. Consequently, increased fleet orders for trucks and vans have created backlogs at upfitter facilities, increasing lead times and missed ship-thrus. 

However, the dynamics of lengthening order-to-delivery (OTD) is complex with many contributing variables. “Increased lead times for chassis and upfitting is driven by transportation constraints, upfitter capacity, available labor force pressure, bodybuilder capacity, and record volumes. This applies to light- and medium-duty vehicles,” said Stumne of Element Fleet Management. 

Contributing to the backlogs at upfitter facilities was the tight labor market, which reduced vehicle throughput of completed upfits. As a result of labor constraints, many upfitters are unable to add production capacity as fast as they would like to.

Trend 5: Increased Spec’ing of Gasoline Engines

Fleets are re-evaluating the utilization of gasoline engines versus diesel counterparts. The increased origination cost for a diesel engine was typically offset quickly by the advantage of higher mpg.

As more gasoline engines become available for higher GVWR trucks, there is an increased examination by fleets to determine whether a gasoline engine will allow them to continue to meet their fleet application. More companies are performing a detailed review of vehicle duty-cycles to rationalize selecting gasoline versus diesel engines to reduce operating and maintenance costs.

“One of the top trends for Class 3-6 medium-duty trucks is the use of gasoline engines when possible to reduce acquisition cost and regional regulatory needs,” said Stumne of Element Fleet Management.

Trend 6: Tire Costs are Increasing

Fluctuations in the cost of raw materials used in the production of tires have led to increased prices for truck replacement tires and retreads. 

Replacement tire prices are experiencing upward pricing pressures due to higher prices for the commodities used to manufacture tires. The trajectory for replacement tire prices in 2019 is upward due to a forecast of ongoing higher commodity pricing, which exerts pressure on tire manufacturers to maintain margins as their production costs increase.

“Due to oil prices and tariff trade concerns, tire prices are expected to rise more than 5%,” said Reid of Element Fleet Management.

Trend 7: Cost-Reduction Pressures

Cost reduction continues to be a constant pressure exerted on fleet managers by management, with the goal to reduce operating costs and increase profits. Whether it is through telematics, best routing practices, increased fuel mileage, lighter-weight upfits, better work truck configuration for increased work productivity, driver retention, reduced parts pricing, aggressive reduction in service costs, or a combination of these items, the trend is to drive to the lowest total cost of ownership.

Another area of examination for cost reduction is with remote locations and branch offices. “The question is what is the right balance between local control versus company headquarters control? As we have better access to all vehicle data, how do we best manage the data and what data is important?” said Reid of Element Fleet Management.

A growing fleet maintenance issue revolves around the “soft costs” of driver and vehicle downtime. Downtime issues have increased and rental costs have risen. Rental costs have increased, in some cases, as a result of delays due to replacement parts on back order, repair provider workload capacity, repair technician shortage, and oil patch area challenges with repair provider capacity.

“There are continued concerns on truck downtime and productivity. Fleets are being asked to deliver more without increasing the number of trucks, drivers, and routes,” said Reid.

Trend 8: Optimization of Vendors

Another cost-cutting measure is the consolidation and optimization of fleet vendors. As fleets continue to focus on cost-reduction strategies, they are limiting the number of overall vendors as well as a more directed selection of vendors to leverage total spend for enhanced pricing and quicker turnaround of repairs. As the innovation and technology of vehicles in the medium-duty segment continues to evolve, the focus on vendor selection has become more critical in managing repair cost and downtime. With more enhanced electronics and more complex diesel emissions systems, not all vendors are capable of proper diagnostics and repair.

“Analyzing the right maintenance provider is crucial. Fleets are analyzing what is the right maintenance program to both minimize cost and maximize truck and employee productivity,” said Reid of Element Fleet Management.

Trend 9: Increased Safety Equipment 

Keeping drivers, passengers, and vehicles safe is the most important part of a fleet manager’s job responsibilities. Using safety equipment, such as back-up cameras, lane departure alerts, and ergonomic considerations, help keep trucks out of accidents and operators from injury. 

“There is increased adoption of technology in collision avoidance and driver assistance technology in Class 4 through Class 8 trucks.  This migration of automotive technology will help with accident reduction and aid in recruitment of drivers and retention,” said Stumne of Element Fleet Management. “However, these new technologies will require PM schedules to be updated to include the review of these technologies and may increase maintenance cost over time.” 

Trend 10: Adoption of Productivity Tools

Telematics has been a part of the over-the-road truck industry since the late 1980s, delivering a vital part of helping with delivery schedules, driver services, and route optimization. A growing number of fleet managers, who manage Class 3-6 truck assets, have turned to telematics devices to help lower operating costs. Acceptance of commercial telematics offerings has continued to rise in the trucking and vocational fleet industries. “There is a desire to use mobile intelligence to improve fleet productivity,” said Reid of Element Fleet Management.

With fuel economy continuing to be the No. 1 area of focus, the implementation of telematics systems has increased. Telematics solutions with onboard diagnostics (OBD) and routing ability are becoming more common as an effective tool to lower fuel spend and miles driven, particularly among medium-duty assets, where the impacts of fuel economy improvements carry higher savings potential.

The attraction of telematics to truck and vocational fleet managers extends beyond cost control and is also viewed as a fleet tool to enhance driver safety and productivity.

These offerings have provided insight into opportunities for decreased operating costs, such as reductions in idle time and decreased risk of accidents. Dispatch managers are also using telematics in order to optimize the routes of their trucks, thereby decreasing mileage driven for the entire fleet.

Another factor driving this productivity trend is the systems’ ability to provide real-time mileage reporting, a major challenge for fleet managers. These systems also allow fleet managers to evaluate driver risk profiles, which can lead to safer driving and fewer accidents. 

Originally posted on Work Truck Online

About the author
Mike Antich

Mike Antich

Former Editor and Associate Publisher

Mike Antich covered fleet management and remarketing for more than 20 years and was inducted into the Fleet Hall of Fame in 2010 and the Global Fleet of Hal in 2022. He also won the Industry Icon Award, presented jointly by the IARA and NAAA industry associations.

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