Technology and analytics can help fleets realize significant operational savings by pinpointing the right time to replace older vehicles.
The American Trucking Association (ATA) Trucking Trends Report 2015 illustrates how trucking continues to be the dominant mode of freight transport in the U.S. Capacity is continuing to tighten and freight rates are rising. That combination of factors led many fleets to finally start replacing older tractors, especially in 2014 and the first quarter of this year. Although net orders for Class 8 truck hit a six-month low in March (which may be due to the fact that many fleets had already placed their 2015 orders), fleets that use planning and technology in their replacement practices can potentially save up to 20% on operating costs.
Over the past two years, fleet owners began to replace existing tractors which have an average age of 9.6 years, a near record. Fleet owners and managers that find themselves at this crucial juncture need to perform a fleet performance analysis to create an asset replacement strategy that will impact their operations for many years to come.
The reality is few, if any fleets can afford to replace all their aging vehicles at one time. But a fleet performance analysis will enable fleet executives to get the full picture of current fleet operations, and that will help them plan for the future.
First, it’s necessary to conduct an in-depth examination of the fleet’s data to evaluate fixed and variable costs and statistics that include:
- Vehicle specifications
- Maintenance and repair costs
- Historical fuel economy costs
- Utilization patterns
- Fixed financing costs
- Acquisition and disposal trends
When deciding which vehicles to keep and which to replace, you need to find the “sweet spot,” that point in time when it costs less to replace a vehicle than it does to keep it. Trucks that occupy that sweet spot should be the first ones you replace.
One key factor to consider in your keep-or-replace decision: fuel economy. For example, if a new vehicle delivers 8 MPG vs. the 6 MPG of the existing vehicle, that 2 MPG difference can be extremely significant. If a tractor runs 120,000 miles per year and diesel costs $2.87 per gallon, that 2 MPG increase in the new asset can equate to a savings of 5,000 gallons of diesel per year. That can equal $14,350. Multiply that savings by, say, 300 vehicles, and that can yield a total savings of $4,305,000 million alone.
Now, start to factor in lower repair costs associated with new vehicles under warranty, plus the fully manageable preventative maintenance costs, and the top resale value these vehicles will bring. Add in a new fleet utilization strategy and access to the best financing costs – and you’re looking at a potential savings approaching $12 million for a fleet purchasing 300 new vehicles. Even if you have a smaller fleet, a fleet performance analysis performed by a fleet management services provider routinely reduces fleet operating costs by 15-20%.
There’s no doubt that this is great time to be in the trucking business, even with the challenges that stricter regulations are bringing. But the fact still remains that making the decision to buy just one Class 8 truck at $132,000 is a huge one. It should only be undertaken after careful deliberation with transportation experts using the most advanced methods for data gathering and analysis. Taking this preliminary step can pay off for years to come.
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This blog first appeared on the AmeriQuest Business Services Website.