Cost Effective Asset Management: Fleet Data & Analytics Improve Heavy Duty Truck Acquisition

by John Flynn March/April 2015
John Flynn, founder and CEO of Fleet Advantage, gleans insights from a recent Class 8 report by research firm Frost & Sullivan, which predicts increased business in that segment over the next six years. In order to keep up with business and competition, Flynn says fleet owners need access to the newest truck technologies, which reduce maintenance costs and fuel consumption.

According to recent industry insight from research firm Frost & Sullivan, leasing companies will capture more business in the Class 8 truck market over the next six years. Access to 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.

Fleet operators are not turning to leasing solely as a form of financing, but rather to address the need for a more flexible financing solution conducive to 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 new models’ improved fuel economy. 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, and improved corporate image and overall productivity.

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 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.

Forward-thinking fleet operators are leveraging technology and data analytics to gain visibility into the total cost of ownership. By aggregating and analyzing real-time information, they can now prepare a cohesive profit and loss statement per vehicle and adjust their vehicle lifecycle strategies accordingly. Rather than continually purchasing new equipment and reselling used equipment, a customized lease structure will allow fleet operators to seamlessly exchange the older model for a new, more efficient model. 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 operating the older vehicles.

Proper lifecycle management is the single most important shift a fleet operator can make to control costs. In order to make cost effective equipment lifecycle decisions, managers need reliable, properly analyzed data. New trucks are becoming more fuel efficient every year and require less frequent M&R intervals. A lease that is structured with consideration given to a customer’s unique operation and duty cycle will allow the fleet managers to turn their operation into a preventive maintenance operation, in-servicing new equipment every three to four years at a lower cost than historic rates.

Proper lifecycle management also has the added benefit of increased purchasing power. An 800-truck fleet operating under an eight-year lifecycle philosophy typically purchases 100 trucks every year and in turn must sell 100 eight-year-old trucks in the secondary market, usually at auction prices. That same fleet operating under a flexible leasing structure based on a three- or four-year lifecycle, purchases 200 trucks per year and has no obligation to dispose of used vehicles. That increased purchasing power equates to more competitive equipment pricing.

Government mandates to reduce CO2, which 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 70% of the total operating cost of a vehicle and a chief concern of fleet operators. MPG has consistently increased in new Class 8 trucks and trailers, and will continue to do so through the year 2022. When fuel costs go down it is beneficial for the transportation industry as well as the general economy. It also has an effect on lifecycle analysis and timing (e.g., in Q4/14, analytic models reflected savings of $500 per month in fuel costs; today that figure is $400 per month). But don’t be fooled by decreasing gasoline prices as diesel is not falling in tandem. The ratio is 1.75:1 — meaning that for every 1.75¢ decrease in gasoline price there is only a 1¢ decrease in the price of diesel. As fuel prices continue to decline at the pump, chatter of higher fuel taxes is increasing and is supported by the U.S. Chamber of Commerce. We are confident a new bill for highway, bridges and infrastructure will include an increase in per gallon tax (which has not changed for 20 years and is not tied to inflation or CPI). Although a lower fuel price is good news for fleet operators in the short term, winning the long-game will depend on the flexibility to cycle in and out of new equipment at the right time and with no penalty costs while remaining focused on their core businesses.

John Flynn, founder and CEO of Fleet Advantage, a leasing and technology company that specializes in truck fleet business analytics, equipment financing and lifecycle cost management, has more than 30 years of experience in the Class 8 truck industry.

Surge in Class 8 Truck Sales Expected to Continue
Transport Topics reported, citing data from, heavy-duty truck sales surged in December to their highest level in eight years. December’s total of 23,379 Class 8 truck sales, which were up 40% from the previous month, were the most since the same month in 2006, TT said, when heavy-duty truck sales crested at 26,462. Class 8 truck sales for full-year 2014 were 220,405 units, up 19% from 184,784 a year earlier.

Daimler Trucks North America’s freightliner brand continued to lead the market with a 35.6% share followed by Navistar (14.1%), Kenworth (14.1%), Peterbilt (13.5%), Volvo (12.0%), Mack (8.9%) and Western Star (1.7%).

In its latest news release on 2014 performance, PACCAR EVP Dan Sobic said, “Truck demand is being driven by the improving economy and fleet expansion.” In his outlook for 2015, Sobic added, “Estimates for U.S. and Canada Class 8 truck industry retail sales are in the range of 250,000-280,000 units, driven by further expansion of truck industry fleet capacity and economic growth.”

Commenting on his company’s 66% year-over-year increase in Class 8 retail sales, W.M. “Rusty” Rush, CEO of Rush Enterprises said: “Class 8 truck sales climbed during the fourth quarter, a trend that began from last spring. Large fleets continued replacing aged vehicles to upgrade equipment to more cost-efficient technology and appeal to a wider range of drivers. Stock truck sales also continued to improve as smaller fleets across vocational operators took advantage of increased activity in construction and other market segments across the country.”

Class 8 Truck Orders

According to a recent ACT Research State of the Industry Report, January 2015 Class 8 tuck orders hit 35,226 units and Class 5-7 trucks posted 18,712 units ordered in January. ACT said based on January numbers, Class 8 orders had a seasonally adjusted annual rate exceeding 400,000 units.

“To put some context on Class 8 order strength, January marked the fourth consecutive month in which orders were booked above a 400,000-unit seasonally adjusted annual rate (SAAR), the eighth consecutive month with orders booked in excess of 345,000-unit SAAR and the 12th time in the past 13 months that orders have exceeded 300,000-unit SAAR,” said Kenny Vieth, ACT president and senior analyst.

2015 Outlook

In a recent news release, Jonathan Starks, FTR Transportation Intelligence director of analysis, noted, “Fleets were hitting their stride to finish the year, led by a dramatic drop in diesel prices and continued strength in contract pricing. However, there are several indicators that lead us to exercise caution as 2015 plays out. First, diesel prices have to stop going down, and recent data points to that occurring. That leads to a strong potential for diesel prices to rise later in the year. FTR’s outlook assumes modest increases, but the energy markets don’t always work that way.

“Next, capacity is finally being added to the marketplace just when the HOS rollback is being implemented,” Starks continued. “Truck ordering activity at the major builders hit 375,000 units in 2015, well above the 295,000 units that they actually produced. Those units will spill over into 2015 as carriers add or replace the trucks in their fleets. Lastly, spot market data from highlights that the market has returned to normal this year following a very capacity-constrained winter and spring in 2014. That will make year-over-year comparisons look much worse until late in the year. Despite these worries, the market is still running pretty tight and economic growth is anticipated to stay at a solid pace. Look for truckers to be hit by both headwinds and tailwinds during 2015 but be able to stay the course.”

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