Technology is changing the way fleet transportation executives and operators approach decision-making during every phase of an asset’s lifecycle. Brian Holland discusses innovations in analytics, leasing solutions and asset disposal, which have the potential to dramatically affect a company’s bottom line.
The influence of technology and innovation, including data and analytics, has been among the largest developments in the fleet transportation industry over the last several years. Innovation-driven data and analytics, through advanced technology and reporting platforms, are now completely reshaping the way organizations with private fleets and for-hire carriers run their businesses. This includes a fleet’s asset acquisition and overall lifecycle management strategy.
This is critical today, since private fleets and for-hire carriers continue to deal with many challenges despite a booming economy. Company executives and operators remain focused on areas such as acquisition strategies, rising demand, driver retention, safety regulations, diesel prices and ELDs, to name a few. Each one plays a critical role in an organization’s overall lifecycle management, which can affect everything from employee/driver retention to asset optimization for the bottom line. Transportation organizations are realizing flexible, innovative lease solutions help achieve more optimal lifecycle management practices and help meet targeted financial goals and metrics.
Technology Provides Optics for Procurement Strategies
The varying decisions to operate a fleet and lifecycle management philosophy can greatly affect a firm’s financial metrics and the bottom line. And while acquisition strategies are central to any financial discussion, shaped largely by the decision to lease versus purchase, for example, organizations aren’t just looking at the initial cost of investment. Instead, they are leveraging innovation and analytics to look at their operating costs through new optics such as variable versus fixed costs. Costs such as tires, maintenance, repair and fuel are the variable costs. Interest and lease payments are the fixed costs. Long-term ownership of one asset means an organization has more variable and unpredictable costs to manage, whereas a shorter lease lifecycle of two trucks may cause a slight increase in the initial fixed cost of acquiring the second vehicle, due to higher equipment costs, but is still less expensive over time and makes for easier budgeting.
Innovation, analytics and advanced technology platforms are helping more industry executives change their fundamental business philosophy and move toward a shorter asset lifecycle to lower their total costs utilizing flexible leasing — more innovation steering a new industry path forward.
Innovative Lease Solutions
Technology is shaping leasing solutions, which provide the necessary flexibility to adapt to changing markets and business conditions and allow for replacement or addition of equipment before lease expiration. When leasing, operators can adapt a shorter lifecycle, replacing equipment every three to four years as opposed to running seven- and 10-year lifecycles. This means they are operating newer equipment more frequently, which provides many benefits, including lower total cost of ownership, reduced emissions, safety improvements and better driver retention and recruitment, since drivers prefer to operate newer trucks.
Fleet Advantage published a lease versus purchase study, illustrating the missed opportunity for cost savings when comparing a seven-year ownership of one truck to a four-year ownership and a four-year lease of two consecutive trucks. The analysis showed while there is a slightly higher investment level in lease payments over the seven-year period, the investment is overshadowed by much larger financial losses on the four-year and seven-year ownership in areas such as fuel expenditures, maintenance and repair, tires and financial losses resulting from disposal of the financed trucks.
In fact, the overall financial outlay shows that a four-year lease model would save approximately $27,893 per truck in comparison to the seven-year ownership model because of the aforementioned factors. The lease model even proves to be beneficial when compared to the four-year ownership model, showing savings of $12,710. If you multiply this amount across the fleet, the result is in millions of dollars in savings. This insight is now made possible as innovation, data and analytics allow fleet organizations to treat each individual asset as its own profit center by monitoring utilization and expenses, such as fuel and maintenance on a per-truck basis.
This study was driven by technology, data and analytics. Advanced software platforms have been built for the purpose of aiding smarter decision-making for lifecycle asset management. These platforms serve as a one-stop resource that enables executives to manage their entire fleet operation with a few keystrokes. They leverage sophisticated algorithms which pinpoint each vehicle’s optimum economic lifecycle to identify the point at which it costs more to operate an existing asset compared with replacing it with newer, more efficient equipment and determine an optimum replacement point.
These innovative lease solutions also affect financial performance. Flexible leasing allows companies to keep up-to-date with the latest technology and avoid obsolescence. In many instances, organizations can outsource asset management. Leasing also helps accelerate return on investment, increase return on assets and increase return on capital employed. What’s more, leasing allows companies to benefit from the bundling of hardware, software and services, and companies can customize lease terms to match utilization patterns. This is critical, since a one-size-fits-all approach does not work in transportation strategies.
Innovation Now Drives Vehicle Disposal
Data and analytics have proven to change the way equipment is initially procured today, but it’s also affecting the way trucks are disposed of in the secondary market as well.
The used market plays a significant role in the decision to lease versus purchase. Equipment resale is one of the most critical components, particularly as fleets must recover the highest possible value of the asset at the time of disposal or lease expiration. In fact, a 5% gain in used equipment can drastically reduce finance costs throughout the lifecycle of the vehicle. Leasing also helps to eliminate residual risk while providing for higher residual values at the end of the lease term.
Consequentially, the second buyer also benefits by acquiring used but young and well-maintained equipment with a more efficient engine than what’s typically available on the secondary market. This bigger picture effect, driven by innovative and flexible lease solutions, has an exponentially positive impact not only on the costs for the second buyer, who also benefits from lower fuel and maintenance costs, but also on the overall environment as a result of lower emissions.
It is essential for fleets to leverage today’s technology and innovation so they can have an appropriate and effective strategy for equipment acquisition, finance with flexibility to meet changing market conditions and dispose of equipment in a timely and efficient manner to capture the highest resale values and provide a seamless transition to newer equipment.
Tom Toton from Corcentric explores some of the many reasons why leasing conforms to the matching principles of accounting and business better than other asset management approaches.
With wild swings in financial markets, the political landscape changing worldwide, oil production through the roof and the U.S. Federal Reserve increasing interest rates, how should a company adjust its asset financing structures to contend with the uncertainty? Corcentric’s Pat Gaskins suggests using a dynamic financing model that can account for unexpected change over the asset life cycle.