Financially Speaking, Fleets Provide Many Challenges

by Scott Mishoe

Scott Mishoe is the director of Business Development for National Sales at Ryder. He has spent nearly 32 years in transportation leasing, maintenance, and life cycle cost management, and has been a Certified Transportation Professional (CTP) through the National Private Truck Council since 2001. Mishoe spent the early half of his career with Ryder, and from 1997-2014, he held sales and management positions with PHH First Fleet (now Element Financial), LeasePlan, Fleet Advantage, Amerit Fleet Solutions, and AmeriQuest. Mishoe's professional expertise touches on all areas of fleet finance, procurement, and operations efficiency in helping fleets benchmark their total cost of ownership against other alternatives.

Scott Mishoe, director of Business Development, National Sales at Ryder, says the old axiom “buy things that appreciate, lease things that depreciate” still applies in today’s fleets, especially in the “race to be green”.

In days past, financial executives looked at a variety of traditional factors, such as equipment cost, residual risk and availability of capital when deciding whether to buy or lease fleet assets. However, today’s complex business environment has introduced dozens of new considerations with broad financial impacts that have companies rethinking their fleet ownership strategy.

Make no mistake — there are many decisions that can drastically impact your bottom line. Some companies have made sweeping changes to their private fleets, with many eliminating them altogether by outsourcing the entire logistics function. The question for financial executives becomes, “How does our in-house fleet affect customer service and our overall business model?” Is it a core competency, and can we do it competitively? For some, the answer to these questions leads to partnering with a leasing and maintenance service provider who can manage these functions more efficiently and effectively.

First, we have to look at new emissions technology, which makes trucks and even refrigeration units much more expensive and incredibly complex to maintain. In less than 10 years, truck prices and associated maintenance/repair expenses have gone up by over 40%. To further complicate things, the industry is dealing with driver and technician shortages. The law of supply and demand has pushed up those labor costs by similar percentages, with competition for those positions increasing exponentially. Truck maintenance shops now require new tooling, diagnostic equipment and associated training, which add more cost to the picture. The race to be green and efficient has come at a price.

In 2015, today’s premier fleets have had to endure many technological hurdles with many more ahead. Fuel economy is up significantly and fuel prices are currently down, which provides some welcome economic relief in a stressed transportation environment. Some fleets just can’t afford the cost of new equipment, which has helped bolster the pre-owned equipment market; but as we all know, this remains very cyclical in nature. Maintenance costs continue to be a problem for most fleets, with cost curves steepening, particularly in the early years. Downtime and the associated customer service impacts can also be a major financial cost factor. Dealerships are choked with trucks needing service, leading to long turnaround times.

One of the biggest challenges is getting an understanding of the total cost of running a fleet of trucks. The decision to operate a fleet on an in-house basis can have significant impact on a company’s expenses. And it’s a complex decision because the components of a company’s total cost of ownership go far beyond direct costs related to the trucks. Hidden costs that indirectly relate to running a fleet, from compliance to human resources, should also be considered. This is why more and more, CFOs are becoming part of the fleet decision process.

So, what to do? A fleet leasing and services provider that offers significant scale and expertise can bring much needed economic relief to a company trying to keep its focus on the core business, while helping a business understand many of the hidden costs. Often, a large full service lease provider can offer procurement advantages, national service networks, expert training, superior maintenance and cost tracking, at a lower overall cost. Fleet leasing and customized service offerings can bring critical flexibility in an ever-changing environment. Most industries operate at slim margins and can no longer afford any excess fat in the system. The old axiom “buy things that appreciate, lease things that depreciate” still applies.

To learn more about how to calculate your true total cost of ownership, download this free Ernst & Young Report.

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