Patrick Gaskins is Senior Vice President of Sales and Operations, Capital Equipment Solutions, for Corcentric (formerly AmeriQuest Business Services). In his role, he oversees the sales and syndications functions of the Capital Equipment Solutions department at Corcentric. He has over 25 years of experience as a financial services professional in the transportation industry.
Patrick Gaskins, vice president of Financial Services at AmeriQuest, investigates the recent double-digit growth in heavy duty truck sales and the financial impacts of Total Cost of Ownership.
Although the transportation trade media has been reporting for months that trucking capacity is nearly maxed out, a recent survey by CK Commercial Vehicle Research (CKCVR) confirms it. Current fleet utilization rates indicate there is little capacity for new freight, which is leading to rising rates for shippers. You’d expect fleets to be adding capacity to capitalize on the current situation. The reality is that driver availability — or should we say unavailability — is holding back many fleets from significantly increasing their size.
So what are we to make of the monthly news reports about new heavy duty truck sales increasing 20%, 25% and 30% in the last year? According to CKCVR, most of those orders are for the replacement of older, less fuel-efficient tractors. Fleet owners today are learning that the old, reliable 2006 Class 8 truck they’ve been running is costing them more money than they think in fuel, maintenance and labor, among other things.
They’re becoming more educated about the meaning of Total Cost of Ownership. By analyzing fixed and variable fleet cost data, fleet executives are learning they can identify the optimum life cycle of each truck. By shortening trade cycles, fleets can save thousands or even millions of dollars in operating costs.
A Total Cost of Ownership analysis examines the financial and operational impact of fuel economy, parts costs, labor costs, equipment costs, changing technology, used truck values and capital allocation. It enables the fleet owner to analyze all the metrics to reveal what the fleet is actually costing, unit by unit, mile by mile.
Using a sophisticated computer model that provides a unique, detailed view of a fleet’s operating costs, the fleet owner, working with a fleet service provider, can crunch the data to assure that the fleet operates at the lowest possible cost. Replacing equipment at the “sweet spot” will provide a wealth of dividends. Analyzing the actual fixed and variable cost data each quarter will allow the fleet owner to not only take a proactive approach to future asset replacements, but to also make course corrections each year as dictated by current market conditions.
A Total Cost of Ownership analysis asks questions to determine if the fleet is running equipment one, two, three or more years too long, and missing out on significant fuel economy improvements that are offered by today’s trucks. Based on that Key Performance Indicator alone, a new tractor that runs 120,000 miles a year could save over 2,800 gallons of diesel per year if it improved fuel efficiency by just 1 MPG over the previous unit. With diesel costing an average of $3.80 per gallon, that would yield a $10,640 savings in fuel alone.
What type of fleet can benefit most from a Total Cost of Ownership analysis?
Fleets that currently own or lease more than 100 trucks
Fleets that maintain their own equipment or utilize outside service providers
Fleets that each run a minimum of 80,000 miles per year per truck
Investment in new trucks is growing for a number of reasons, including moderate growth in the U.S. economy, demands created by government regulations and overall replacement demand. Before taking the step to invest in one or more Class 8 trucks at an average cost of $125,000, it’s now become essential for CFOs and fleet executives to mine existing vehicle data to determine the right financial choice for their fleets.
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