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'Sweating the asset' usually a losing strategy

For fleets and owner-ops, replacing trucks earlier than later can save big bucks

Many heavy-duty truck transportation fleets and owner-ops today continue to try to extract as much life as possible out of their trucks – a practice known as ‘sweating the asset.’ They repeat this practice time and time again, hoping for better results to their financial bottom line.

Unfortunately, many of these fleets remain challenged with their financial results since this practice, while avoiding the initial cost of truck replacement, also prevents them from realizing the significant savings that are returned through the use of a more efficient unit.

Data, analytics and business intelligence have evolved significantly over the years, and today all three are being used by leading private fleets and for-hire carriers that find themselves with a significant competitive edge over the rest of the transportation fleets. The power of business intelligence within a fleet operation comes from the ability to take an exhaustive look at the performance data of a vehicle, identify the insight it provides into its utilization, and then offering a clear way to take action that enhances the business’ bottom line.

Fleets leveraging these technology innovations to drive their business operations find that they have newer, more efficient trucks, lower overall costs from reduced fuel and maintenance expenditures, and increased safety records and driver retention.

Companies that find themselves sweating their assets also find they have more pressure regarding their financial results since they continuously have a higher total cost of ownership (TCO).

A long-standing business philosophy in the trucking industry was for organizations to make a hefty purchase order of trucks, while driving them for upwards of 10 years of service or more, squeezing every cent out of the truck’s usage – essentially sweating the asset.

When a fleet drives their truck as long as possible, they run to the point of functional obsolescence, making decisions based on the truck’s ability to stay on the road. Over time, costs begin to add up for each aging truck in the fleet, and these costs appear to be masked by the avoidance of the cost of investment to replace each unit, which end up significantly eroding their bottom line.

Many of today’s leading firms are taking a distinctive approach.

Fleets are paying closer attention to a truck’s individual tipping point, the point at which it costs more to operate a truck than it does to replace it with a newer model. Factors such as the cost of fuel, utilization, finance costs, maintenance and repair are all considered when arriving at each truck’s unique tipping point, giving fleet operations personnel and finance departments better insights based on data and analytics into determining and calculating the best time to replace an aging truck. This data illustrates a clear ROI and overall cost savings from utilizing a shorter lifecycle.

Fleet operators can realize a first-year per-truck savings of $16,928 when upgrading from a 2015 sleeper model-year truck to a 2020 model. For a fleet of 100 trucks, when upgrading to a 2020 model year the savings can reach $1.7 million. These cost savings are only achieved when adopting a shorter asset lifecycle.

This approach offers flexibility to adjust to changing markets, ultimately driving down operating costs while reinforcing a positive corporate image, driver recruitment and retention efforts by continuously upgrading to newer trucks. Companies are leveraging data analytics and comprehensive fleet studies that produce a fleet modernization and utilization plan, projecting when aging equipment will need to be replaced. This helps fleets plan their procurement strategies more efficiently, regardless of truck orders in peak or falling demand.

What’s more, alterations to the corporate tax rate as well as new accounting standards have made it more attractive to lease equipment. In the case of truck acquisition, purchase of equipment remains more expensive than shorter-term leasing of the equipment. Leasing remains the preferred method for companies regardless if they have a stronger or weaker balance sheet, and leasing also allows companies to avoid the risk of residual value and the expense of remarketing.   

By adopting this new approach of shorter truck lifecycles and monitoring and managing assets on a P&L basis, organizations, transportation corporations’ fleets and owner-ops will become further optimized and better equipped to exchange their aging truck fleets in a more cost-efficient manner going forward.

Katerina Jones is sr. director of business development at Fleet Advantage, a company specializing in truck fleet business analytics, equipment financing and lifecycle cost management.

 

 

 

 

TAGS: News Trucks
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