January 2008 - Feature
Best Practices for Asset Management Functions
By Michael Lewis
As predicted, the beginning of 2007 was difficult for the trucking industry. As we have transitioned to new trucks with a new generation of engines, we witnessed a change in the overall fleet market. Skepticism of new emission standards and uncertainty about the effect of EPA 2007-compliant engines on residuals spurred many fleets to forgo expected lifecycles, fueling a pre-buy blitz. As a result, new-truck sales have declined and operational costs continue to increase, prompting a general market slowdown.
Other factors that contributed to the slowdown were actions the Federal Reserve took to raise interest rates, as well as the steep decline in subprime mortgage lending. With a decline in industrial and durable goods production, these factors negatively impacted trucking and shipping industries. Fortunately, anticipated growth in the gross domestic product and the Fed’s recent decision to cut interest rates point to a more stable, if not strengthening, economy. Still, it could take as long as three to four quarters to realize the positive effect of interest rate stability on our industry.
Balancing Operational Costs
While the American Trucking Associations (ATA) annual freight transportation forecast points to a strengthening economy, carriers in 2007 had to manage costs better and smarter than in the past. Overall, fleets have had to focus more on operational costs, including the most costly trio — procurement, maintenance, and risk — in an effort to sustain profitability.
With more EPA emission regulations coming down the pike in 2010, we need to embrace our social responsibility to become more environmentally conscious. When it comes to idling reduction technology, auxiliary power units (APUs) have been an effective green initiative, capable of reducing a long-haul tractor’s fuel usage by an estimated 1,900 gallons, and greenhouse gas emissions by 42,000 lbs. (19 metric tons) per year. Auxiliary power units have led this decrease in fuel usage and emissions at an estimated cost between $6,000 to $10,000 per unit.
However, with hybrids being introduced to the Class 8 market and the introduction of urea and advanced emission technologies expected to further increase retail and maintenance costs, many of these environmentally sound practices will only add to an already dizzying array of cost pressures.
In the quest to become increasingly green, we need to strike a balance between environmentally friendly and cost-effective measures. We also need to explore additional cost-cutting strategies that will allow us to reduce our impact on the environment while retaining profitability.
As we attempt to become more environmentally friendly, we must carefully balance overall costs with increases in industry-mandated regulatory and operational costs. Opportunely, a variety of industry services now can help do just that. Financing, engineering, and information management systems can offset increases and better manage the costs of doing business by optimizing a fleet’s lifecycle.
The most effective asset management programs are currently supplemented with the objective expertise of an outside industry consultant. With 52 percent of fleet managers indicating they have considered outsourcing maintenance and safety compliance to a consultant, a new crop of third-party sources are stepping up to the plate.