Medium-Duty Fleets Face Rising Cost Challenges

The results of a recent study by GE Capital have found that, while medium-duty truck fleets have enjoyed strong performance over the past year, they still face a number of challenges. Chief among these are maintaining margins in the face of increased healthcare costs and the rising cost of maintaining fleet assets.

To control escalating healthcare costs, some medium-duty truck fleets have taken a proactive approach.

“Fleets are working with drivers on health education programs, including assigning health coaches; having mobile medical teams conduct on-site visits to do routine screenings and vaccinations; and offering incentives to encourage healthier lifestyles,” said John Conkin, senior vice president of sales for GE Capital, Transportation Finance and president of Act 1 or the Allied Committee for the Trucking Industry.

An issue related to healthcare is driver retention — which has been a significant challenge for over-the-road fleets. “Driver turnover is not as big an issue in the medium-duty segment as it is for truckload carriers, but it’s still a concern because all fleets want to retain valuable drivers,” Conkin said. “Quality of life is a big initiative. Medium duty fleets consider driver comfort more when selecting truck purchases. They are also using trip optimization software to help drivers avoid time-consuming and costly traffic congestion.”

According to the report, of the fleets surveyed, the vast majority (79 percent) are privately held and have an average of 200 employees. The fleets surveyed represented a number of industries, including food and beverage, construction, and telecom and media. 

Unsurprisingly, fuel continues to be a major touchstone affecting fleet costs, but Conkin sees the increasing use of alt-fuel vehicles as a means to offset these expenses.

“Alternative fuels and hybrid technology have generated a lot of discussion,” he observed. “We’ve seen considerable activity around natural-gas-powered vehicles in the medium-duty space through our relationship with Clean Energy. It’s a way to reduce costs and it also helps with promoting green initiatives and improving their carbon footprints.”

The other fleet expense that is generating high costs is maintenance. “Maintenance expenses are another area where medium-duty truck owners are looking for improvement through the use of onboard diagnostics and data analytics to assist in identifying proper maintenance and replacement cycles,” Conkin said.

According to the survey, 55 percent of truck fleets plan to finance new equipment in 2014 and 45 percent plan to increase the amount of new equipment they operate. Conkin said that these additions will likely save medium-duty fleets money.  “The majority of the purchases we’ve seen in the medium-duty space are for replacement units, where businesses are updating older, less efficient units to improve fuel efficiencies or reduce maintenance expenses,” Conkin said. “The new technology will be more expensive, but some of that cost will be partially offset by fuel efficiency. Fleets are using replacement cycle planning to help optimize the timing of new purchases.”

Offsetting many of the challenges for fleets is increasing volume from existing customers and regional expansion. These are among the biggest business opportunities for 2014, according to the survey results.

By Chris Wolski