Finding the right balance in replacement cycling is one of the major keys to a successful fleet operation. Understanding replacement cycling strategies and best practices can make a big impact on your budget and operation.
Best Practices in Cycling Strategies
There are many variables that come into play when thinking about commercial vehicle replacement strategies.
“Typical factors to consider include geography, annual miles, vehicle type, and industry. Additionally, with the technology advances and complexities in today’s tractors and straight trucks, companies that operate a fleet of commercial vehicles also need to consider additional maintenance requirements in keeping new equipment at a high level of productivity. That means thinking about fuel economy, controlling operating costs, attracting and retaining drivers, and safety and customer service commitments,” said Jim Wood, vice president of Sales for Penske Truck Leasing.
There are several important aspects to consider when looking at a replacement strategy, including following industry standards.
“First, follow the industry standard guideline of a four- to seven-year lifecycle on a light-duty and a 10- to 14-year lifecycle on a medium-/heavy-duty unit. Another important consideration is to determine whether the piece of equipment meets your needs for both the near and long term. Then, determine how much revenue is being lost by not repairing the unit,” said Demetrios Varnasidis, truck specialist for EMKAY.
Economic service life is the ideal length of time you should keep a vehicle based on capital and operating expenses with the goal of achieving the lowest average annual cost, according to Mike Bryan, department head, Business Intelligence & Analytics for ARI. “Most organizations will benefit greatly by viewing the asset holistically — operating expense, productivity, criticality to business operations, capital investment, etc.”
A fully optimized fleet requires a balance of planning and execution.
“This balance starts with vehicle planning and ensuring vehicle requirements are in line with the company’s goals and the job at hand. Part of that process included going through a rigorous vendor selection process This helps ensure competitive pricing from high-quality vendors,” said Terry Aiken, director, Truck Operations for Wheels Inc. “In addition, it is a good practice to clearly establish roles and responsibilities between all decision makers and stakeholders so ordering tasks are completed in a timely fashion.”
Fleet managers should also try and track all data. As the adage goes, what isn’t measured isn’t managed.
“Track maintenance costs, fuel consumption, warranties, and driver condition requests. Your truck is no different than an employee and it should be listened to. Costs are associated with the things great managers forget to do,” said Dan Doucette, senior truck engineer for Mike Albert Fleet Solutions.
Fleet managers should also consider including engine hours rather than relying simply on mileage, recommended Ken Gillies, senior consultant, commercial truck solutions, CTP for Element Fleet Management.
“Also, look at operating conditions and geographical area served, resale value, and lead time (for chassis and upfitting) to determine order placement dates,” he added.
A good truck replacement strategy begins with assessing the performance of the existing truck.
“Since trucks tend to have longer cycling intervals, the business requirements may have changed since the vehicle was originally put into service,” said Jeff Krogen, AVP fleet strategy for Enterprise Fleet Management.
Ask operators a few important questions to ensure you are utilizing the optimal replacement cycle.
“Some questions include, how does the truck perform? What aftermarket equipment is needed? What equipment is not necessary? Then, weigh the existing truck with typical equipment/cargo. Is the GVWR appropriate? It is critical to reassess the body and additional aftermarket equipment, as well as spec for any towing applications?” Krogen added.
One best practice in developing a truck replacement strategy is to create total cost of ownership (TCO) models specific to asset type and vehicle application(s).
“Vehicle application should be taken into consideration as it can have a direct impact on actual fuel economy, incurred maintenance expense, and estimated resale based on vehicle condition at turn-in. Service terms carrying the lowest total cost per mile identified by TCO should be tracked to for future replacement activity,” said Dale Mottram, fleet consultant for Merchants Fleet Management.
When it comes to trucks, it’s critical to have a good understanding of all associated costs.
“Having good data will allow you to manage your fleet effectively and can help you find the sweet spot in terms of truck age and mileage for replacement. When looking at lifecycle costs, be sure to consider acquisition costs, residual value, disposal cost, cost of money, maintenance, fuel, operations/administrative costs, age, mileage, and downtime. In the information era we live in today there are several different ways to get what true and total costs to make the best decisions,” said Ian Griffin, national account sales executive for PacLease.
In general, lifecycle replacement analyses are helpful in determining the point in a truck’s life at which total cost of operations (TCO) is minimized.
“In this type of analysis, TCO may be expressed as a cost per mile. It is important to have solid data on the key cost buckets including effective depreciation, fuel, and maintenance. Using historical operating expenses on assets sold is one way of acquiring this data. Where cpm historically ‘bottoms out’ becomes a point where replacement criteria may be established,” said John Wuich, vice president, strategic consulting services for Donlen. “Continuing, and with defined replacement criteria by vehicle segment or class, replacement of assets may be forecasted and planned. Revisit the TCO analysis periodically and adjust replacement as needed.”
Bryan recommended tying the fleet’s replacement strategy to something concrete within the business and considering any fundamental changes to the business that may be on the horizon.
“Identify your businesses goals and what your business may look like short- and long-term. Do you need to order more units than originally anticipated to support the growth of your business? Conversely, will shifts in your operating dynamic present an opportunity to streamline your fleet?” Bryan said.
Another approach is to replace based on costs that exceed a prescribed threshold.
“For example, replace as the cost of repairs exceeds some percent of the asset cost. The idea here is to avoid catastrophic failures and significant downtime. You want to be replacing trucks before the law of diminishing returns kicks in,” Wuich from Donlen said. “An alternative approach would be to run the vehicle to its grave or when the cost to repair significantly outweighs the cost to replace. This approach may be better suited for complex assets.”
Fleet managers must ensure they are looking at the whole picture.
“Planning for the complete vehicle (chassis and all aftermarket) is critical. Having a cycling plan is a start, but a good plan takes analysis. The more specialized the vehicle, the longer the cycle likely will need to be. Analyze the total cost to operate the truck. Depreciation, maintenance, fuel costs, and financing all must be considered. Once the plan is in place, continuously evaluate the execution and make appropriate changes,” Krogen said.
At the end of the day, when looking at trucks that need replacing it’s important to ask whether a truck really needs to be replaced or not.
“Is the vehicle being fully utilized? If the answer is no, why replace it? In the case that it does need replacing, you’ll need to know whether the current spec is the right spec going forward. With technology advancing every day, newer trucks with the latest and greatest technology have more operational benefits, plus they’re more fuel efficient, and that means they will often have a cost-benefit,” Griffin of PacLease said.
Trends in Truck Replacement
A big trend in truck replacement today, regardless of truck size, is emerging technologies.
“There is a lot of buzz about the trucks of the future — powered by electricity, hydrogen fuel cells, and natural gas, for example. Many companies would like to jump on the bandwagon but also want to make sure these technologies are sound and will perform with maximum uptime. Once commercially available, these new trucks will come with a higher price tag than traditional diesel/gasoline trucks with the lure of a lower total cost of ownership while going green,” said Griffin of PacLease.
Companies are taking a hard look at their fleets and developing vehicle footprints that best meet current demands.
“It is not uncommon for fleet reviews to uncover 5% to 10% underutilization. This means there are opportunities to repurpose the assets or repurpose the equity in these assets,” said Wuich of Donlen.
Trucks are quickly evolving as well.
“In the past, trucks were built and highly customized to serve a single purpose. Today, fleets are building trucks to support multiple applications, increase utilization, and improve resale as they appeal to a wider secondary market audience,” said Ross Ingham, fleet consulting manager for Wheels Inc.
Fleets are also looking at their operational costs.
“Many fleets are going to a smaller fleet solution. A major reason is operational costs, as lighter trucks are now more capable and historically less expensive to operate. Another reason is to avoid using ELD devices in their vehicles unless it’s required,” said Varnasidis of EMKAY.
In the light-duty truck market, resale values remain high, which is providing an opportunity to short-cycle some makes and models.
“There is also an increased focus on safety technology. Fleet managers are continuing to look for ways to keep drivers and vehicles on the road and their customers’ product safe. Collision avoidance systems, cameras in the truck, and lane departure systems are a few examples of technology being utilized to reduce accidents,” said Matt Zidek, VP Business Development -Trucks for Donlen.
And, more organizations are prioritizing increased productivity and working to eliminate downtime to better serve customers. “We’re seeing a growing number of businesses place a greater emphasis on vehicle utilization. Companies now have a better understanding of the role vehicle utilization plays in influencing overall operating expenses and it’s certainly something to account for when developing your replacement cycling strategy,” said Bryan of ARI.
The current healthy resale market is also impacting replacement trends.
“Strong fleet incentive money from OEMs and a healthy wholesale resale market for light trucks are helping achieve positive equity position as early as 12 months in service, providing flexibility for fleets to short-cycle vehicles when needed without introducing a negative cash event to the business,” said Mottram of Merchants Fleet Management.
Fleet managers have also started replacing units earlier with the hopes of fewer mechanical issues.
“A good way to lose a driver is to have them sitting on the side of the road and broken down on a regular basis,” Wuich added. “Another growing trend is utilization review. The fleets of old would have extra units sitting on their lots just in case something goes wrong. Today’s fleets are replacing earlier to reduce or eliminate that need. We especially see this with specialized fleets that cannot be readily replaced by a rental or substitute unit.”
Recruiting, hiring, and training commercial drivers are still some of the top challenges facing private fleet managers.
“Along with providing attractive wages, benefits, and incentive programs, companies operating a commercial fleet must understand the demographics and corresponding needs drivers demand. The average age of a Class 8 tractor driver is close to 50; seasoned drivers look for well-maintained, newer equipment that is safe, comfortable, and easy to drive. Although adding features increases the cost of purchasing new vehicles, payback can easily be gained through retention strategies that keep experienced drivers behind the wheel,” said Wood of Penske Truck Leasing.
Ingham of Wheels also commented on a lack of talent.
“With the improving economy/low unemployment, many companies are struggling to fill open roles. That trend, coupled with low enrollment in vocational careers, has resulted in service fleets being more concerned with the vehicle as a recruitment and retention tool, something traditionally thought of only affecting sales fleets,” Ingham said.
And, while fleets are looking hard at vehicle utilization, Gillies of Element notes they are currently cautious about considering a lower capacity/smaller replacement vehicle.
“Fleets realize the technician likely needs more tools and cargo than assumed and must be ready for the job assigned or cargo carried,” he said. “There is also an increasing awareness of how assets are really being used in the field versus assuming nothing has changed. This is tied to field visits with direct driver and supervisor input and assessing the ‘ready to work’ weight of assets to determine the capacity needed/required.”
The Bottom Line
At the end of the day, the best replacement cycle is different for each fleet and depends on a variety of factors. But being diligent, doing your homework, and understanding how your business works are a few ways to keep a fleet running efficiently.