Diesel News asked an industry expert, Olen Hunter from Paclease, to talk to us about what truck operators need to think about when considering sourcing new trucks and trailers.
“I’ve been in the transport industry for over 25 years and have seen the market shift significantly over that time,” says Olen Hunter, Director Paclease Australia. “Most of those shifts have come as a result of changing technology, transport operators wanting to focus on their core business and legislative related changes. I predict that the way fleets purchase, maintain and dispose of trucks, and trailers, will move away from current practices and will become highly centred on the most cost-effective way to use equipment for specific tasks, contracts or jobs.”
In the transport industry there have been significant changes in engine, telematics, truck and drivetrain technology. Many of these changes have provided positive outcomes for the indus-try in the form of better fuel economy or equipment productivity. In these cases transport op-erators have wanted to upgrade their fleet to take advantage of this new technology.
“The traditional ‘buy and hold’ equipment model is changing and as a result I expect equip-ment depreciation schedules to shorten so trucks can be sold in a shorter period of time to be able to take advantage of new technology at a more rapid pace,” says Olen. “With changing technology comes a change in the way trucks are maintained. Many years ago a fleet could purchase a truck and perform the majority of the maintenance themselves.
“Technicians need to be able to understand the mechanical side of the equipment as well as the technical side, which takes a special skill set. Couple that with the ebbs and flows of technician availability and it becomes easy to see why fleets around the world are saying ‘this is getting too costly to keep up with’ and they are turning to outsourcing.”
Operators are choosing to focus on their core business and outsource non-core functions. For traditional fleet operation the highest cost drivers of the business are wages, fuel, trucks and maintenance.
Most fleets are looking very closely at the cost of operating a vehicle over its lifetime and looking for ways to reduce the total cost of operation. That starts with initial purchase price of the equipment but also includes the expected future value of the truck.
“In North America and Europe we’ve seen a major trend in movement towards leasing as a way to reduce costs and obtain cost certainty,” says Olen. “There are numerous lease struc-tures available in the market, all with associated pros and cons. With most leases you aren’t paying for the entire vehicle up front, you make a monthly rent payment for the portion of the truck’s life that you are using.
“Couple a lease arrangement with an R&M contract, commonly referred to as a full service lease, and you have the financial benefits of the lease and the maintenance cost certainty on the R&M side which allows a fleet to budget a consistent number for each truck. We’ve seen the popularity of these types of leases grow in all markets.”
It is important to remember, trucks and trailers are depreciating assets. You will never sell a truck or trailer for more than you paid for it so they typically don’t fare well on an return on investment (ROI) comparison with other investments a transport company can make. For ex-ample, when a transport company has to decide what to invest in – new trucks to move freight, a new business system that will help improve the invoicing cycle time or billing accu-racy, or a system that improves equipment utilisation through dynamic routing, often the new truck purchase loses out because the business system benefits far outweigh the ROI of buying a new truck.
“Often legislation can cause change in how truck operators buy and maintain equipment,” says Olen. “Take for example the growing focus on the chain of responsibility for maintenance. As this issue places more responsibility on the entity, and its directors, that own, operate and maintain equipment – with serious repercussion if you get it wrong – transport operators will seek to eliminate risk by moving towards a focus on their core competency and out-sourcing maintenance to a reliable, well-capitalised, provider that utilises efficient maintenance practices and procedures.”