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A good truck replacement strategy begins with assessing the performance of the existing truck\u00a0and consideration of alternative options. Photo courtesy of Getty Images<\/p>\n
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.<\/p>\n
There are many variables that come into play when thinking about commercial vehicle replacement strategies.<\/p>\n
\u201cTypical factors to consider include geography, annual miles, vehicle type, and industry. Additionally, with the technology advances and complexities in today\u2019s tractors and straight trucks, companies that operate a fleet of commercial vehicles also need to consider additional maintenance requirements<\/a> 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,\u201d said Jim Wood, vice president of Sales for Penske Truck Leasing.<\/p>\n There are several important aspects to consider when looking at a replacement strategy, including following industry standards.<\/p>\n \u201cFirst, 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,\u201d said Demetrios Varnasidis, truck specialist for EMKAY.<\/p>\n Prior to partnering with Enterprise Fleet Management, a frozen goods distributer with a three-state territory had rotated two cycles of cab-chassis while keeping the original refer bodies. These bodies were expensive and had already been paid for, so client management put the bodies on a new chassis to save money. Our investigation revealed the client was experiencing abnormal maintenance expense as well as occasional citations for their trucks being overloaded. In our recommendation, we acknowledged that simply replacing the old chassis with new ones with identical GVWR might seem financially sound; however, it would cause issues on the operational (maintenance expense and downtime) and reputational (citations, driver inconvenience and delivery delays) aspects of their business. In this case, our recommendation was to \u201cmove up\u201d a class in GVWR.<\/p>\n<\/div>\n 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. \u00a0\u201cMost organizations will benefit greatly by viewing the asset holistically \u2014 operating expense, productivity, criticality to business operations, capital investment, etc.\u201d<\/p>\n A fully optimized fleet requires a balance of planning and execution.<\/p>\n \u201cThis balance starts with vehicle planning and ensuring vehicle requirements are in line with the company\u2019s 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,\u201d said Terry Aiken, director, Truck Operations for Wheels Inc. \u201cIn 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.\u201d<\/p>\n Fleet managers should also try and track all data. As the adage goes, what isn\u2019t measured isn\u2019t managed.<\/p>\n \u201cTrack 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,\u201d said Dan Doucette, senior truck engineer for Mike Albert Fleet Solutions.<\/p>\n 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.<\/p>\n \u201cAlso, look at operating conditions and geographical area served, resale value, and lead time (for chassis and upfitting) to determine order placement dates,\u201d he added.<\/p>\n A good truck replacement strategy begins with assessing the performance of the existing truck.<\/p>\n \u201cSince trucks tend to have longer cycling intervals, the business requirements may have changed since the vehicle was originally put into service,\u201d said Jeff Krogen, AVP fleet strategy for Enterprise Fleet Management.<\/p>\n Ask operators a few important questions to ensure you are utilizing the optimal replacement cycle.<\/p>\n \u201cSome 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?\u201d Krogen added.<\/p>\n 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).<\/p>\n \u201cVehicle 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,\u201d said Dale Mottram, fleet consultant for Merchants Fleet Management.<\/p>\n When it comes to trucks, it\u2019s critical to have a good understanding of all associated costs.<\/p>\n \u201cHaving 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,\u201d said Ian Griffin, national account sales executive for PacLease.<\/p>\n In general, lifecycle replacement analyses are helpful in determining the point in a truck\u2019s life at which total cost of operations (TCO) is minimized.<\/p>\n Prior to joining Wheels, Bath Fitter, an industry leader in bathroom remodeling, utilized a \u00be-ton pickup and enclosed trailer to haul its bathtub and shower displays to installations and industry events. Once connected to the trailer, DOT regulations came in to effect creating additional work and cost. Upon joining Wheels, the fleet management company’s truck engineer worked with Bath Fitter to develop an option to achieve the needed height and payload requirements while safely and legally operating under DOT governance.After working with Bath Fitter to understand weights and dimensions of their products, the truck engineer partnered with a supplier. Wheels presented a solution that would allow Bath Fitter to transport up to three display models in a cutaway van box truck. This eliminated the truck\/trailer combination and kept the fleet under 10,000-pounds GVWR to avoid DOT.<\/p>\n This configuration also brings great value in terms of safety for the drivers. With drivers no longer having to operate the truck\/trailer combination, backing up to loading ramps is simplified through the use of a backup camera that provides additional visibility.<\/p>\n With safety in mind, the operator no longer has to push a 500-pound\u00a0display unit up a ramp into a trailer as the box truck solution has been equipped with a lift gate that makes the loading and unloading not only easier, but safer. This configuration is also expected to reduce damage claims helping to lower the total cost of ownership.<\/p>\n Finally, the acquisition of these vehicles was also standardized and streamlined though the use of templates eliminating variation in increasing cross over utilization.<\/p>\n<\/div>\n \u201cIn 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 \u2018bottoms out\u2019 becomes a point where replacement criteria may be established,\u201d said John Wuich, vice president, strategic consulting services for Donlen. \u201cContinuing, 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.\u201d<\/p>\n Bryan recommended tying the fleet\u2019s replacement strategy to something concrete within the business and considering any fundamental changes to the business that may be on the horizon.<\/p>\n \u201cIdentify 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?\u201d Bryan said.<\/p>\n Another approach is to replace based on costs that exceed a prescribed threshold.<\/p>\n \u201cFor example, replace as the cost of repairs exceeds some percent of the asset cost. \u00a0The idea here is to avoid catastrophic failures and significant downtime. \u00a0You want to be replacing trucks before the law of diminishing returns kicks in,\u201d Wuich from Donlen said. \u201cAn 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.\u201d<\/p>\n Fleet managers must ensure they are looking at the whole picture.<\/p>\n \u201cPlanning 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,\u201d Krogen said.<\/p>\n At the end of the day, when looking at trucks that need replacing it\u2019s important to ask whether a truck really needs to be replaced or not.<\/p>\n \u201cIs the vehicle being fully utilized? If the answer is no, why replace it? In the case that it does need replacing, you\u2019ll 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\u2019re more fuel efficient, and that means they will often have a cost-benefit,\u201d Griffin of PacLease said.<\/p>\n A big trend in truck replacement today, regardless of truck size, is emerging technologies.<\/p>\n \u201cThere is a lot of buzz about the trucks of the future \u2014 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,\u201d said Griffin of PacLease.<\/p>\n Companies are taking a hard look at their fleets and developing vehicle footprints that best meet current demands.<\/p>\n \u201cIt 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,\u201d said Wuich of Donlen.<\/p>\n Trucks are quickly evolving as well.<\/p>\n \u201cIn 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,\u201d said Ross Ingham, fleet consulting manager for Wheels Inc.<\/p>\n Fleets are also looking at their operational costs.<\/p>\n \u201cMany 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\u2019s required,\u201d said Varnasidis of EMKAY.<\/p>\n In the light-duty truck market, resale values remain high, which is providing an opportunity to short-cycle some makes and models.<\/p>\n \u201cThere 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\u2019 product safe. Collision avoidance systems, cameras in the truck, and lane departure systems are a few examples of technology being utilized to reduce accidents,\u201d said Matt Zidek, VP Business Development -Trucks for Donlen.<\/p>\n And, more organizations are prioritizing increased productivity and working to eliminate downtime to better serve customers. \u201cWe\u2019re 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\u2019s certainly something to account for when developing your replacement cycling strategy,\u201d said Bryan of ARI.<\/p>\n The current healthy resale market is also impacting replacement trends.<\/p>\n \u201cStrong 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,\u201d said Mottram of Merchants Fleet Management.<\/p>\n Fleet managers have also started replacing units earlier with the hopes of fewer mechanical issues.<\/p>\n \u201cA good way to lose a driver is to have them sitting on the side of the road and broken down on a regular basis,\u201d Wuich added. \u201cAnother growing trend is utilization review. The fleets of old would have extra units sitting on their lots just in case something goes wrong. Today\u2019s 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.\u201d<\/p>\n Recruiting, hiring, and training commercial drivers are still some of the top challenges facing private fleet managers.<\/p>\n \u201cAlong 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,\u201d said Wood of Penske Truck Leasing.<\/p>\n Ingham of Wheels also commented on a lack of talent.<\/p>\n \u201cWith 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,\u201d Ingham said.<\/p>\n 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.<\/p>\n \u201cFleets realize the technician likely needs more tools and cargo than assumed and must be ready for the job assigned or cargo carried,\u201d he said. \u201cThere 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 \u2018ready to work\u2019 weight of assets to determine the capacity needed\/required.\u201d<\/p>\n 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.<\/p>\n As the nation\u2019s third largest transit agency, NJ TRANSIT moves nearly 223 million passengers through major points in New Jersey, New York, and Philadelphia. On average, an NJ TRANSIT light-duty truck was at least eleven years old with roughly 120,000-130,000 miles, and many were over 150,000 miles. Often times, these trucks had rusty beds restored, and some had entire engines or transmissions replaced by onsite maintenance garages.<\/p>\n Instead of accepting the status quo of doing things the way they were always done, NJ TRANSIT, thanks to the ARI team, conducted an extensive analysis of the benefits of leasing compared to their existing purchasing model.<\/p>\n The most attractive option resulted in a hybrid purchase\/lease model. Leasing gave NJ TRANSIT the extra capital it needed to fund more vehicles in a single year while also purchasing specialty vehicles that were crucial to the fleet.<\/p>\n<\/div>\n Prior to partnering with Enterprise Fleet Management, a frozen goods distributer with a three-state territory had rotated two cycles of cab-chassis while keeping the original refer bodies. These bodies were expensive and had already been paid for, so client management put the bodies on a new chassis to save money. Our investigation revealed the client was experiencing abnormal maintenance expense as well as occasional citations for their trucks being overloaded. In our recommendation, we acknowledged that simply replacing the old chassis with new ones with identical GVWR might seem financially sound; however, it would cause issues on the operational (maintenance expense and downtime) and reputational (citations, driver inconvenience and delivery delays) aspects of their business. In this case, our recommendation was to \u201cmove up\u201d a class in GVWR.<\/p>\n<\/div>\n Prior to joining Wheels, Bath Fitter, an industry leader in bathroom remodeling, utilized a \u00be-ton pickup and enclosed trailer to haul its bathtub and shower displays to installations and industry events. Once connected to the trailer, DOT regulations came in to effect creating additional work and cost. Upon joining Wheels, the fleet management company’s truck engineer worked with Bath Fitter to develop an option to achieve the needed height and payload requirements while safely and legally operating under DOT governance.After working with Bath Fitter to understand weights and dimensions of their products, the truck engineer partnered with a supplier. Wheels presented a solution that would allow Bath Fitter to transport up to three display models in a cutaway van box truck. This eliminated the truck\/trailer combination and kept the fleet under 10,000-pounds GVWR to avoid DOT.<\/p>\n This configuration also brings great value in terms of safety for the drivers. With drivers no longer having to operate the truck\/trailer combination, backing up to loading ramps is simplified through the use of a backup camera that provides additional visibility.<\/p>\n With safety in mind, the operator no longer has to push a 500-pound\u00a0display unit up a ramp into a trailer as the box truck solution has been equipped with a lift gate that makes the loading and unloading not only easier, but safer. This configuration is also expected to reduce damage claims helping to lower the total cost of ownership.<\/p>\n Finally, the acquisition of these vehicles was also standardized and streamlined though the use of templates eliminating variation in increasing cross over utilization.<\/p>\n<\/div>\n by Lauren Fletcher<\/a><\/p>\n\nMoving Up in Size<\/strong><\/h4>\n
\nUnderstanding DOT Requirements<\/strong><\/h4>\n
Trends in Truck Replacement<\/h4>\n
The Bottom Line<\/h4>\n
\nChanging the Status Quo<\/strong><\/h4>\n
\nMoving Up in Size<\/strong><\/h4>\n
\nUnderstanding DOT Requirements<\/strong><\/h4>\n
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I\u00b4m\u00a0a Fleet Management expert, and the manager of\u00a0![\"\"](\"http:\/\/en.advancedfleetmanagementconsulting.com\/wp-content\/uploads\/2019\/02\/Cartel-Valencia-2019-1.jpg\")
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