3 Ways Businesses Can Save on Fleet Operating Costs
Right now, the rapidly deteriorating economic conditions brought on by the coronavirus pandemic are top of mind for every business owner in Australia. For businesses that also involve managing a fleet, the concern is palpable. That’s because the supply chain disruptions that have come along with the pandemic have driven down demand for transport capacity, and stay-at-home orders have idled smaller auto fleets as well.
On the positive side of the ledger, the price of oil has dropped by 42.5 per cent so far this year. That has softened the blow somewhat by driving up profit margins for whatever business has remained for fleet operators. But, the falloff in demand has prevented most from taking full advantage of the lower overhead.
The silver lining – if you can call it that – is that most industry analysts expect Australia’s transport sector to rebound sharply over the next few years. But to get that far, fleet operators have to take decisive action right now to rein in costs. To help them do that, here are the three near-term moves every fleet operator should make to stay afloat until better economic days arrive.
Make Lifecycle Management Central
One of the trickiest parts of fleet management lies in knowing when to rotate vehicles out of service and replace them with newer, more efficient ones. The reason so many companies struggle with this is that they rely on narrowly-computed total cost of ownership (TCO) figures for each vehicle in their fleet. Instead, they should be using a lifecycle management model that takes marginal costs into account as well.
For example, lifecycle management tracks vehicle depreciation as well as projected maintenance costs over time and compares it to a vehicle’s retail value over the same period. Doing this allows fleet managers to choose a strategy that effectively minimizes downtime while also keeping total operating costs as low as possible. It also provides the kind of visibility needed for the management to understand how their purchasing decisions will affect the bottom line – which is critical in an environment where every dollar matters.
Maximise Fuel Cost Savings
Even though the price of oil is in decline, fuel costs are among the largest parts of any fleet’s operating budget. For that reason, fleet managers should do everything they can to take advantage of potential savings on fuel. For smaller fleets, or for fleets that consist of passenger vehicles, a great way to do it is to track savings programmes available via fuel cards through platforms like Fuel Card Report. There, it’s possible to find a card that comes with substantial discounts on already-decreasing fuel costs.
For bigger commercial fleets, the best option is to try and lock in the low fuel prices available today by exploring options for a long-term fuel contract. By partnering with the right wholesaler, fleet managers can keep costs contained and certain for the duration of the contract. They may also be able to protect themselves from the inevitable rebound in oil prices that’s sure to come as the world emerges from the coronavirus-induced recession.
Institute Collision-Avoidance Incentives
For any fleet manager, the most unpredictable part of their operating cost stems from how well the operators of the vehicles avoid taking risks that lead to accidents. When an accident happens, there’s a short-term loss incurred from downtime and long-term loss due to the inevitable increase in insurance premiums that will inevitably follow. That means that careless driving or even an unusually bad run of luck can cause operating costs to skyrocket with little to no warning.
One of the ways to manage the risk is to make sure a fleet has the latest in forward collision avoidance technology (FCAT). Failing that, though, the best thing to do is to institute a collision-avoidance incentive system that rewards the fleet’s safest drivers. Such a programme can make use of fleet telemetry devices, which can often pay for themselves in reduced repair and insurance costs over time. For the average fleet, a great place to start is to calculate cost overruns due to collisions for the previous three years (if available) and plan an incentive budget equal to roughly half of the average overrun per year. Then, adjust from there to yield maximum savings using the cost data going forward.
On the Road to Savings
Since the three tactics covered here each take aim at the largest cost drivers associated with fleet operation, they offer excellent opportunities for savings. By putting them into effect without delay, businesses that operate fleets of all sizes can tighten up their operations and prepare to ride out some lean times ahead. Since the data points toward a steady recovery in the medium term, it shouldn’t take any more radical moves than these to outlast the downturn. Plus, they’ll leave the bottom line in a great position to maximize profits once business returns to normal – which will be essential to make up for any losses incurred in the near-term.