Every construction company with a well-run transportation fleet today regularly reviews its operational and systematic data to identify key trends and opportunities to improve its overall efficiencies and bottom line. With so much change taking place within the transportation and equipment finance industries, how can construction companies be sure they are evolving and adapting in the right direction?
Changing regulations, new emission standards, and the economy in flux influencing procurement philosophies are just a few of the issues reshaping the construction industry. Construction companies that continue to rely on historical practices, and those that are hesitant to adopt new technologies, may feel they’re making the right move by sitting on the sidelines and not disrupting legacy tactics. Inaction is a significant cost in the current economic landscape and demand, and it can negatively impact your customer base, employee morale, and bottom line.
OPERATING COSTS RISING
According to American Transportation Research Institute’s (ATRI) recent report (June 2023), the cost of operating a truck in 2022 for transportation and for-hire fleets was $2.251 per mile, surpassing $2 per mile for the first time in the history of ATRI’s studies. While a lot of this increase was due to high fuel costs, other cost centers saw double-digit percentage jumps as well, including repair and maintenance, truck and trailer lease or purchase costs (due to the increase in equipment costs), and driver wages.
ATRI’s report also indicates that the cost of trucking, with fuel included, increased by 21.3% in 2022 compared to 2021. Truck and trailer payments, repair and maintenance, liability insurance premiums, tires, and driver wages all set record high marginal costs in 2022.
On the private fleet side, the overall cost of trucking was listed as the third most prominent challenge in this year’s National Private Truck Council (NPTC) Benchmarking Report (August 2023), as compared to the fourth overall challenge the previous year.
The latest Truck Life Cycle Data Index (TLDI) (September 2023) calculated the cost savings associated with replacing older-model units with the latest truck equipment, showing that construction fleets can realize a first-year per-truck savings of $15,386 when upgrading from a 2019 day cab to a 2024 model. Across a fleet of 100 class 8 trucks, this equates to $1,538,600 and represents a 12% decrease in emissions.
With these operational costs on the rise, little relief in sight regarding truck order slots, and upcoming mandates, how will this affect construction companies with transportation fleets that fail to adopt new philosophical strategies for running their business?
Construction fleets must get on the order board and start somewhere to secure new equipment. The cost of inaction can quickly grow if the strategy is to wait until new equipment is readily available. You could also potentially lock in equipment costs, which would provide further savings, but holding on to and extending equipment life cycles is detrimental to construction fleet’s TCO.
ECONOMIC PRESSURES
It’s not only operational costs that are affecting construction companies. The Federal Reserve recently raised interest rates by a quarter of a percentage point, marking the 11th hike in the US central bank’s past 12 policy meetings as it continues to battle inflation and overall prices, according to an article on Reuters (July 2023). The increase has raised the benchmark interest rate to the 5.25%-5.50% range—the highest level since the 2007-2009 financial crisis and recession.
Because of the uncertain economic climate with high interest rates and the potential of how that may impact the labor market, forward-looking construction companies must understand the importance of flexibility and agility. The need for greater flexibility and operating cash position can significantly impact a construction company’s ability to grow in the current climate. That’s why it’s important to adapt innovative asset management programs that include flexible financing solutions.
Construction companies must make strategic decisions that affect their bottom lines when determining the right procurement strategies to manage their equipment and the financial flexibility needed to maintain a healthy bottom line. The costs involved can be significant depending on the type of investment structure (lease versus purchase, for example). Working with asset management partners can help companies determine the right path to take.
Construction businesses unwilling to course correct into a proper investment structure will experience significant adverse effects that will place them closer to the back of the pack being led by more progressively-nimble competitors—another severe cost of inaction. Successful companies are working closely with their asset management partners to perform various financial analysis and/or reviewing their current lease structures in consideration of current market conditions.
ENVIRONMENTAL MANDATES
Continuously evolving environmental regulations and emission mandates are placing pressures on construction companies to migrate toward alternate fuel technologies. Unlike the sentiment felt when reading the headlines, it’s not a move construction companies must make immediately. However, companies that fail to build a plan today will face significant consequences within the next few years. What’s worse—companies that build a plan based on unscientific guestimates will also fall into this category. This is where the cost of inaction for alternate fuel adoption will be felt severely.
Today’s construction companies know sustainability is at the forefront of their operational strategies, but a significant industry challenge revolves around answering the question of how and when to efficiently progress toward a carbon-free future in a viable way.
Data analytics continue to have a positive impact for companies—and society—and leading companies are turning to their partners for the use of Alternative Fuel Life Cycle cost analysis tools to help further identify and optimize their TCO to determine the efficacy of utilizing electric or hydrogen fuel vehicles. These analytic tools can compare diesel vehicle TCO to an electric vehicle TCO, with modeling that evaluates fuel and mileage data versus kWh comparisons from the first to sixth year life cycle.
It’s no secret that the cost of doing business continues to escalate now in 2023. The real question construction executives should be asking themselves is, “What is the cost of inaction, and am I willing to pay it?”
ABOUT THE AUTHOR
Katerina Jones is the chief marketing officer for Fleet Advantage, a leading innovator in specialty financing, fleet data analytics, fleet management services, and life cycle cost management. For more information, visit www.FleetAdvantage.com.
