I will not belabor the point on the how the existing economic environment has created a shift in the business atmosphere. Companies, to some degree, have hunkered down and have taken on the practice of austerity. Simply put; trying to make do with what you have. Conventional wisdom cries out to cast aside the established life cycle plans and forgo acquisition of new trucks or equipment. Is this the best practice in applying asset management to truck and equipment fleets?

The answer to that question lies in a review of three facts and circumstances we know to be true.

First, the current interest rate environment is at a near record lows. Current yield curves rates are trending to a more steepened structure. Typically, interest rates increases lead full economic recoveries and a steepened yield curve presents evidence of economic improvement. One reliable measure is the spread between the three month US Treasury Bill and the ten year US Treasury Note. Currently, the spread is north of 300 basis points, indicating a future belief that rates will begin to rise amid economic recovery.

Second, on a year to year comparison operating costs of older equipment versus newer equipment tends to cost more. Pushing out the equipment replacement point will result in increased repair and maintenance charges. According to the American Transport Research Institute the average maintenance and repair cost of operating heavy trucks is near $.10 per mile. This is contrasted by isolating the first year cost of $.023 per mile. Often Fleet Managers budget for more than $.14 per mile for maintenance and repairs in their truck fleets. Lastly, the push to reduce carbon footprints is shaping truck and equipment configurations for the future. As an example, standards for diesel emissions have created new technology for engine performance in managing the release of known pollutes into the atmosphere. Although currently undefined, the standards to manage emissions will surely increase to ensure carbon footprints are reduced even more. Companies delaying the implementation of fleet greening through managed life cycles could be exposed to increased cost by reduced fleet optimization.

Perhaps the delay in truck and equipment replacements eases capital expenditures for the current year (in some cases more than three years), but the flip side is an increase in operational costs, and increased safety risk to the firm and employees. Safety costs attributed to aged equipment should also be added to the cost factor mentioned above. Newer equipment is more technologically advanced and contains improved safety systems which drive ultimate safety costs down.

Adherence to a properly analyzed life cycle replacement cycle is imperative to maintaining continuity in fleet operations and preserving fleet integrity. The key is your partnership with experts who understand the idiosyncrasies of your truck and equipment fleet. One of Donlen’s core competencies is helping our clients through the vetting process of examining all the options of life cycle management with an eye towards economic optimization. Stay the course or get back on the course in your fleet’s life cycle approach; conditions are right.