We all know the old adage ‘waste not, want not’. But this has never been more pertinent to truck fleets than it is right now. Minimising downtime and containing costs are the daily battles of truck and fleet owners as Australia’s logistics industry continues to grow increasingly competitive and the demand on road transport gets heavier. It can be a fine line for truck owners to walk — if you keep vehicles too long, you’re putting your business at risk of lengthy out-of-action periods and your drivers in danger; but if you replace them too soon you’re only wasting money.
So how do you decide when it’s better to replace parts, and when it’s time to replace the vehicle?
Unfortunately, there’s not a single answer for every case. But there are formulas you can use (along with some professional skill) to help you determine the optimal replacement timeframe for your fleet and get the most out of your investment.
The fleet lifespan formula
You’ll know it’s time to replace your fleet when your drivers are complaining about the performance and handling of the vehicle, your maintenance costs are blowing out with repairs to worn engines and transmissions, or your trucks seem to be spending more time on the side of the road than on it. But it’s not always obvious that you’re nearing the end of your fleet’s lifespan—some vehicles have an uncanny ability to perform well until they unexpectedly collapse in a heap, as if there’s an auto-destruct mechanism installed.
Several industry professionals have developed tools to help fleet owners determine the optimal life cycle of their fleet. These tools are obviously customised to the make and model of the vehicles, their application, and other factors like routes and climates. But it’s possible to create your own formula by taking your fleet’s unique needs into consideration, and balance your fixed expenses (financing and repayments) with your variable expenses (repairs and maintenance) to determine when it’s right to repair and when it’s best to throw in the towel. Analysing the life cycle cost is the best way to start searching for your fleet’s optimal replacement time—then you can keep the fleet operating at the trucks’ maximum productivity until the lowest cost point in their lifespan, and you won’t be wasting money or risking downtime.
To develop a lifespan formula, you need to factor in:
- The purchase price of the vehicles
- The depreciation rate in the first and subsequent years
- Estimated operating and maintenance expenses
- Interest costs
- Inflation rates for adjusting operating and maintenance expenses
You’ll see your net costs trend downward until they reach their lowest cost point, and then trend back up again. Theoretically, the best time to replace your fleet is at the lowest cost point, before you’re in for lower productivity and more maintenance expense and downtime. But it’s also important to keep in mind that your formula isn’t an exact science: you won’t always be accurate in predicting your expenses, and there are lots of other factors specific to the make and model of the vehicles and how they’re used that will determine how long you can really expect them to last.
Demand: time versus distance
One of the most important things to factor in to your formula is how your trucks’ engines are used. Sometimes, trucks with the lowest mileage are the ones with the highest maintenance costs, because their engines are constantly running. This means that engine hours, rather than kilometres, are a better indicator in how long you can expect your fleet to perform.
Trucks used for long-haul deliveries might have more on the odometer, but they’re often under less stress than trucks used in short-distance deliveries in urban areas, where the engine is either stopped and started frequently or left running. These idle-duty cycles are important to factor in: many fleet owners are making the mistake of focusing on their cost per kilometre instead of their cost per hour, and could save money by using this info to develop a more accurate lifespan formula.
Resale and aftermarket value
As with most investments, the biggest depreciation in the value of a truck usually happens in the first 2-3 years before slowly tapering off as the vehicle ages.
But it’s important not to rely entirely on the depreciation schedule, because the market does fluctuate—which is why we’re seeing different trends now than 5 years ago.
It’s important to stay flexible, and frequently assess where the market’s sitting so you can factor it into your formula. Your depreciation schedule could be impacted a lot by the market, which can move between soft and robust several times a year. Right now, fleets are holding on to their vehicles longer than they used to so they can save money on capital expenses and stay competitive. This means fewer trucks are being released onto the spare parts market, which means limited supply, and higher resale values—and that it might make more sense for you to take advantage of this by shortening your vehicles’ lifespans.
Specifications versus applications
There’s no hard and fast rule for every fleet. Some makes and models are built to last and are consistently more reliable than others. But even the less reliable models might be better suited to the fleet’s purpose and will generate bigger savings in their lower initial capital outlay if they’re used the right way.
It’s important for fleet owners to make their purchasing decisions based on sound professional advice and the latest industry information to ensure they’re not throwing away good capital on the wrong vehicles for their applications.
Adding to this, the difference between diesel and gasoline is a major one to work into your formula. Typically, diesel engines are built with a longer lifespan—sometimes a third longer than gasoline engines—and lower maintenance costs. But the cost of the fuel is usually several thousand dollars more over the vehicle’s lifespan—as much as tens of thousands. You need to be sure that how you use the truck generates big enough cost savings to balance the extra expenses.
New technology is emerging every day to improve the performance of vehicles. And considering that not much is changing in the way of fuel sources, many fleet owners are replacing their fleets sooner than they expected in order to take advantage of the fuel cost savings offered by better vehicle design.
Petrol isn’t going anywhere anytime soon, and the costs keep rising. But new technology has had a big impact on fuel efficiency, especially in the last few years, significantly improving the fuel economy ratings of many new trucks.
This is already benefiting many businesses with thousands of dollars in savings every year.
Fleet owners might also choose to upgrade their fleets in favour of better navigation systems and terrain performance that could improve their supply chains. New technology can improve driver safety, lower maintenance costs, and reduce delivery time frames, making early replacement a better option for many businesses.
It’s essential to consider your fleet’s application when you’re determining its optimal lifespan. Besides engine hours and kilometres, you need to consider other factors like terrain and climate that impact on the function and performance of the vehicle. Obviously, a journey on long, flat stretches of sealed road isn’t going to have the same effect on your fleet as one through
mountainous terrain where the brakes and engine are under more strain; and multiple, short, stop/start journeys like domestic deliveries will put more demand on the brakes than long-haul trips. Depending on the fleet’s application, it might make more sense to give some or all of the vehicles a shorter lifespan to save on maintenance costs down the track.
For many businesses, the risk of downtime is the most important factor in deciding when to replace the vehicles. For businesses where downtime has a big financial or operational impact, it might make sense to shorten the life cycle of the fleet in order to prevent catastrophic loss of function that could collapse the business. For businesses with a higher risk tolerance, it might be a better choice to hang onto their fleet until it’s in its death throes.
It’s important for fleet owners to know the cost of downtime unique to their business to make the right decisions. It’s sometimes worth it to invest in some help from an industry professional: a good consultant will be able to analyse your fleet’s data trends to determine where costs usually start to spike, and factor them in to get an accurate life expectancy for the vehicles.
For more information on your fleet’s lifespan—including repairing, rebuilding, or wrecking — contact Rocklea Truck Parts, and we’ll be happy to keep your business moving.