Both transport companies and private fleets are finding new ways to tackle the major challenges they will face in 2020, particularly as a result of the COVID-19 pandemic.
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While each has their own specific challenges for their business, both struggle against ways to deal with a tough financial climate, rising costs from adapting to new routes and health concerns, and overall falling margins and profit margins.
With transport fleets, issues such as rising insurance costs are now impacting the bottom line and increasing concern. A higher tonnage means that more kilometers and stress will cause the trucks to age at an increasing pace. Case in point, the American Trucking Associations’ seasonally adjusted For-Hire Truck Tonnage Index rose 6.7% in September after a handful of volatile months of activity.
Private fleets are now also facing particular challenges. Depending on the industry, companies with private fleets had to adapt quickly to changing market conditions, adapt to new routes and quickly scale fleets in order to adapt to new economic realities to the changing market.
The volatile economy is causing some companies to focus even more on private fleet operations in order to better control costs and adapt more quickly to these changes in the business climate. For example, Ahold Delhaize USA says next year that as part of its three-year initiative, it will convert six facilities to move to a fully integrated self-distribution model powered by its own private fleet. With the transition of the six facilities in 2021, around 65% of the center-store volume of the Ahold Delhaize USA brand will be distributed itself. In late 2019, the company unveiled a three-year plan worth $ 480 million to expand its supply chain activities and move to a self-distribution model that includes e-commerce channels.
Overall, many companies are constantly reviewing their bottom line in order to continually justify their private fleet model – an issue that, according to the National Private Truck Council (NPTC), is a constant focus.
Changing utilization for changing truck requirements
According to a recent industry survey, 36% of businesses have had to change routes for up to 40% of the trucks in their fleets, and 25% have had to change what their trucks primarily move. Much of this shift was due to the closure of many restaurants across the country, with fleets shifting their routes to meet increased demand for food and the delivery of retail / commodity (non-food) products.
The survey also showed that roughly 50% of respondents were using less than 30% of the typical miles earned on routes when the pandemic hit. This also meant that roughly four in ten fleets were operating at 80% of normal load. As a result, along with the wider impact of the economy, 27% of businesses said they were being forced to downsize their fleets.
Additional flexibility for companies
These changing usage patterns show how important it is for companies to be as flexible as possible with their own business models.
For example, the structure of the fleet’s truck acquisition businesses must be flexible to meet this changing demand. The agreements must also allow them to return the asset if the effects of current circumstances return to normal, which is unknown at this point in time. Rising COVID-19 numbers could potentially force some states to re-locks.
One option that works well in this type of scenario would be a sale-leaseback contract. A company can select some older model assets that are less efficient and less reliable and partner with a company that can purchase and lease those assets back for an interim period and then move to new equipment when they are ready. This would allow the company to generate cash that could then be used for immediate internal needs or simply provide additional working capital.
A sale-leaseback program allows fleets to be downsized when an organization has an excess of trucks and has a positive impact on the income statement because the resulting lease payment is less than the current depreciation charge.
While extra cash helps, the flexibility to move to newer trucking technology with enhanced safety features tomorrow will ensure that businesses get a competitive advantage out of the pandemic through financial and operational efficiencies, and therefore be worthwhile.
Truck upgrades promise a safer future
A sale-leaseback program helps companies with equipment fleets position themselves for the competitive environment of tomorrow. Thanks to advanced business intelligence, American corporate transport fleets have been able to use data analysis, asset management and flexible financing to identify and respond to obsolescence of vehicles while sustainably reducing supply chain costs and increasing productivity. In addition, companies are now paying more attention to the obsolescence of the safety of their trucks. Data shows the impact that new safety technologies have on fleets, their drivers, and the savings that newer technologies and shorter lifecycles bring to the bottom line. A recent industry survey found that 11% of transportation fleets estimate they have saved more than $ 1 million in accident prevention by upgrading to newer trucks with enhanced safety features.
This win-win scenario helps businesses achieve immediate short-term relief for today’s business as all businesses continue to do whatever they can to weather the tough times of the pandemic. However, this program also helps position businesses better for tomorrow through stronger long-term financial health, and provides the opportunity to switch to newer, more efficient trucks with the latest industry safety advances.
