SEMINOLE, FL – Despite a heavy uptick in new equipment orders this year, many fleets are downshifting their vehicle acquisition strategies as they deal with higher sticker prices and vehicle operating costs.
“In 2010 we saw a 30% overall pickup in orders over 2009, but we expect purchases in 2011 to be flat,” said George Kilroy, president and CEO of PHH Arval here at the 2011 PHH FirstFleet Truck Conference.
Kilroy said pent up demand, largely to replace aging equipment, is what’s been driving new vehicle orders. “What we’re seeing now is a shift to longer vehicle ‘in-service’ lives, with demand for more maintenance services and life cycle cost management,” he said. “As a result, we expect strong client demand for outsourcing fleet management costs.”
For the company’s PHH FirstFleet truck leasing and management division, Kilroy said that shift translates into more demand for consulting services as fleets look for ways to improve their asset management strategies over the long term.
That “go slow” approach may be critical in another respect, as upward pressure on diesel prices is expected to increase over the next three to 10 years, noted John Kingston, global director of news for energy information and price assessment firm Platts. “There are looming disruptive forces facing the diesel fuel supply,” he told the conference audience.
One such force is the implementation over the last 2 to 3 years of state regulations mandating a lower sulfur content for home heating oil, roughly down to the 15 parts per million (PPM) level required for on-road diesel. The concern is that this blocks the ability of distributors to temporarily use “dirty” heating oil to meet demand spikes during cold weather – putting more pressure on the same low-sulfur oil stock used to make diesel fuel, further constraining supply.
The second pressure point comes from global rules limiting the sulfur content in what’s known as “bunker fuel” used by diesel-powered ships down to 0.5% by 2020 from the estimated 2.5% level today. This standard also coincides with the establishment of sulfur emission control areas or “SECAs” to regulate ship smokestack exhaust, beginning in 2014.
Those two efforts will generate more demand for “clean” marine diesel fuel, again putting more pressure on the distillate from which on-road diesel fuel is made, said Kingston.
In sum, he noted, this means that volatility in diesel fuel pricing “won’t be going away in the future.”