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Ways fleets can set themselves up for financial success

Feb. 8, 2023
Analyzing freight networks, revisiting equipment procurement strategies, and managing cash flow are a few ways fleets can navigate today's volatile economic backdrop.

Fleets have had their hands full. High fuel and equipment prices, labor concerns, shipping rates, inflation, and other economic factors continue to haunt businesses' bottom lines. 

So, how can fleet executives set their companies up for financial success amid this volatile economic backdrop? Maybe some of the following suggestions will help.

Analyze freight networks

One solution for carriers is to leverage technology and the apps available to them so they know where brokers are looking for carriers on certain lanes.

“One of the things we encourage carriers to do when things get tight is to consider other options and look at other lanes that they might not normally think about,” Dean Croke, principal analyst at DAT Freight & Analytics, explained. “We had a carrier complaining on social media that rates are only $1.21 a mile out of Portland to Oklahoma City. I said, ‘Yeah, but they are averaging $3 a mile out of Oklahoma City.’ The rate out of a destination is just one small component.”

“We are finding that carriers are having more visibility into the market and better ways to get their revenue per day to where it needs to be because the rate per mile is only one small component of it,” Croke added. “Time is your biggest constraint, not miles.”

See also: Tips to help fleets manage costs amid inflationary pressures

During American Trucking Associations’ Management Conference & Exhibition in San Diego late last year, industry analysts and financial experts Steve Smith, senior industry adviser at DDC FPO and president of Smith Transportation Consulting Services, Chris Henry, COO of KSMTA Canada, and Zack King, former EVP and CFO of USA Truck, which was acquired by DB Schenker, discussed many ways fleets can better manage their cash flow these days.

KSMTA, Henry noted, performs assessments of each carrier’s network and evaluates every load and every lane, analyzing revenue, cost, and time. Smith, pointing out his company was a KSMTA customer 10 years ago, noted the firm helped his trucking company determine where they had limited capacity and which lanes weren’t good to pursue.

“It allowed us to identify those lanes and go back to our customers and say, ‘I’ll give you capacity, but I would really like to give you these five lanes back,’” Smith said. “Once you have that information, they’ll buy in because all they want is capacity.”

King agreed that it’s about pursuing the right lanes and making a series of small changes.

“You can’t go to a customer and say, ‘I want to give back all these lanes that I have and want these that are better for me,’” King noted. “It’s a progression over time. To get our network to where it is today, it was a three-year process. Your network constantly changes, and you constantly have to evaluate where your driver is, where your base is, where your terminals are, and formulate that based on where your customers are.”

Implement equipment strategies

Having a strategy is most important. That’s especially true as the availability of vehicles, as well as parts and components, remain constrained, Brian Holland, CEO of asset management solutions provider Fleet Advantage, pointed out.

“We are recommending that companies put together a strategy to monitor their programs,” Holland said. “We believe that leasing is a proven strategy to preserve cashflow, to optimize asset utilization, and to provide maximum flexibility. We advise fleets to do a lease versus purchase analysis.”

Holland also encourages fleets to thoroughly review their bundled full-service leasing contracts, if applicable, and consider unbundling as an option. Some organizations might benefit from full-service leasing, he said, but others could lose flexibility as the contracts are more rigid.

Fleet executives should also be thinking ahead about new and more stringent emissions-reductions regulations coming down the pike. Late last year, the U.S. Environmental Protection Agency finalized its latest heavy-duty engine rule, which goes into effect for model year 2027 commercial vehicles. This is going to impose manufacturer requirements that could increase the cost of diesel trucks by $42,000, Richard P. Schweitzer, general counsel for the National Private Truck Council, had told FleetOwner.

See also: A look at commercial truck, trailer trends for 2023

“The new regulations will add a layer of complexity to an already difficult market,” Holland explained. “Our recommendation is for fleets to start planning ahead. Instead of having the dialogue with our clients about what their needs are this year, we are talking about what their needs will be next year, and the year after, and the year after that.”

Holland added that for 2026, the truck market is expecting its largest prebuy in history. So, fleets should start planning for those changes sooner than later.  

Manage cash flow, but continue to invest

There’s the old adage that “cash is king,” and in today’s environment of economic uncertainty, fleets might be tempted to tighten up cash flow. That, however, could be counterproductive, according to Holland.

“We all know that shorter life cycles and newer trucks produce lower operating costs,” he said. “You want to be able to take advantage of the newer technologies and lower costs but at the same time preserve your cash. Leasing provides a great way to do that.”

In the end, continued investments in safety and technology benefit a trucking company’s bottom line and its drivers. Fleet Advantage’s Holland said his team frequently encourages fleets to think about these investments in terms of both human capital and financial capital.

See also: Does your fleet have a plan for technology evaluation?

“Companies can’t just afford to drive obsolete equipment that puts their companies and their drivers at risk,” Holland said. “We’ve all seen the nuclear verdicts and the escalating costs of insurance, but beyond that, protecting their drivers and other people on the road is of utmost importance. Our focus is really on managing the life cycle of the asset and taking advantage of the newest technologies available.”

Holland pointed out that Fleet Advantage has been working with OEMs and vendors to reduce some of those technology costs for fleets.

In addition to investing in new equipment and safety technologies, company culture plays an important role in driver recruiting and retention.

Regardless of what the market brings, Holland urges fleets to “embrace flexibility.”

“One thing we all learned from COVID is that things never stay the same, so having the ability to respond to changing market conditions and be agile in today’s market is extremely important,” Holland advised.

About the Author

Cristina Commendatore

Cristina Commendatore was previously the Editor-in-chief of FleetOwner magazine. She reported on the transportation industry since 2015, covering topics such as business operational challenges, driver and technician shortages, truck safety, and new vehicle technologies. She holds a master’s degree in journalism from Quinnipiac University in Hamden, Connecticut.

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