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How private fleets are managing today’s hidden fees

Sept. 9, 2024
Understanding secondary and hidden fee differences is important as organizations with fleets pay closer attention to their total cost of ownership and financial bottom line.

Hidden fees aren’t a new concept, but it seems they’ve been in the news much more since inflation became a significant issue last year. Today, more consumers and business customers are fed up and are feeling the need for greater transparency.

Because of this pressure, more businesses like hotels and rental car companies are starting to unbundle fees and add-on charges to reach this level of increased transparency. The problem is that for many companies, the prices we see in plain sight are rarely the prices we end up paying, whether at a restaurant or for a truck lease.

These types of hidden fees have become a growing issue for today’s private fleets and their leasing structures, and this can be especially troublesome for those fleets operating in a “full-service lease." These companies are fighting back by better understanding how these fees impact their financial health, and they are seeking alternate approaches that are more beneficial to their financial picture.

Business owners argue that fees are essential for covering expenses and providing transparency about where customers' money is allocated. However, hidden fees—often referred to as secondary fees—have a considerable effect on consumer spending.

Analysts and advocates, such as the Consumer Financial Protection Bureau, warn that these hidden fees can diminish a person’s ability to shop around. CFPB data also shows that these fees cause people to pay more overall because businesses can charge more than what the market would otherwise allow in the sticker price.

These secondary fees have become so problematic that the current White House administration is making a fee crackdown. The administration believes Americans pay more than a collective $90 billion (about $280 per person in the U.S.) in what the president has dubbed “junk fees” each year on a variety of goods and services.

According to a recent article in The Wall Street Journal, “Congress introduced a bill last April to ‘limit and eliminate excessive, hidden, and unnecessary fees imposed on consumers,’ while similar measures have recently passed the New York and Illinois state senates. California, too, added restaurants to the list of industries covered under its existing hidden-fee ban.”

Hidden fees and private fleets

Though hidden fees are in the news each day, the issue began to emerge a few years ago, following the pandemic. At that time, flexibility and agility became crucial components of fleet management strategies.

The pandemic, along with a rapidly changing economy, highlighted the importance and urgency of closely examining every aspect of a fleet’s equipment lease structure, as this scrutiny could mean a difference of millions in profit or loss.

At that time, it was important to adjust the size of a fleet—either increasing or decreasing the number of trucks—according to the shifting business demands caused by the economic climate. These urgent needs require lease structures and providers to be flexible enough to meet sudden spikes in demand or unfortunate drops in business. As an example, some asset management firms implemented a sale-leaseback solution.

Today, the industry's tendency to impose hidden fees has only worsened the situation, highlighting the need for transparency in lease agreements. Companies using full-service leases are now bearing the cost of this lack of clarity.

See also: Akin: Watch out for these hidden fees on your fuel card

Full-service leasing defined

A full-service lease is where the lessor provides financing and other transportation services packaged in a single monthly payment. In an FSL agreement, companies essentially hand over all decisions affecting the fuel and maintenance costs to their lease provider and instead focus on a “bundled” monthly payment.

At first glance, full-service leasing might seem like a convenient option, especially depending on the fleet's size, but it reduces flexibility by binding the organization to a strict long-term contract. This arrangement bundles the costs for maintenance, financing, general overhead, and additional administrative and secondary fees, leaving little room for flexibility.

Unbundled leasing: Flexibility and competitive costs

In contrast, unbundled lease agreements are designed for companies to work with a provider that can help break out costs individually and identify the lowest possible financial costs involved with operating a fleet.

A UBL offers flexible financing options based on actual costs; not what costs were projected at the onset of the decision process. UBL offers vehicle life cycle management for better price and performance optimization. In a UBL agreement, companies have greater flexibility on these individual costs and the freedom to upgrade and scale the size of their fleet, guaranteeing the lowest possible financial costs involved with truck acquisition.

Indisputable cost savings with unbundling

The monthly cost savings can be significant, along with avoiding the associated hefty hidden fees. After considering the lease payments, warranty, and maintenance fees, an organization pays an average of $2,054.00 per month (unbundled) compared with $2,921.00 per month (FSL).

When calculated over 100 trucks, that fleet would experience a first-year savings of about $1.04 million toward the bottom line.

Why your lease structure can dictate individual costs

One of the most significant differences between a UBL and an FSL is how maintenance and repair costs are calculated.

M&R is “front-loaded” in an FSL agreement. For example, companies will pay a fixed $500 fee per month plus a minimum of .07 per mile in year one versus .02 per mile when unbundling (national average for year one) and a much lower monthly fee (usually about $125). All trucks come with a bumper-to-bumper two-year warranty that can be extended to four years. Expenses for year one include wearable items (tires, brakes) plus preventive maintenance.

A shorter truck life cycle produces long-term savings beyond the first year. In a UBL, the CPM average equals 5.675 cents over five years. However, in an FSL, fleets pay up to 9 cents per mile.

Even more so, companies with FSL are also paying warranty costs, but they aren’t getting credited back for using the warranty because of the fixed M&R costs enforced on day one. Fleets in an FSL experience these extra costs, especially when replacing tires, where the typical cost of a tire casing can be $70 - $90 per tire, whereas in an unbundled lease, these would be included and exercised under the warranty. This recapture rate can total between $1,900 - $2,200 per truck over the first five years.

There are also other cost disparities to consider. In a full-service lease, the initial equipment cost is generally about 10% higher, as it includes financing expenses. Additionally, there are extra secondary fees for administration or registration, which can vary based on the locations of the private fleet’s different distribution centers.

Fuel costs can also be more expensive with secondary fees because FSL fleets can’t determine the true cost per mile as all fuel and services are bundled into one fixed payment. This means fleets can’t operate on a “pay as you go” basis contrary to asset management partners, who are helping identify low fuel cost options. This also means companies have no incentive to maintain or even improve fuel economy over the life of the truck.

Understanding these secondary and hidden fee differences is important as organizations with transportation fleets today pay closer attention to their total cost of ownership and financial bottom line in operating the most efficient businesses possible.

About the Author

Brian Antonellis | Senior Vice President of Fleet Operations

Brian Antonellis, CTP, is senior vice president of fleet operations at Fleet Advantage, a provider of truck fleet business analytics, equipment financing, and life-cycle cost management. For more information visit www.FleetAdvantage.com.          

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