Main Content

<

Fleet Outsourcing Fleet Outsourcing: What You Need to Know Before You Crunch the Numbers

>
Total cost of ownership

Operating a fleet of trucks requires a huge investment of time and resources. Trucks and trailers must be procured and maintained, and an expert staff of qualified drivers, mechanics, and administrators must be managed.

Regulatory changes must be monitored to ensure compliance with vehicle standards and driver behaviors. And companies must be prepared to handle breakdowns, staffing emergencies, and fluctuations in fuel prices.

Then there’s the technology. “If you’re a large enough company, you can have systems that track everything from driver compliance and certifications to booking, routing, and tracking,” says George Carl Pezold, executive director of the Transportation & Logistics Council. “But smaller carriers, with very few exceptions, can’t afford to have that expertise in-house.” While there is technology available to help with many aspects of fleet management, and some of it relatively inexpensive, the expertise needed to properly implement these tools—as well as keep an eye on ever-changing regulatory standards— comes at a premium.

The Outsourcing Trend

 For business owners, the alternative to owning your own trucks is fleet outsourcing, an option that more and more businesses are choosing. “Outsourcing is a way to improve your management perspective,” says Pezold. “If you’re in the business of making electronics or housewares, that’s where your focus should be. You’re thinking about sales and marketing. Transportation costs are figured into your margins, but you’re rarely seeing or thinking about those numbers. It’s easier to let someone else worry about it—especially if they can do it cheaper and better.”

Perhaps surprisingly, large companies are actually leading the outsourcing charge; a study by Fleet Financials found that companies with 1,000 or more vehicles are more likely to outsource their fleet management tasks than their smaller counterparts—perhaps because smaller companies mistakenly think that they need to reach a certain critical mass before outsourcing becomes a viable option.

The total cost of operating a fleet is more than even large businesses want to manage. And those costs often exceed what companies know about, because many of the costs of maintaining a fleet are not apparent. These hidden costs can be broken out into three significant categories:

 

  • COSTS OF FLEET PROCUREMENT. Most businesses factor in the costs of fleet procurement—including the fees associated with financing, interest, taxes, and licensing. These can be significant, particularly if the necessary vehicles are specialized, (for example, include refrigerated trailers or customized storage). But many fleet operators neglect to consider the eventual fees necessary for disposal and salvage of their vehicles, as well as the immediate depreciation in the value of their fleet. Compounding these losses is the inability to invest fleet costs elsewhere. With purchasing power tied to fleet assets, many businesses find themselves unable to invest in tools and talent more directly tied to their mission.
  • COSTS OF FLEET MAINTENANCE. Fleet operators account for fuel expenses and basic maintenance—basic parts and labor and rental or replacement vehicles to cover routes during routine maintenance. Many businesses also invest in asset-management systems to track vehicle maintenance. But few are able to accurately account for the costs involved in breakdowns—including roadside service and the losses involved in customer service failures resulting from route downtime. As fleets age, too, it becomes more and more expensive and difficult to keep them roadworthy and compliant with current vehicle standards. In fact, according to a recent study, it costs 85 percent more to maintain a five-year-old truck than its brand new counterpart, and these costs become considerable when multiplied across an entire fleet.
  • COSTS OF ADMINISTRATION Recruitment of drivers is also becoming more and more problematic. The American Trucking Associations (ATA) reports a growing shortage of qualified drivers. In fact, the current shortfall of 65,000 drivers is expected to grow to more than 200,000 in the next five years. This means a perpetual effort on the part of a company’s HR staff to secure, train, and retain reliable transportation staff. And hiring independent contractors is becoming problematic as many states are pressuring companies to shift contractors into employee roles, shifting the expense of benefits and liabilities to fleet operators.

“The result,” says Pezold,” “is increasing costs, paperwork, and administrative burdens. It’s a trend that is continuing to grow. I don’t see it getting any better.”

Paying drivers, fuel and highway tax reporting, adhering to safety requirements, ensuring driver compliance, licensure, permits, certification, maintenance—it’s a lot to handle—especially while attempting to manage costs. There are consultants and transportation attorneys available to help set up compliance files and lease contracts—but these services come at a cost. “Mom-and-Pop transportation companies are a dying breed,” says Pezold. “Increased regulations, safety requirements, and so on are making it too difficult.”

Mix and Match

The ability of fleet management companies to secure fuel, vehicles, parts, and equipment at volume discounts, as well as their expertise in managing logistics surrounding drivers and regulations, helps them keep their operating costs low—and pass those savings on to their customers. While outsourcing transportation might not be a viable solution for every company with goods to deliver, businesses of every size are recognizing and reaping the benefits of letting experts manage their fleets. Even outsourcing portions of fleet management— whether titling and registration services or routine maintenance— can result in significant savings in money, time, and trouble. This lets business owners spend less time on transportation issues, allowing them to focus more time and energy on their products, sales, and customers. In other words, by letting the experts—in transportation and outside of it—focus on what they do best, everybody wins.

This article was first published by Inc. Magazine and was re-printed with permission.

"Outsourcing is a way to improve your management perspective."

Get the latest insights, top trends, and best practices sent straight to you. Subscribe to Ryder Compass today.