Dedicated Fleet Hot Topic - continued

 

    To own or not to own - where does this leave fleet managers?

 

So far we have seen that today there is a whole lot more to holding down a fleet manager’s position in a dedicated fleet operation than only a few years ago. It has moved on from struggling to motivate fleet replacements and setting annual budgets for servicing and maintaining heavy commercial vehicles, to one of innovation in freight handling and distribution techniques without limits.

The advent of third-party logistics (3PL) is now well established: CFOs are eager to exploit off-balance sheet costly, non-revenue, equipment. Vehicle suppliers are eager to capture after-market maintenance contracts and finance houses (banks) are also quick to finance this low-risk business. Of course it has opened an opportunity for large listed professional carriers to challenge the wisdom of companies owning and operating non-core business assets.

Furthermore, it must be appreciated that fleet managers are at a distinct disadvantage when it comes to presenting their case in the C-Suite environment and extremely vulnerable when faced with the magnitude of boardroom negotiation.

So where does all this leave fleet managers? Sadly, there is little that can be said, other than it has severely limited career opportunities for traditional careers in fleet management.

It calls for a new approach to the profession - one that positions the redefined career of fleet manager to that of Road Transport Practitioner (RTP).

These professionals will find career opportunities in possessing the joint skill-sets of highly astute road transport managers with those of technically competent fleet managers. They will direct their careers to maximise job security and opportunities to achieve attractive freight Value Quotients in the field of Supply Chain Management (SCM).   

While we appreciate the huge challengers associated with what we are addressing here, we invite your Thoughts and Questions on how you see this milestone event affecting the road transport industry and those affected by this development.

 

Johan F's Thoughts (medium size fleet  Professional Carrier) 

Reading your comment regarding the bleak future you painted for fleet managers who run dedicated fleets, I am interested in what you have to say about some of the benefits these operators (Shippers) gain by opting out of owning expensive non-core business assets. Well there is a lot to be gained by what you have said and this makes sense. However you forget to mention that according to the Road Traffic Act, if you don't “Operate”a class of vehicle that requires the Owner/Operator or appointed Proxy to comply with Section 49 - Duties of an Operator - then surely this now becomes the responsibility of the contracted Carrier? Isn’t this the major benefit that out-weighs all others in Shippers making the right decision by sticking to their core business and leaving these worries to a contracted carrier?

Hugh's Thoughts

Johan you make an interesting observation but this changed on 31 October 2014 under publication of Government Gazette No 38142, amendment to the National Road Traffic Regulations, by the insertion of regulations No's 330A, 330B, 330C and 330D. However the most important amendment, that seriously affects the situation, is that made to regulation 1 of the Regulations, where the definitions of “consignee” and “consignor” were added. They refer to a shipper’s customer as the Consignee and the shipper as the Consignor.

Although not much was said at the time or during the two years that these amendments were under discussion, they were specifically legislated in light of the point you make about shippers moving (Owner/Operator or the appointed Proxy) responsibilities to their contracted carrier, as technically speaking the shipper no longer Owns or Operates the vehicles.

This is a very critical issue which has far-reaching implications and will be discussed as a separate Hot Topic.

 Andre v R’s Question (Fleet manager medium size consumer goods wholesaler)

“Road Transport Practitioner” isn’t this going a bit too far? What size operation are you referring to? We operate a fleet of 32 trucks delivering product to stores in the Gauteng region and although your suggestion might be the answer for mega retailers, I don’t see it fitting the bill in our company.

Hugh's Thoughts

 

Andre might have a point there. However in talking to company executives who are finding it difficult, if not impossible, to replace aging HCV fleets, I question their structure supporting the distribution function. Without exception, especially where fleet size is fewer than 50 vehicles, there is evidence of insufficient proficiency and/or positioning of their fleet management function in the framework of asset management.

On preliminary fleet audits, I find there is ample evidence of this beginning with the absence of a coherent, documented fleet replacement policy. This is the first clue to what later manifests as evidence that their fleet manager does not feature in this critical role.

Furthermore in discussions with these fleet managers, it quickly becomes evident that many have very little knowledge of the criteria for economic distribution excellence or suitability of the established fleet to achieve this or how, if any, vehicle choice is arrived at. Also to cap it all, the drivers don't report to the fleet manager!

 

 James S's Question (Fleet Manager HCVs)

Hugh, I ask the same question as Andre, at what point does a company decide to abandon the traditional fleet manager position and adopt your suggestion about changing the fleet manager’s job description in favour of a Road Transport Practitioner?

Hugh's Thoughts

 

Well when you come to think about the title “Fleet Manager” it’s rather confusing and somewhat vague: are we referring to a road transport engineer, an operations manager or a person who “looks after the fleet” and does a bit of all three?  If the fleet comprises Goods Vehicles, the Gross Vehicle Mass (GVM) which exceeds 3 500 kg, (Chapter VII regulation 265) then the Operator or the Operator-appointed Proxy, in the case of a board of directors, must take full personal responsibility in terms of Section 49 of the National Road Traffic Act (Act No 93 of 1996) (NRTA).

The irony of this situation is that there is absolutely no stipulated minimum qualification required for the person accepting this Board appointment and, in many instances, it’s someone who is not directly responsible for the fleet, or has absolutely no idea that the NRTA exists, so where does a fleet manager feature in this situation?

Furthermore few, if any, executive managers are appointed Proxys even although it's by Board Resolution. Most alarming is that the Proxy is considered a company Director in terms of the Criminal Procedures Act 1977 (Act 11 of 1977). This leaves the individual totally exposed to huge personal risk in the event of a fatal road traffic accident where they could find themselves facing culpable homicide charges. What I also find puzzling is that in such an event this risk is not underwritten by liability insurance cover for the individual . I take this point even further: Do Board Chairpersons, who sign the resolution appointing a staff member as the Proxy, appreciate the serious implications of doing so for both their Board and the appointed Proxy? And, I am still to find a Proxy who has been given the necessary autonomy to perform this function! 

Having said that, what happens when a decision is made to remove the fleet manager and out-source the operation, or rent a  fleet to avoid “costly” maintenance expenditure? Who carries the responsibility of enforcing NRTA Section 49 (vehicle roadworthiness)? I don’t recall ever seeing a maintenance contact that accepts responsibility in this respect.

 James S's Question (Fleet Manager HCVs)

 James S's Question (Fleet Manager HCVs)

If what you are saying is correct, then there must be a lot of companies exposed to serious risk by appointing mostly administration personal to what they unwittingly believe is simply an individual managing the registration and licensing of heavy vehicles on behalf of the company. For one, I am not our company’s appointed Proxy - it rests with the company Secretary.

Hugh's Thoughts

 

Well James, start by asking the company Secretary (registered Proxy representing the Operator) if he/she has an up-to-date copy of the NRTA and begin by carefully going through the Regulations, Chapter VII OPERATOR FITNESS, regulations 265 – 272. Having done that; move on to the Act - Chapter VI, OPERATOR FITNESS (Sections 45 - 51). And of course Section 89, Offences and Penalties should be noted!

Also take careful note of Section 49 (a) change in circumstances if the appointed person (Proxy) leaves the company.

Michael W’s Question (Operations Manager, National construction materials supplier)

We have 15 branches, a national fleet of 92 HCVs, all require registration in terms of Regulation 265 and therefore have Operator Cards. Does this mean that each branch must have a Board-appointed proxy? Also, what happens when there is change of a Proxy?

Hugh's Thoughts

 

Let’s start by answering your first question about appointing a separate Proxy for each depot. Yes, each depot should register its vehicles with the appropriate registering authority (Ref Regulation 8). Now, this does not infer that a specific vehicle can’t be used by another depot. However, the Proxy’s details as displayed on the Operator Card will be held accountable in terms of Regulations 265-272 and Chapter VI Operator fitness Sections 45 -51.

The answer to your second question is yes. Refer to Regulation 270 Change of particulars.

 

Eddie D’s Question (Operations manager for medium wholesale distributor)

I get confused about the various terms being used to describe: “operator”, “owner”, “title holder”, “body of persons”, “proxy”, “registering authority”.

Hugh's Thoughts

 

This is where it gets tricky. I am sure you are not the only one who is confused by these terms. They are defined in the Act Chapter I Definitions (section I) and in its regulations under Chapter I Definitions (regulation I). And this is why caution is required when transporting “Goods” on a “Public Road”. As you see, here are another two terms you will find in those two Chapters.

Most of these terms will feature in future Questions and Thoughts and it’s important for readers to grasp that there is a whole lot more to moving Goods on a public road than simply vehicle ownership. This will become more obvious as we move forward on this Hot Topic and address the huge challenges in providing cost-effective mobility to the Supply Chain Profession.

Matt H's Thoughts (Consultant)

 

Hi All. You may see outsourcing as cheaper, but responsibilities to your clients stay with you, there is no blaming the transporter if you did not manage/control it properly - that costs you money and clients in the long term.

Hands-on no matter what, is very important.

Andre v R’s Thoughts (Fleet manager medium size consumer goods wholesaler)

Matt has raised an extremely important issue that is normally overshadowed by the focus being on rates rather than client service delivery. This is probably the most neglected management function in out-sourcing road transport. It's a huge balancing act to assess service delivery performance by a third party, especially when there are costs involved - like late delivery, damaged or lost goods and driver/client relationships at the loading and off-loading points. 

Hugh's Thoughts

 

These Thoughts address critical issues when it comes to making decisions to disinvest in fleet and out-source road transport.

Matt uses the word "cheaper". How do we define "cheaper? Generally it is used to describe something less expensive. However in this context, it is meant to convey the notion that a professional carrier can deliver the same service at a lower price - or a better service at the same cost. Now logically, the decision must be made which of the two are we talking about?

To answer this question the Shipper must first have some means of measuring existing service delivery and cost per Unit delivered, then structure a RFQ clearly defining the required service level. This is easier said than done! To start with what are the criteria used for assessing the present service delivery in the current circumstances? Which of these are not being achieved and what is this costing the shipper that is motivating the decision to out-source the road transport function? I dare say that this is when the true worth of a Road Transport Practitioner is realised.

 

 James S's Question (Fleet Manager HCVs)

Why is the fleet manager usually the last one to know when their Board is talking out-sourcing, whether that be fleet ownership or bringing in a professional carrier? And at what point do they consider it is cheaper or better to draw the conclusion that the problem lies in the fact that fleet ownership/management is not their core business? 

Hugh's Thoughts

 

Boards get uncomfortable when one or all these three things happen:

a) when the company Sales Director looks for reasons to explain away lost business to a competitor due to poor service delivery

 

b) when there is a steady growth in negative fleet budget figures that can't be explained

 

c) when Capital funding for fleet replacement/expansion becomes a problem.

In company-owned fleets, accountants and sales directors tend to view distribution costs as an "overhead expense" which  leads to a loss of appreciation that distribution is an integral cost-to-serve component in their marketing strategy, hence the critical importance to justify the Value Quotient for each vehicle in the fleet. I have seen a lack of attention in this regard with little or no thought given to the suitability and/or capacity of the fleet to accommodate the marketing strategy. This situation exists even when, in times like the present, fleet replacement/expansion Capex is off-the-table.

Funding these so-called "overhead distribution" expenses also becomes a major challenge when fleet managers overspend their SMR budgets or attempt to "control" expenditure to avoid explaining away negative budget spend. They also authorise stripping of parts from trucks under repair to keep the fleet running. Worse still, they leave repairs over until the new month's budget becomes available, which seriously effects fleet availability.

These are just some of the realities fleet managers must accommodate in the daily challenge of keeping privately-owned dedicated fleets on the road.

 

Peter A's Thoughts (Marketing Consultant)

Hugh, you raise an interesting point regarding the Value Quotient (Vq) being factored into the cost-to-serve (CTS) component when talking marketing strategy. Quite frankly it (CTS) never comes into the discussion. Emphasis is focused on achieving growth for the period, building market penetration and launching new lines. It's normally a given that CTS will remain constant per unit of sales. 

Hugh's Thoughts

 

Hi Peter, yes this is normally the situation but I've seen this factor ignored, especially when the thrust is to up service delivery when challenged by competitors. For example more frequent deliveries and smaller minimum drop quantities, especially in the highly competitive less-than-truckload (LTL) consumer market, where shelf space is at a premium.

 

The ultimate goal is to increase company profitability: by making unprofitable business profitable. Without accurate CTS data for current customers and products, this is a near impossible task. 

Maintaining the best possible fleet for your shipping needs requires vigilance and scorecard tracking across its performance. If you don't know how well your fleet performs you cannot determine if you are actually getting a positive ROI - which ultimately determines the single criterion - to Own or not to Own. 

It really begins with Transportation Practitioners creating meaningful metrics to accurately measure the effectiveness of distribution scorecards and monitor Vq across the entire cost-to-serve spectrum. This applies equally to dedicated own-fleets or outsourcing to a professional carrier.

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