Utility Fleets Hot Topic 1

 Hugh's thoughts

  • Deployment of meaningful analytics: deciding on how to measure operating efficiency to establish fleet efficiency

  • Perceived Value: What metrics are being used to relate Cost-benefit Value relationships?

  • Managing Fixed and Variable costs: Lack of competent road transport management capacity to control Fixed and Variable operating costs

  • Incorrect vehicles: Gross under utilisation of vehicle payload capacity and vehicles

  • Risk Management: Increasing risk concerning NRTA compliance.

To Rent or Buy?

Some refer to utility fleets as “ancillary fleets” as they perform an ancillary function in moving people, equipment and materials, so this infers that, at best, they can only be considered tools-of-trade and are essentially an overhead expense; rightly so.

Fleet ownership consumes valuable capital and burdens shareholder value by locking up scarce capital in non-revenue earning assets. Yes, if they are on the balance sheet this is certainly true. However the real issue is: Does leasing/renting fleet materially change the situation?  No it doesn’t, it just means that a third party (fleet leasing/rental provider) has the opportunity to get excellent return on assets [vehicles], while retaining ownership of the vehicle to reduce surety risk.

Leasing/renting is now standard practice among Utility Fleet operators, and accepted as one of the quickest ways to reduce the financial burden of funding non-core assets, and therefore treats 'fleet' as an operating expense.

This practice is also used extensively among municipal and State Owned Entities (SOEs), as Government simply doesn’t have the cash resources to own fleets outright, so they are prepared to pay a heavy penalty in exorbitant rental rates.

Think about it, dispensing with a fleet manager gives the vehicle leasing company leeway to benefit from lack of acceptable fleet management capacity. Also bear in mind that leasing companies are considered the 'Title Holders', and not the Operator/Proxy, so responsibility for using the vehicles remains with the lessee.

However instead of leasing/renting fleet - where rates are based on funding short vehicle replacement cycles and extravagant maintenance provisions, including limited usage terms that severely restrict vehicle utilisation to get the job done - it's a better financial proposition to own the fleet and appoint a competent fleet manger.

Let’s hear your views on this critical decision [lease/rent or buy?].

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                                                                         Charles W's Question

How does one overcome the problem of stretching vehicle replacement cycles beyond the vehicle's economic life? I am referring to vehicle availability and roadworthiness.

Hugh's thoughts

Charles, this is a tough one, especially in the absence of a coherent vehicle replacement policy. Low km applications - typical in Utility fleets - makes this an almost impossible task. However absence of life-to-date costing and meaningful fleet analytics obscures the ineffectiveness of replacing vehicles over the parts counter. One also needs a clear and concise VMR policy backed by supervision controlling vehicle abuse.  

James Mc's Thoughts

I agree that Utility fleet management is a tough nut to crack - especially as far a putting your case to company CFOs and accountants who know little or nothing about fleet management, except it's an expensive occupation. It really depends on historical performance and in the way professional fleet managers position themselves with board members.

Hugh's thoughts

James, you are right on the money. Absence of professional fleet management practices over the lengthy economic life of these vehicles and several changes in managers, over say a 10-year economic vehicle life, make it difficult, if not impossible, to present a rational justification to replace aging vehicles. Also, the shock of having to replace a vehicle over this period, when inflation has more than doubled the depreciation, makes it a miracle task.

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Johannesburg, South Africa