Owing to the rise of demand for eCommerce logistics, the global logistics market is expected to grow at a CAGR of 6.8% between 2022 and 2030. Whether you are a business that sends goods through road freight or a company that facilitates last mile delivery of your goods by road, you will need an effective strategy to manage your fleet.
In addition to the smaller functions that go into managing a fleet of vehicles, you should also consider the costs associated with managing one. Conducting regular analyses of your fleet, and conducting a cost benefit analysis of fleet management system will give you an overview of the costs and performance associated with each of your vehicles.Â
But what is it, and how do you go about a fleet management cost analysis? Let us look into it in detail.
What is Fleet Management Cost Analysis?
According to a MarketsandMarkets report, the fleet management market is expected to grow at a CAGR of 15% between 2022 and 2027.
If fleet management is one of the core operations in your company, your profitability and return on investments are directly associated with these processes. The costs related to managing your fleet reflect on every aspect of your strategy and you should pay close attention when they increase or decrease.
Even then, one of the most persistent issues that fleet managers today face is a lack of real-time visibility leading to issues with creating and managing budgets. These issues can be traced back to the manual handling of expenses and can include potential inaccuracies in the process. Add to this, the constant pressure on fleet managers to reduce or cut costs wherever possible.
One of the primary advantages of fleet management is the elimination of these issues. By conducting a fleet management analysis, you are effectively analysing expenses at a granular level. You will also be able to forecast unexpected costs or any deviations from your current budget in advance.
What is Included in Fleet Costs?
Before we get any deeper into understanding what is a fleet cost analysis, and how you can go about it, let us jot down the different kinds of costs that can be categorised within fleet costs. When we talk about overall fleet costs, there are several fixed and variable costs that you should consider.
Let us start with the fixed costs that you should be keeping in mind when we talk about your fleet management system. They are:
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Lease/Purchase Payments or Costs: If you are investing your resources into managing a fleet, you probably spend a lot on acquiring vehicles either on lease or complete ownership. Depending on your operation, your purchase or lease payments can account for nearly 10-20% of your fleet management costs.
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Depreciation: The costs associated with depreciation have a lot to do with how well you maintain your vehicle, but a certain percentage of your vehicle’s value will automatically decrease every year. You can subtract the estimated final value from the purchase price, and divide it by the amount of time you expect the vehicle to be operational, to arrive at the depreciation.
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Office Costs: Even if your operations have everything to do with managing fleets, if you have an office, you will need to include the costs associated with it as an operating fleet cost. This will include expenses like utility bills, monthly rent or loan repayment, property taxes, and office supplies and equipment.
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Licenses and Permits: To legally navigate your fleet operations, you and the driver must have the necessary licenses and permits. This can include commercial drivers’ licenses, hazardous material permits, and size and weight permits, among others. Acquiring these permits and licenses has an attached fee that you would need to consider in your fixed costs.
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Vehicle Insurance: To operate a commercial vehicle, drivers need to possess insurance. Doing so protects your vehicle, your driver as well as other drivers on the road. This will most likely be one of the highest costs when you manage a fleet.
Apart from these fixed costs, you will also need to consider the following variable costs in your fleet management and cost analysis. Here are some of the costs that are categorised as variable costs:
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Fuel Costs: Having an ongoing fleet operation means that you will need to consider the costs associated with the fuel required for it to function. Fuel consumption is most likely to be one of the highest variable costs in your fleet management process, and requires a diligent strategy as the fuel costs increase and decrease.
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Fleet Maintenance and Repair: Depending on how much the vehicles in your fleet move around, they will need to be maintained and repaired regularly. This cost is again in your hands because the increase or decrease in these costs is associated with your company’s stance on preventative maintenance.
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Accidents, Tickets, and Fines: Your fleet management system and driver behaviour are more closely associated than you think. Deemed as one of the most unpredictable cost categories, the amount of cost you are likely to incur in this regard depends on your driver’s behaviour. You can keep this cost low by creating driver safety and training programs, and frequently updating them.
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Tolls: Your drivers will need to pay tolls when driving on certain highways or roadways. You can manage this expense effectively by planning the routes proactively and reducing the number of roads with tolls.
How to Conduct a Fleet Management Cost Analysis?
Now that you are familiar with the costs that you are most likely to incur while managing a fleet, you can conduct a fleet management cost analysis. But first, you will need to calculate the total cost of ownership (TCO) and cost per mile to conduct an effective analysis.
Your total cost of ownership is an important metric for you when you are managing a fleet of vehicles. TCO comprises your purchase costs as well as all the fixed and variable operational costs associated with your fleet. You will need to consider your TCO whenever you think of making any investment decisions or want to better understand your expenses.
Ideally, you should be working on a strategy to lower your TCO through your short-term and long-term decisions. Your TCO is likely to keep changing and will affect your bottom line, so it is important to keep an eye on it and have a better understanding of how your business is performing.
To put it simply, this is the equation you should keep in mind when you want to calculate your total cost of ownership.Â
Fixed Costs + Variable Costs = TCO
It is also a good idea to calculate your cost per mile once you have a clear idea of your TCO. Doing so is quite simple — all you need to do is divide the TCO by the total kilometres driven by your vehicle. By rerouting your vehicles and helping them navigate with the help of more optimised routes, you will be able to calculate the cost per mile more effectively.
With the help of these metrics, if you find your fleet management costs to be high, you need to deploy best practices to effectively bring them into control. Let's look at these practices next.
Important KPIs to Consider in Commercial Fleet Management
We are positive that you have a complete understanding of the practical implications of an effectively managed fleet, and cost analysis by now. With that in mind, you should keep a check on keeping your fleet costs low with the help of some important metrics.Â
Here are some of the KPIs that you should consider while improving your operational efficiency and fleet management:
1. Vehicle Uptime/Downtime
One of the first KPIs that you should keep in mind is tracking the uptime and downtime of your vehicle. This metric will help you understand whether you are getting the most out of your fleet. Too much downtime associated with a vehicle may suggest that it is inefficient for the performance of your overall fleet.
2. Vehicle Utilisation Rate
Vehicle utilisation rate is an important KPI to be tracked in fleet management strategies. It is calculated by the difference between the total fleet mileage capacity and the actual mileage in a specific period. Your vehicle utilisation rate also determines your fleet capacity against the logistical requirements and needs of your business.
3. Estimated Times of Arrival (ETAs)
When you are managing a fleet of vehicles, you should also consider the estimated times of arrival and departure of your vehicles. The ETAs will help you get a better understanding of the time your vehicles spend on the road. The goal for you as a fleet manager is to ensure that these ETAs are as efficient as possible and manage the departure and arrival times of each vehicle diligently.
4. Fuel Efficiency
Fuel efficiency is one of the primary parameters that make or break the efficiency and performance of your vehicle. After all, your vehicle’s fuel efficiency suggests just how much of its fuel it is able to convert into energy that then helps it move. In simple terms, your fuel efficiency determines the distance that your vehicle is able to travel on a specific amount of fuel.
5. Fuel Costs/Consumption
When you look at the performance of a specific vehicle in your fleet, you should also consider the costs associated with the fuel required for it. As discussed before, this is an ongoing expense which will weigh down on your operating budget. If you notice that one of your vehicles is consuming much more fuel than normal, it is important to get it checked and repaired so that the overall operational efficiency does not fall.
You must consider these KPIs as well as your total cost of ownership when you are looking to manage your fleet costs effectively. Furthermore, you can also leverage technological advancements such as smart video telematics, advanced analytics, system architecture, advanced location intelligence and even autonomous driving.Â
Your ability to leverage any of these trends depends on your IT infrastructure and the scale of your operations. You can also consider purchasing fleet management software that can help you conduct cost analysis easily in addition to managing other aspects of your fleet operations.
Wrapping Up
Fleet management cost analysis is a necessary process to be conducted by businesses that heavily rely on their fleets for core operations. Fleet costs include a wide range of fixed and variable costs that contribute to the effective management of your fleet. Remember, that the costs associated with your fleet management need to be optimised consistently in order to improve your overall operational efficiency.