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Who is driving your fleet?

CONSTRUCTION QUARTERLY UPDATES  | 

Managing a large commercial fleet in today’s economy is perhaps more challenging than ever. Volatility in fuel prices, new standards for emissions, and increasing pressure on corporate fleet departments to deliver cost reductions combine to make managing costs increasingly difficult.

With 8.6 million trucks registered in the United States1, all eyes are on fuel costs. Volatility in the market means margins get squeezed due to rising costs. In addition to the outright cost of diesel and gasoline, crude oil prices also influence rising costs for related products such as tires, oil, lubricants and plastics. Updating an aging fleet can be costly; however, new emission control requirements mandated by the government and the availability of alternative fuel vehicles can offer higher mpg ratings to help offset the costs.

When evaluating costs on a detailed level, traceability is key. Most large fleet departments typically track their expenses using a common cost center for depreciation, insurance, fuel and lubricants, repair and maintenance costs. In some cases, work order systems within the equipment shop track all costs related to shop labor and benefits as well as all costs related to external and internal repairs for a specific piece of equipment as the work is performed.

Telematics are increasingly providing detailed information on everything from fuel efficiency to driver behavior. Global positioning systems and electronic tracking devices can now be used to monitor routes, log driving time, and plot the most fuel efficient routes. As electronic log systems have emerged to replace paper logs, companies save man-hours in completing or maintaining the logs, reducing log errors and mitigating the potential for fines from the National Transportation Safety Board.           

Having a written fleet policy and enforcing that policy can also help control costs on the front end by curtailing unnecessary spending. At the same time, the policy should ensure that the company can track depreciation and insurance-related costs on each piece of equipment throughout the year. A good historical record of the costs will also enable the fleet manager to make more informed decisions about maintenance versus fleet upgrades.  

(Recent trends suggest that fleet maintenance spending is flat due to improving quality of OEMs and power train warranties). A written fleet policy can also reduce corporate liability exposure on vehicles being used for personal use when not appropriate.

By tracking the actual cost per vehicle, companies can fully evaluate their costs and budgets against their annual capital expenditure costs. Cost-recovery analytics should be monitored and revised quarterly. It is crucial to recover all of the internal costs to avoid unallocated equipment costs at the end of the year that negatively impact gross margin and net income. It may be time to sell older equipment or exchange it for newer, more efficient models that will help generate increased margins.

In addition to monitoring the past and current expenses, it’s increasingly important (and difficult) to forecast fleet costs. Companies who track and monitor these key fleet cost drivers will better position themselves to maximize their profits.

1 http://www.dieselforum.org/social-news/new-technology-clean-diesel-trucks-with-near-zero-emissions-make-up-28-of-all-trucks-on-u-s-highways, June 23, 2013, www.dieselforum.org

Paul Esche, CPA, CCIFP, CCA is a Vice President at Harding Shymanski & Company, P.S.C., Certified Public Accountants and Consultants, a Midwest based regional accounting firm specializing in construction accounting and consulting. For further information, please contact Mr. Esche at pesche@hsccpa.com, (800) 880-7800, or (502) 584-4142.