With crude oil prices at recent historic lows – and no bounce back in sight – many oil and gas transportation and logistics companies spent the first quarter making or planning the first wave of cuts to their operating expenses.
Continued volatility, for many, now calls for even deeper cuts. And for many, those cuts could include fleet operations.
But first, oil and gas executives must ask what place the fleet itself plays in costs – and what benefit cuts would produce.
How can an organization make sustainable, long-term cuts, without jeopardizing fleet uptime, performance or production? For organizations debating whether fleet ownership or leasing is the best solution, the simplest measure is to know the total cost of ownership (TCO) of a fleet.
Truth is, many shippers don’t know their fleet TCO. A thorough analysis of TCO related to vehicle age, maintenance, financing, and administrative costs, however, often can yield at least 15 percent in preliminary savings.
To gain a better understanding of TCO, ask these five questions:
- How much does an aging fleet cost the organization in maintenance, repair, or holding costs? Many organizations have little to no idea how much is being spent on fleet upkeep. In tough times, owners hold vehicles longer. As fleets age, maintenance costs often rise, as do cost associated with diminished fuel efficiency, and downtime stemming from breakdowns. What’s worse, the severe duty conditions of the oil and gas sector often spur more need for maintenance, and breakdowns only exacerbate cost factors, especially when they bring production to a halt.
- What does the purchase price cost the organization? Buying vehicles costs more than the sticker price alone. Buyers lose out on financing costs and interest paid; taxes and licensing fees; even opportunity costs lost through money tied up in vehicles. Then, at the end of the vehicle’s life, companies face lower sales prices as well as vehicle disposal and salvage fees. Moreover, as some organizations try to reduce their fleet assets during down times, they discover a market awash in surplus equipment jettisoned by others, further driving costs down.
- How much do incidentals cost? Throughout the life of the vehicle, costs add up. They can include maintenance, repairs, roadside service agreements, costs of administrative personnel needed to manage fleets, and even expenses related to driver recruitment, onboarding, and training.
- What does technology cost? Installing the latest technology on an aging fleet is a pricy, often ill-advised proposition. Yet it cannot be overlooked. With regulators increasingly requiring new technology, fleet owners must consider the cost of keeping vehicle technology on the leading edge.
- Can you do the math? Even the most sophisticated organizations have difficultly isolating vehicle costs or performing an objective and comprehensive assessment of the costs related to an owned or aging fleet.
By exploring fleet ownership TCO, organizations can weigh the value of leasing – or even renting – as an alternative to ownership. Whether replacing an entire fleet or just select vehicles with a lease option, organizations gain more cost predictability. Costs related to maintenance and repairs are eliminated or significantly reduced. With no money tied up in vehicle ownership, opportunity costs are transformed into financial agility.
To be sure, few oil and gas companies want to make any long-term contractual commitments during uncertain times. Yet, as they face the need to make tough cuts, they must gain a better understanding of the value each cut may produce.
By partnering with an asset-based 3PL, with deep expertise in fleet management solutions, organizations can uncover the costs and make the smart decisions. Along with predictable costs, a 3PL like Ryder can not only right-size your lease fleet, but also provide a rental fleet to enable flex capacity during peak times. From calculating the costs of maintenance and repairs, to assisting with leasing new vehicles, to handling vehicle disposition at the conclusion of the lease, many of the line items related to TCO are simply removed from the equation.
For a free Total Cost of Fleet Ownership fact sheet, click here.
Authored by Mike Mason
Mike is Vice President – Enterprise National Sales, Ryder System, Inc., and has worked in the transportation industry for 35 years. He began his career as a Business Development Manager. Over the years, he’s helped develop many of Ryder’s core programs and now heads the company’s Full Service Lease and Contract Maintenance offerings for the oil & gas industry.