Fleet Cost Management

Kerry, thanks for your question. It’s a good one! Of course, you know your business and clients better than anyone, but here’s our take on what you can do about the fuel surcharge situation:

Any company needs to establish the minimal margin it would accept from the sale of its products or services. If the cost of fuel increases your operating expenses to exceed the threshold so that you can’t maintain the minimum acceptable margin, you should levy a fuel charge to alleviate the situation.

However, the surcharge should be on a graduated scale based on fuel prices. To limit volatility and reaction to daily market fluctuations – and most likely increase customer dissatisfaction – you should consider adjustments to the surcharge on a monthly, or perhaps a quarterly, basis. If you choose to write the surcharge into your contracts, you could base it on the difference between actual prices and some baseline price (your budgeted price per gallon).

The monthly averages reported by the US Department of Energy at http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_m.htm would be a good "neutral" measurement.

Know how to determine the impact of fuel price changes on your costs. For instance, how would a twenty-five-cent price change at the pump impact your costs? Divide 25 by your fleet average fuel economy to get the change in your fuel costs per mile: 2.5 cents per mile for a 10 mpg fleet; 1.0 cents per mile for a 25 mpg fleet. Multiply by your delivery mileage and you get your added costs for the higher price of fuel.

In terms of your company vehicle programs to reduce fuel expenses, here are our recommendations:

• Track your spending through a fleet card that provides you detailed information on the amount of fuel being purchased per unit and the driver purchasing the fuel. By tracking this spend you can focus on eliminating premium fuel and non-fuel purchases.
• Consider limiting personal use and weekend use, or charging a fee for employees for personal use.
• Evaluate options for cycling into more fuel efficient vehicles.
• Consider installing onboard devices for optimizing routes for field managers.

Also, we recommend using an incentive/award program for rewarding drivers who save fuel and have the highest mpg. Report on the winners, so that visibility for this effort is high among your other employees.

Since your sales and executive managers have a vehicle allowance rather than a company-provided vehicle, use cents per mile reimbursement from the use of a high mpg vehicle to incent these employees to cycle into lower mpg vehicles.

Finally, another great idea is to consider “going green” as a corporate initiative focused on reducing emissions and making the company carbon neutral. This would involve measuring your current rate of emissions and instituting some changes – in vehicle selection, driver behaviors, and more – to reduce those emissions. In addition to being a good corporate citizen by reducing your carbon footprint, you’ll also be using less fuel – and saving on operating costs.

Whether you have on-site maintenance facilities or outsource to a maintenance provider, there are a number of things you can do to control your maintenance costs. PHH recommends that an effective truck maintenance program incorporate the following elements:

• The ability to track all your maintenance expenses and get a baseline of your overall maintenance costs. It’s hard to control what you don’t know about.


• A network of service providers that’s convenient for you and your drivers


• Proactive preventive maintenance


• If an outside facility is being used, the ability to monitor the repair to ensure that unnecessary work is not being done, and all warranties are utilized.


• An efficient way to manage roadside breakdowns.


• The ability to work with your vendors for preferred pricing


• A solution for rental needs, in case of major maintenance/breakdown


• The ability to manage every type of maintenance issue – from small repairs to major overhauls


Each of these elements has an impact on maintenance costs, and the better you (or your fleet supplier) can manage these, the lower your maintenance costs will be. We also recommend that your fleet maintenance program be prepared to manage DOT non-compliance issues; if any of these are not handled properly, your whole operation could be shut down – and that’s pretty costly!