Logistics Companies Take a Distinctive Approach to Lessen Truck Order Backlog

Truck attainment has been the foremost challenge for those that rely on trucking across many industries, including manufacturing, construction, retail and logistics.

Brian Holland

Truck attainment has been the foremost challenge for those that rely on trucking across many industries, including manufacturing, construction, retail and logistics. This challenge has been emphasized by the backlog of orders for Class-8 heavy-duty trucks, largely from an American Economy that has been healthy and robust ever since the Great Recession ended in 2010 and dated industry ideals toward truck attainment which is now changing.

Class-8 truck orders and sales continued at a healthy pace through the majority of 2018, as many companies saw the need to upgrade into newer equipment or add to their equipment to handle the increased demand in shipping goods via the nation's economic activity. According to ACT Research, Class-8 net orders calculated 506,300 units at the end of November, the second-strongest 12-month order period in history, straggling only the 12-month period ending October.

Monthly orders (28,082) still overtake the number of units being assembled (27,973) as of November, and while this crack is narrowing it continues to show astronomical demand for new trucks.

Especially for logistic, oil and gas brands, these organizations will continue to feel the effects of an order backlog into 2019 if they continue their asset acquirement strategy based on functional obsolescence as opposed to economic obsolescence. Establishments that shorten their asset management lifecycles based on an adaptable lease model will be able to plan their surrogates better and thus avoid the agony associated with the current backlog.

The frenzied economy means that more companies are shipping materials to job sites or commodities across the country; more businesses are in need of re-stocking shelves and inventory; more consumers need goods ordered online and thus the transport of those shipments; and as a result, trucks are working strenuously.

Trucks and transportation have been the lifeblood of this economic machine.

Replacement and truck attainment strategies that help the economy stay active need to be sensibly considered, particularly as we begin 2019 when companies take a closer look at their bottom line.

The long-standing business philosophy was for organizations to make purchase orders of trucks en masse, while driving them for anywhere between five and ten years of service, or even longer, as a way to squeeze every penny out of the truck’s usage. However, data and analytics are proving this model to be costly and ineffective. Instead, private fleets and for-hire carriers are realizing they can achieve more savings on the truck’s overall impact to the bottom line, as well as maintenance & repair (M&R) - the highest variable and volatile cost of a fleet operation by moving to a shorter lifecycle.

When logistics companies drive their trucks as long as possible, they run on functional obsolescence - making evaluations based on the truck’s capability to stay on the road. In most cases, when firms let the truck dictate the timetable for replacement, firms are left scrambling to order a new truck based off limited planning cycles. Today’s backlog of truck orders is a result of this, as the multiplier effect of many transportation companies and this attitude have caught up to them.

Instead, today’s leading companies are taking a distinctive approach.

Organizations are now paying closer attention to a truck’s individual TIPPINGPOINT, the point at which it costs more to operate a truck than it does to replace it with a newer model. Features such as the cost of fuel, utilization, finance costs, and M&R, are all factored into arriving at each truck’s unique TIPPINGPOINT, giving fleet operations personnel and finance departments a closer look based on data and analytics into determining and calculating the optimum time to replace an aging truck.

For example, a recent analysis of long-term ownership versus shorter lifecycle management demonstrates a noteworthy cost savings over time. A fleet that opted for a four-year lease model on a truck would save almost $27,893 per truck in comparison to a seven-year ownership model because of the factors such as fuel, utilization, financing, and M&R. The shorter lease model is also cost-effective when related to just a four-year ownership model, showing average savings of $12,710.

This approach offers flexibility to adjust to changing markets, reducing operational costs while promoting a positive corporate image, driver recruitment and preservation efforts by continuously upgrading to newer trucks. Companies are leveraging data analytics and wide-ranging fleet studies that produce a fleet modernization and utilization plan, projecting when aging equipment will need to be replaced. This is effective with today’s fluctuating demand and the current booming economy as companies trying to obtain equipment exclusively based on demand are faced with equipment shortages and long lead times.

Just as important, recent variations to the corporate tax rate, as well as new accounting standards, have made it more appealing to lease equipment. With these changes, at least in the case of truck acquisition, purchase of equipment remains higher compared with shorter-term leasing of the equipment. What’s more, leasing remains the desired method for companies regardless if they have a stronger or weaker balance sheet. In addition, leasing also allows companies to elude the hazard of residual value and the expense of remarketing.   

By adopting this new mentality of shorter truck lifecycles, industry organizations and transportation firms will become better equipped at exchanging their aging truck fleets in a more cost-efficient manner as 2019 goes on.