Removing the risk

The majority of the tanker market is made up of small to medium size operators. Historically, these firms have purchased their vehicles outright in order to feel fully in control of their fleet. They were also reassured because they were matching the behaviour of their bigger competitors.

However, those larger fleets are now seriously looking at outsourcing, and this is having a knock-on effect elsewhere. All operators now have to ask themselves, ‘how do we fund our vehicles’?

The move towards outsourcing involves a number of factors, but the most common is the reduction of risk. Tankers, as any operator will know, are fearfully expensive vehicles with an array of equally costly specialist equipment and are subject to intensive legislation. By buying them outright, the operator is opening themselves to severe risk on the residual value of those assets.

This is why a lot of operators are looking towards contract hire. In addition to the fixed monthly costs and off-balance sheet funding (to improve gearing ratios) operators are protected from the volatility of residual values. This also means the capital that would otherwise get tied up in a costly tanker is freed up for use elsewhere in the business.

However, it is dangerous to decide on a contract hire provider just on the basis of these arguments. Operators must determine whether potential vendors have the necessary expertise to support them, which can be accomplished by bearing the following in mind:

Firstly, tankers, more than perhaps any other type of business vehicle, require specialist knowledge. The equipment is expensive, complex and must be tailored for the individual vehicle and the business needs of its operator. Operators should feel confident that they have done the right thing – that there are independent experts available to advise them on vehicle specifications and the relevant legislation.

Secondly, a company new to contract hire needs the right advice on the type of deal best suited to its specific operations. Tankers are generally taken on seven or eight year leases, and there can be significant penalties for early termination. The important thing is to receive effective guidance from the provider on the structure of their agreement, whilst also ensuring there is the flexibility to react to changes within the customer’s business.

Maintenance is another key issue, as any operator with a self-owned tanker fleet will attest. They might start off with an on-site garage, but a successful firm could soon outgrow that sort of facility. Tanker maintenance involves dealing with both the vehicle’s body and accompanying equipment, both of which require specialist attention and legal certification.

The risks of not having an effective maintenance management platform in place are clear. Poorly-maintained vehicles can lead to more breakdowns and thus penalties for late deliveries. On a related note, the tanker sector is one where 24-hour breakdown assistance is critical, as most deliveries are made early in the morning before office hours.
This is why an operator must examine the maintenance package offered by the contract hire provider and ensure that the network has the necessary expertise and knowledge to support the vehicles and covers the right customer locations.

Speaking of which, incident and accident management is another important area. With the risk of breakdowns and the ensuing financial penalties, operators need a network that can manage repairs quickly and effectively. In addition, claims management can help to build up a record of incidents – vital for identifying trends, managing fleet and driver safety and reducing insurance costs.

Operators looking at contract hire can also broaden their focus to consider outsourcing additional areas of fleet management. For example, fuel consumption is important to tanker fleets that operate on an intensive ‘stop start’ delivery schedule. Thus they can benefit from using fuel management services such as route planning and m.p.g. analysis. These will identify high usage areas and reduce fuel costs.
In all these areas, information is the key. Smaller operators have neither the time nor the resources to collate the management information so it is most useful. Fleet management providers, on the other hand, should be able to do just that.

Tankers carry a lot of risk, both financial and operational. Whether a firm has one of them or thirty, the opportunity to minimise that risk is one that many operators have seized upon. However, they also need the right supplier.