Keeping a firm grip on transport

The Head of Sales and Marketing at commercial vehicle specialists Artegy, looks at the transport needs of utilities and how they can run their vehicle fleets more efficiently.

The utilities sector has a lot on its plate at the moment. Competition concerns as well as oversight from regulators have resulted in a great deal of downward pressure on prices. Businesses involved in every area of the industry, from gas and electricity to waste disposal, are looking hard at ways to improve their bottom line.

As with companies in most other markets, a large percentage of any utility’s cost base consists of transport costs. All utilities need a wide variety of vehicles and that means an equally wide variety of expense and potential risk.

In addition to the cost of the vehicles themselves, which can run into the hundreds of thousands of pounds, a fleet requires a funding solution in line with business needs, plus constant vehicle maintenance. In addition damaged vans and trucks require repair, fuel costs must be managed and finally vehicles have to be sold on, requiring expert knowledge of the volatile residual values market.

Ensuring transparency

One of the main problems specific to the utility sector is ensuring maximum visibility of transport costs. When dealing with front-end expenses – specifying and building vehicles – utilities are often somewhat isolated from the remainder of the commercial marketplace. This is because unlike an ordinary business, which is able to constantly benchmark itself against its competitors, utilities are often isolated from the marketplace by suppliers (though not always) and often the only organisation providing a particular service in a particular area.

The difficulty in benchmarking becomes even more evident because of the highly specialist nature of the vehicles that utilities need. Although the majority of a utility fleet is generally composed of fairly traditional vans and trucks, around 30% tends to be highly specialised – tankers, lifting platforms, Unimogs, etc. With such vehicles every area of cost, from build and maintenance to upkeep and resale, brings with it a potentially severe financial risk.

Utilities need to analyse the whole life cost of their fleet and ensure that the manufacturers provide full information on the vehicles they provide (although with specialist trucks this can again be more difficult). Only then can they be certain that they are keeping their costs down.

What should a utility company do?

The key to reducing fleet expenditure is to focus on whole life costs rather than vehicles’ purchase prices. Issues to consider include vehicle reliability, operating costs and the availability of maintenance. There is no point buying cheap trucks if they are only going to be available 50% of the time due to poor build quality or a lack of proper upkeep. For utilities, as with any business that runs vans and trucks, unnecessary downtime can be lethal – especially on the more specialist vehicles within the fleet.

The truck market is a complex one with a high capital expenditure, so the focus of attention should be how fleets are funded. A favoured method is to obtain the vehicles through contract hire via a specialist outsourced provider. Contract hire does offer a number of advantages, ranging from its financial robustness (off balance sheet qualification leading to discounted cash flow) to ease of budgeting because payments are predetermined.

But probably the main benefit associated with contract hire is the transfer of risk. The leasing company has to take on the financial risk associated with the build, upkeep and resale of all supplied vehicles, so the utility company is protected from the volatile second-hand market. A waste disposal firm will be happy to operate a specialist waste truck but probably has no desire to have to hunt down a good price for it when its useful life is over.

Vehicle maintenance

Some utilities have in-house facilities for the service, maintenance and repair of their fleets. However, those that retain garages often find that they are forced to deal with highly unionised establishments for an activity that is, fundamentally, not core to their business.

That is why there is an increasing trend towards outsourcing this function, even for those companies that own their fleets rather than taking them on contract hire. Local facilities, such as garages, manufacturer sites and dealerships, are able to offer services that many in-house workshops cannot match and that most utilities would find far too expensive to install, such as out of hours servicing.

Again, the highly specialised nature of a utility’s operations can work against it, as the maintenance of customised and specialist vehicles (and, these days, even ‘standard’ commercial vehicles too) requires sophisticated technology such as engine diagnostic equipment and the tools needed to service in-cab technology and telematics. Generally, only dedicated external facilities will have access to this equipment.

Poor maintenance leads to increased downtime, which in turns leads to utility companies running more vehicles than they need to simply to take up the slack. We have found that utility fleets with in-house workshops rather than outsourced service networks will generally have 15-20% more vehicles than they need, simply because they cannot otherwise have enough vans and trucks on the road to cover their commitments. Running a more efficient maintenance department will solve this problem. A company can then reduce the size of its fleet to more manageable levels and make real cost savings.

Transport policy

Most companies with commercial vehicle fleets, such as delivery and construction firms, have seen the benefits of an integrated transport policy. It is a major cost to be managed, so by giving it strategic importance the right decisions can be made from the beginning.

Utilities should be looking to develop similar policies, carefully planning and implementing a transport strategy rather than just reacting on a case-by-case basis. The fact that many face severe restrictions on their capital expenditure only serves to underline the necessity of planning and the importance of alternative funding solutions.

The industry needs to take a step back and look at the fleet as an integral part of the business model. Vehicles might not be a utility’s core business, but they are what make that core business possible.