Rethinking Asset Life Cycles for Lower Emissions
Originally appeared in Fleet Owner
Alternative-fueled vehicles and new diesel trucks under upcoming emissions standards will require fleets to reconsider TCO. With so many unknowns, and likely cost increases, fleets will need to find cost offsets to protect their bottom line.
Thinking about the cost of equipment and asset life cycles, I went back and looked at the American Transportation Research Institute’s An Analysis of the Operational Cost of Trucking: 2022 Update to get some data. According to the report, in 2012, the average cost per mile of a truck/trailer lease or purchase payment was $0.174. In 2021, that number was $0.279 and accounted for 15% of a fleet’s total average marginal cost of operation.
The trucking industry is facing new EPA emissions regulations slated to take effect in 2027, and those undoubtedly will come with an increased cost to fleets. Then there are all the new near-zero or zero-emission powertrains that are being developed and deployed in the market. When new technology first comes on the market, it usually comes with a hefty price tag. Think back to the price of the first flat-screen television and compare that to what it cost today to get your 60” flat screen.
See also: GOP senators seek to overturn EPA’s new truck emissions standards
The historical asset lifecycle model and equipment financing model may not apply to these new technologies and increased costs.
I am not advocating one way or the other. I do think the decision to extend an asset lifecycle needs to be based on more than the initial purchase price. The total cost of operation (TCO) is what is really important. Older assets tend to cost more to maintain and repair. At least we know that is true for diesel-powered trucks. We don’t really have enough data to know what a three-year-old battery electric vehicle (BEV) will cost to maintain. Manufacturers and other industry experts say BEVs will need less maintenance—as much as 30% less—but today, that is just a guess.
See also: Leasing makes sense for alternative-fueled trucks
We also don’t know what the resale value will be on these alternative-fueled vehicles or, for that matter, how durable they will be. The same is true for the trucks that will be manufactured to meet the 2027 EPA emissions standards. There are a lot of unknowns out there.
We need to re-evaluate our TCO models. With a 60% increase in just the fixed operating cost over the past nine years and more significant cost increases to come, we need to find variable cost offsets to protect our bottom line.
At Corcentric, we stand ready to help any fleet bridge that gap. To learn how we can help, contact Corcentric today.
Patrick Gaskins, Senior Vice President Fleet Solutions, Corcentric
Patrick Gaskins is a financial services professional serving the transportation industry for over 30 years. He began his career with Corcentric in 2010 as VP of Financial Services, was promoted to SVP of Sales and Operations, and is now taking on this new role, where he leads Corcentric’s Captial Equipment Solutions, Fleet Procurement, Supply Management, and Remarketing teams. Patrick brings to the Fleet practice his expertise in developing data-driven solutions to complex transportation transactions, driving efficiencies, and reducing expenses for Corcentric’s clients.