Can Truck Drivers Control their T.C.O?

Jul 8, 2018 7:42:37 PM

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It seems bizarre, but almost 89% of companies procuring vehicles for their fleet only consider the initial cost of their lease or purchase (according to several trucking industry publications), maybe reliability, not much more than that. Ongoing costs like depreciation, insurance and running costs such as fuel and maintenance are rarely considered or bothered with.

Enough of us have stories of buying that “deal of a lifetime” used car in college, only to end up on a diet of ramen and ketchup sandwiches because of what we spent the local garage, where it dwelt more than on the road. If we had initially spent more on a car that was not so much a “deal of a lifetime”, over the long run we may have saved cash and ended up with a real deal.

When considering the actual true cost of a vehicle in your fleet, you have to consider much more than the actual acquisition cost, you also have to include associated expenses such as financing, maintenance and repairs, fuel, insurance and depreciation. This actual cost is the Total Cost of Ownership, the T.C.O. It. encompasses all the costs of having that vehicle in your fleet.

Some things to consider for T.C.O.:
  • (Initial) Acquisition Cost of the vehicle & whether it was LEASED or PURCHASED. Surprisingly, it's not necessarily the most important (or largest) cost when considering T.C.O.
  • Financing Costs & Interest
  • Cost of Capital. The opportunity costs of using cash for your purchase (over purchasing something else).
  • Vehicle Maintenance. This increases exponentially over the lifetime of the vehicle. Regular preventative maintenance may keep some level of control over those expenses from rising more than they should and extend the life of your vehicle.
  • Depreciation. The value of the vehicle decreases exponentially as it undergoes wear & tear over it’s lifetime.
  • Rising fuel costs.
  • Increased cost of replacement parts (including tires). As raw material costs go up, so do the costs of replacement parts. Additionally, for some parts they’re starting to be aggregated into more expensive modules, such as with fuel pumps).
  • Increasing repair costs. With vehicles getting more complex, such as the increased amount of electronics and components being in your vehicle, costs have gone up dramatically.
  • Licensing and vehicle administration.
  • Truck/Fleet Insurance. Can typically be as much as $3,000 to $12,000 per vehicle annually depending on a myriad of factors, much beyond the control of the individual driver.

Please note, there’s no real standard for calculating T.C.O., it’s specific to individual fleets which metrics they consider and how much weight they give to each component. Individual fleets can vary in terms of metrics such as economies of scale, size of organization, number of assets, quality of maintenance, type of cargo transported, etc. It’s recommended that fleets compare themselves to similar fleets to see how their T.C.O. ranks.

When considering the cost of your vehicle, one should consider the “true” cost of it, not just the acquisition cost. Obviously, the lower your T.C.O. is (compared to your peers), the better. While some things are fairly controllable such as (initial) acquisition cost of the vehicle, how you finance it and preventative maintenance - other things such as rising costs for repairs, maintenance and fuel aren’t, and they can be a substantial part of your T.C.O.

But wait, how about Truck Insurance? Can we control that?

One factor generally thought as one not easily controlled is truck insurance. Typically, vehicle insurance is based on outdated statistics which may not be reflective of the person driving at all. If it’s fleet insurance, the individual driver is even further removed from the equation, the premiums are based on the entire fleet of vehicles rather than on the individual driver and vehicle.

But it doesn’t have to be that way.

With a User Based Insurance telematics solution such as Drivn, driver’s can regain control over their insurance premiums. Lower insurance premiums means a lower T.C.O.

Drivn allows insurers to base their insurance premiums on actual driver behavior of the individual driver rather than the outdated statistics (and/or fleet behavior) typically used. Insurers can better assess the risk, customers with good driving behaviors can be rewarded with lower premiums in return. Management of the fleet can also monitor and coach drivers with bad driving behaviors using Drivn, helping turn them into better drivers. Drivers are incentivized to be better drivers, rewarded with lower insurance rates.

Drivn is an insurance telematics solution that allows insurers to have better information so they can more accurately assess the risk of covering a driver. Driver’s with good driving habits, being a lower risk, are rewarded with lower premiums. Lower premiums for the driver means that their Total Cost of Ownership goes down.

The end result of using Drivn, is truck drivers being able to gain some control over their T.C.O.

Rob Postuma

Written by Rob Postuma

The one thing I've learned in life, is that your goal in life should be to be happy. Anything else is secondary at best. Weirdly, I find myself happy working in the insurance industry, go figure.

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