UAE experts discuss rising fuel costs and TCO for Middle East fleets
Reducing the total cost of ownership can cut costs for the region's fleet operators, such as contractors
Total cost of ownership (TCO) is always on top of the mind of fleet owners and operators because it affects their net profits, but to understand how it can be managed, it is important to know its true meaning.
As a financial estimate, TCO can be broken down into fixed costs such as financing, purchase, registration, insurance, value-added tax (VAT), depreciation, and driver salaries, plus operating costs, such as fuel, tyres, lubricants and greases, maintenance, repair, and driving training. Fleet operators will only be able to calculate TCO accurately if they have a comprehensive view of all the costs that appear and accumulate during the uptime and downtime of their vehicles — but this is easier said than done. Hidden costs tend to creep in due to downtime or driver behaviour, both of which cannot be projected accurately. Furthermore, there are other factors beyond the control of fleet operators, such as fuel price volatility, taxes, emission regulations, road bans, fees for permits, as well as fees for site access certification.
To explore such pain points of fleet operators in the Middle East and ascertain how manufacturers and dealers in the commercial vehicle business are addressing such concerns, Construction Week’s sister title PMV Middle East hosted a roundtable in October 2018 with Goodyear Middle East, Swaidan Trading Company, and Tristar Group.
Having established that it’s becoming expensive to operate fleets in the region, the participants shared their views on how to counter the increasing costs through fleet optimisation, choice of vehicles and parts, and driver training.
As a reference point, the discussion was centred on the immediate concerns of UAE-based integrated liquid logistics solutions provider Tristar Group, which has a fleet of 1,500 trucks offering fuel transport services.
Tristar’s suppliers and customers vouch that the company is one of the most organised fleet operators in the UAE. As road transport of petroleum products is a key vertical for the company, Tristar follows international best practices in vehicle and driver management. The company monitors fuel consumption closely on its trucks when they’re running or idling with the help of advanced telematics. Furthermore, about 60% of Tristar’s fleet is below the age of five years.
Still, Tristar faces a pressing problem. The price of diesel in the UAE in October 2018 was $0.7 (AED2.7) per litre, the highest it has been in recent years. This has had a significant impact on the company’s operating costs because fuel comprises almost 30% of its freight costs.
Shivananda Baikady, general manager of road transport and warehousing at Tristar Group said: “We estimate the price of diesel to increase to AED3 per litre during 2019. We are forced to absorb this increase in cost because we generally sign fixed-price contracts for four-to-five years. It could take at least six months to negotiate with customers and convince them to share the burden of increase in fuel price. To counter this effect, we face the challenge of optimising the fuel consumption of our existing fleet, adopting more efficient processes and improving driver behaviour.”
Director of truck PBU-emerging markets at Goodyear, Kerry Watts, concurs that fuel cost has become a major concern for fleet operators. He suggested that one of the easiest ways to minimise fuel consumption and TCO is through the appropriate selection and maintenance of vehicle tyres.
Watts reasoned that vehicle manufacturers will always face limitations in reducing the weight of vehicles and improving aerodynamics and engines while trying to maintain high levels of performance and fuel economy. As a result, there may always be a trade-off between vehicle performance and fuel efficiency. Despite the fact that it’s difficult to make tyres both lighter and tougher, tyres can be improved at a faster rate than vehicle bodies and engines.
“The costs of consumables, which keep a vehicle moving, are affecting the TCO more than ever before. Depending on the type of fleet, tyres could comprise 15% of the operating costs. If the fuel and maintenance costs related to tyre usage are included, then the costs could increase to 50–55% of the TCO. As a tyre manufacturer, fuel consumption plays a major role in driving our product development. We constantly face the challenge of connecting tyre management technologies and processes to fuel savings, irrespective of the business models adopted by fleet operators. We are in a position where we need to work closely with vehicle manufacturers and fleet operators to realise the common goals of enhancing fuel efficiency and reducing C02 emissions,” says Watts.
Watts explained how Goodyear worked to develop a product specifically for the Middle East in response to concerns about increase in fuel costs due to harsh operating conditions.
In 2018, the company launched a truck tyre range called KMax Extreme, engineered for use in conditions of extreme heat. The tyres are suited to trucks travelling across long distances in multiple loading conditions that are primarily running on roads where long-term resistance to heat is the main performance factor.
Fuel prices, which have both macroeconomic and microeconomic implications, will always be factored in the operating costs of fleets, unlike downtime costs or non-revenue time (NRT), which often is not identified or calculated accurately. NRT occurs due to vehicle breakdown, maintenance, delays, road bans, et cetera. In the case of Tristar, this hidden cost constitutes 12.5% of the company’s TCO.
Baikady is more concerned about hidden costs related to driver behaviour that contribute to NRT. He pointed out that while initial driver training by original equipment manufacturers is beneficial, driver attitude and behaviour and more crucial to fleet operations in the long run. An accident due to poor attitude or behaviour can translate into huge losses for a transporter.
“We face situations where it’s difficult for us to inspect vehicles assigned to continuous, long-haul trips. In such cases, we have to depend on the driver to conduct routine checks. That’s why we invest in regular driver training as well as systems to monitor driver behaviour in order to ensure the safety of the driver and vehicle. We’ve installed driver fatigue monitoring systems on trucks to help prevent accidents due to drowsiness and other distractions. Furthermore, we employ journey management plans to ensure that all our routes are assessed for all types of risks. We try to minimise NRT through these systems and processes,” said Baikady.
“What has changed during the past few years is that the factors affecting TCO have increased, and only the most experienced fleet operators account for costs such as NRT and understand that their biggest loss is an opportunity cost of not being able to earn money during vehicle downtime,” added Watts.
When related to tyres, NRT occurs largely due to tyre failure, either due to external factors such as sharp objects or internal factors related to tyre maintenance. Internal factors such under-inflation are responsible for the majority of tyre failures. An under-inflated tyre causes excessive heat build-up in the tyre and results in tyre wear, greater fuel consumption and higher costs.
Baikady indicated that tyre manufacturers and dealers could play a larger role in helping fleet operators minimise NRT. His wish list for all of Tristar’s suppliers included delivering more fuel-efficient vehicles, decreasing the response time for maintenance, and offering a centralised platform that can integrate telematics systems from different vendors and allow data management on a user-friendly interface.
With regard to tyres specifically, he envisioned using self-inflating tyres and a system to automatically track the distance covered by each tyre and the time when a tyre is installed and removed from a vehicle to help minimise costs.
“The most important requirement of all”, Baikady said, “is that suppliers should promise results only if they’re applicable to real-world conditions instead of advertising the results from tests performed under ideal conditions.”
This article was originally published by Construction Week's sister title, PMV Middle East. Read the full article, and other insights from the Middle East's plant, machinery, and vehicles sector here.