2018: A Year of Increasing Profits & Costs
According to a recent survey from Bibby Financial Services, 2018 was one of the best years in history for medium to large-sized fleets. 52% of respondents claimed to have experienced growth in the past year and one-third expected to increase revenue by 11-25% over the next two years. However, running a fleet doesn’t come without its challenges. 68% of respondents confirmed that one of their greatest struggles is keeping up with increasing costs, such as fuel, maintenance, and vehicle insurance.
Increasing costs pose an even more significant challenge for small fleets that don’t have the same budget or resources. The majority of small fleets don’t even make it to their fifth vehicle and end up losing contracts to competitors due to prices. Larger fleets with economies of scale have a competitive advantage over smaller fleets because they’re able to deliver the same services much cheaper. This comes as bad news to both new businesses and the consumer, as the elimination of the competition results in fewer options, and eventually monopolies.
Due to the recent shortage of drivers plaguing the fleet industry, companies have had to raise rates and also make conditions more favorable to entice new drivers. This has benefited significant carriers, as they have been able to negotiate new contracts with clients and pass the cost on to the consumer. For smaller fleets, on the other hand, increasing rates can often be a death sentence. When just getting started, younger fleets generally depend on lower pricing to secure new contracts and grow their customer base. With larger fleets offering more money for the same job, worker wages and the overall cost of operation have gone up, cutting into their profits.
Small Fleets At Risk – Top Challenges
So what are the main challenges facing these smaller fleets? When asked about their top challenges as a business, fleets with less than five vehicles cited increasing costs of doing business (71%), competitors offering unsustainable prices (52%), government regulations (52%), and finding qualified drivers (51%).
One of the most significant hidden costs is the cost of replacing a driver when they leave the job. 32% of fleets had no idea how much it cost them to lose a driver, and 16% didn’t answer the question. For those that did know the cost, 14% said it cost them over $100,000, and 11% said it cost them between $20,000 and $50,000. For all respondents, regardless of fleet size, the biggest challenges were insurance (79%), fuel (78%), maintenance (67%), and vehicle purchasing/leasing (58%).
An interesting fact to note is that midsize and large fleets see small fleets as one of the top threats to their profit margins. 52% of fleet transportation companies saw new and emerging companies as a source of competition and loss of contracts. 66% felt that unsustainable prices from smaller businesses were causing them to lose contracts. Due to lower rates from these new entrants into the market, over half of customers (55%) requested a price reduction in the last year.
Both large and small fleets see each other as the greatest threat to their profitability and ability to maintain contracts with their clients. High competition between all sizes of fleets is lowering prices across the board into ranges that are unsustainable. Customers are benefiting the most from this competition between fleets, but unsustainable prices could lead to many fleets going out of business. Rising fuel, insurance, and maintenance costs plus greater wage demands from drivers could cause small businesses to go broke in an attempt to compete with larger fleets.
Regardless of the size of your fleet, if you’re looking to reduce operational costs and keep your drivers safer on the road, check out our page for more information.