Variable fleet costs: what escapes the budget

Variable fleet costs represent only part of the total company budget. That is why you need to know the transport management processes very well in order to reduce spending.

This management shows that, for each activity, there are variable and fixed costs. In fact, in many cases, there are costs that generate frightening amounts for managers and owners of transport companies, making the goal of cost reduction one of the most popular in the field.

Lowering these expenses is something companies have in common for a simple reason:

The less a business spends on logistics processes, the more competitive and stable it becomes in the market.

So, let's take a look at:

What are variable fleet costs?

As the name suggests, variable fleet costs are linked to expenses that change according to the operation's level of activity. In general, the cost per unit may stay similar, but the total rises or falls when the fleet runs more or less.

They include amounts directed to:

• Fuel and lubricant: Depending on the route, the mileage driven, the condition of the vehicle and the driving, fuel and lubricant costs can become higher.
• Purchasing and retreading tires: When the tire wears out, the best option is to buy new tires or retread them to avoid accidents and fines. When proper management is not carried out, purchases are more frequent, making spending excessive.
• Fleet maintenance: Through preventive maintenance, costs become somewhat more stable. It is also through it that you can avoid premature loss of the vehicle and improve the conservation of its parts, reducing the time vehicles sit idle in the workshop waiting for repair — which has higher and less predictable costs.
• Replacing or repairing parts: Ideally, the manager should plan to maintain an inventory of parts, especially those most likely to need replacement or repair. This avoids surprise costs over time. But, in any case, when purchases and corrective services are needed, costs vary according to the problem to be solved.
• Cargo losses and misplacement: The cost of covering losses and misplacement can vary if the company does not resort to process automation.
• Fines: The way the driver drives the vehicle can result in fines, something over which there is no full control. In fact, fine amounts can be higher or lower depending on the severity of the situation. For example, in Brazil, speeding by up to 20% costs less than driving 40% above the speed indicated for the highway.
• Bonuses and/or incentives: Salary bonuses and incentives are a way to generate more productivity, but they are not constant every month. In some months, you may have 5 drivers meeting fuel savings goals and receiving bonuses; in another, you may have only 1, and so on.
• Loss events: Loss events can refer to traffic accidents, theft or other unforeseen situations. They should be considered in variable fleet costs.

Why do you need to know these costs?

Did you know that fuel can account for about 30% of a fleet's costs? It is also a classic example of a variable cost, since the amounts change constantly.

In addition, variable costs are directly linked to the vehicles' level of activity:

The more kilometers they run, the more fuel, repairs and maintenance they require.

Often, for example, drivers leave the vehicle idling for longer than necessary, thinking they are saving or out of operational habit. However, idling wastes fuel and increases engine wear, which turns an apparently small practice into a recurring cost for the fleet.

Coasting in neutral, on the other hand, should be treated separately in driver guidance, because it is not the same as leaving the vehicle stopped or waiting with the engine running. That is why it is not advisable to put coasting in neutral and idling in the same explanation, nor to guide the team as if they were the same practice.

That is why knowing the items within these costs in more depth and applying fleet management with efficient control helps reduce spending. Likewise, making drivers aware of their driving practices and the consequences they generate is something important to include in your management with a view to fleet savings.

These conclusions and decisions on actions to implement in management only become possible once you understand how your entire operation works. That way, you identify the problems and the most suitable solutions for each stage.

How do you keep variable fleet costs under control?

With smart decisions, it is possible to cut expenses that can generate losses in your fleet management. However, you only know how much you need to save and how to gain greater control over variable costs by gathering information and identifying the pain points of your management.

That way, you know exactly what you need to look for — whether a management model based on kanban, a method for driver control or a technology system for fleet management.

Even so, we have put together some ideas that can contribute to your planning:

Less-than-truckload shipping

By implementing less-than-truckload shipping, the company pays for freight in proportion to the space the shipment takes up in the truck's compartment.

This strategy is more attractive and advantageous than covering the entire cost of transport.

Preventive maintenance

Preventive maintenance reduces the occurrence of incidents and wear of parts, avoiding risky situations for the driver and the cargo.

By keeping your vehicles' services and maintenance up to date, you considerably reduce spending on emergency fixes and repairs. A comprehensive maintenance strategy also helps managers and drivers keep vehicles running efficiently.

In addition, you already know, on average, how much it costs to maintain a prevention routine. By contrast, you do not have the same visibility for corrective maintenance — which is more expensive, in most cases.

Route planning

Route planning evaluates the shortest route and offers good infrastructure conditions, increasing the vehicle's durability.

What is more, this process can reduce your business's operating costs, since it provides organization and optimization of deliveries. Route planning can also reduce the distance traveled, the number of stops and the time spent in traffic, points that influence the vehicle's efficiency.

Technology tools

Implementing management software allows greater control of inventory, controlling the levels of losses and misplacement. Likewise, process automation is a great ally for fleet productivity.

The tools can be geared toward business or administrative management, or focused on the operational processes themselves. Generally, the latter is what brings the most noticeable results.

Some examples are the tire management system, the fleet inspection checklist and the route planner itself, as we mentioned above.

How do you calculate variable fleet costs?

Since these are expenses that are harder to include in the expense forecast, one way to arrive at an approximate number is to add up the kilometers traveled. From it, it is possible to generate an average expense per km for each vehicle in the operation.

To do this, you need to find out:

• The cost of fuel per kilometer driven;
• The annual maintenance cost per kilometer traveled;
• The cost of tires and repairs per kilometer.

These costs should be calculated for each vehicle that makes up your fleet. That way, you know which truck spends the most. Then you make decisions based on the reality of your operation, which bring feasible and concrete results.
So, did you like the tips? Download our free guide to fuel savings and make your management even more efficient and economical — click here to start your download (in Portuguese).