As the unpredictable economy of 2021 makes its way to the end of the first quarter, businesses are encountering uneven patterns of equipment investment, depending on the market sectors they happen to be serving.
Based on the Equipment Lease Finance Foundation’s U.S. Equipment & Software Investment Momentum Monitor, many vertical sectors are experiencing weak momentum, after the COVID-19 pandemic put an abrupt halt to investment during the first half of 2020.
Vertical segments that are most affected by a halt in consumer mobility, especially aircraft, are likely to remain noticeably weak. Others have the capability for a stronger resurgence, including Class 8 tractors and medical and other industrial equipment.
The recovery of transportation fleets is a direct result of reopening plans, which depend heavily on transport and will therefore result in more mileage being put on trucks on the road today. Because of this, truck replacement and acquisition strategies will significantly increase in 2021.
Such activity has already begun, with recent data showing that North American Class 8 orders in December reached their fourth-highest volume ever, exceeding 50,000 for the second consecutive month, according to ACT Research.
Transportation fleets are increasing the miles they put on their trucks because of the rise in shipments of essential goods such as grocery, health and sanitation products, in addition to other everyday products now being purchased through online channels. Spending on Amazon.com during its two-day Prime Day event rose 36% in the U.S. in comparison with the year before, according to research firm Edison Trends. Before the event, eMarketer calculated that Amazon’s U.S. Prime Day sales would reach $6.17 billion.
Trucks are also expected to play a prominent role in the transportation of COVID-19 medicines in the coming months. Pfizer, one of the major vaccine manufacturers, has formed a staging ground with 350 large freezers ready to serve the transportation of up to 100 million doses of vaccines initially, and another 1.3 billion in 2021.
With so much urgency surrounding the replacement of older trucks with more efficient models, business owners and fleet operators face key decisions on how to construct the financing of those renewal units in 2021.
Organizations today are quicker to scrutinize the impact of higher operating costs, including fuel, maintenance and repair, on their transportation bottom line. Even taking the price of diesel out of the equation, more businesses are motivated to shorten the life expectancy of existing trucks in order to benefit from newer units, which provide better fuel efficiency and lower total cost of ownership (TCO). An up-to-date analysis of truck life expectancy data shows that replacing a 2016 sleeper truck with a 2021 model generates first-year per-truck TCO savings of $16,856. Fuel savings alone amount to $5,084 per vehicle.
Fleet operators consider it essential to find every opportunity to keep costs down. United Parcel Service Inc. recently disclosed that while it’s delivering more packages due to increased online shopping caused by COVID-19, its cost to deliver has risen as well. The company noted a third-quarter rise in income of nearly 16%, and 11.8% in profit, but its domestic business also reported a decrease in net profit due to more hiring, delivery costs, and $179 million in spending to rev up delivery times.
Companies focusing on grocery distribution had an especially successful year in 2020, but many other types of transporters faced severe challenges to their fleet operations and bottom line. There were forced to cut back their fleets because of the plunge in business activity. That was the case for more a quarter of executives responding to a recent industry survey by Fleet Advantage.
Carriers will continue to right-size fleet operations in 2021, while pursuing truck procurement strategies that position them for eventual recovery of the economy.
Katerina Jones is senior director of marketing and business development at Fleet Advantage.
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