PMV Roundtable: Total cost of ownership and the pain points of fleet operators in the Middle East
PMV Middle East brings Tristar Group, Swaidan Trading Company and Goodyear Middle East & Africa together to discuss the pain points of fleet operators in the Middle East and how manufacturers and dealers in the commercial vehicle business are addressing their concerns
Total Cost of Ownership (TCO) is always on top of the minds of fleet owners and operators because it affects their net profits. As a financial estimate, TCO can be broken down into fixed costs such as financing, purchase, registration, insurance, VAT, depreciation, and driver salaries, and operating costs such as fuel, tyres, lubricants and greases, maintenance, repair, and driving training. Fleet operators will be able to calculate TCO accurately only if they have a comprehensive view of all the costs that appear and accumulate during the uptime and downtime of their vehicles. 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 prices, taxes, emission regulations, road bans, fees for permits and certifications for access to sites.
To explore such pain points of fleet operators in the Middle East and find out how manufacturers and dealers in the commercial vehicle business are addressing their concerns, PMV Middle East organized a roundtable in October 2018 in collaboration 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 1500 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 very 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.
Tristar faces a pressing problem currently. The price of diesel in the UAE in October 2018 was 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-road transport and warehousing, Tristar Group
Shivananda Baikady, general manager-road transport and warehousing, Tristar Group, says: “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 4–5 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.”
Kerry Watts, director, truck PBU-emerging markets, Goodyear, concurs that fuel cost has become a major concern for fleet operators in the GCC, recently. He suggests that one of the easiest ways to minimise fuel consumption and TCO is through the appropriate selection and maintenance of tyres.
Watts reasons 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’ll 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.
Kerry Watts, director, truck PBU-emerging markets, Goodyear
Watts provides an example of how Goodyear developed 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 operating long distances in multiple loading conditions that are primarily running on roads where long-term resistance to heat is the main performance factor.
Fadi El Karmi, product manager-commercial emerging markets, Goodyear, points out that the fuel savings as a result of using KMax tyres could be greater than the expenditure on tyres, provided the tyres are maintained well at the recommended pressure levels.
“The KMax Extreme improves fuel efficiency and mileage with lower rolling resistance. The results we achieved after real-world testing with eight companies with long-haul truck fleets in the UAE and Saudi Arabia have been remarkable: the KMax range showed improvements of up to 3% in fuel savings, 15% in cost per kilometre, and 20% in mileage, compared to other premium tyre brands. We guarantee these results for this region in accordance with the GCC Standardization Organization (GSO) standards,” says El Karmi.
Fadi El Karmi, product manager-commercial emerging markets, Goodyear
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, etc. In the case of Tristar, this hidden cost constitutes 12.5% of its TCO.
Baikady is more concerned about hidden costs related to driver behaviour that contribute to NRT. He points out that while initial driver training by OEMs 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,” says 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,” says 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 and more fuel consumption.
“A loss of tyre pressure could be catastrophic, resulting in downtime or damage to vehicles, and in severe cases, loss of life of the driver or other passengers on the road. At the very least, it can cause inconvenience and delays. Well-maintained tyres will always ensure safety, prevent catastrophes and save money. A tyre pressure monitoring system (TPMS) can detect an under-inflated tyre by monitoring its pressure continuously as well as the rate of decrease in pressure. Accordingly, the fleet manager can take a decision to replace the tyre immediately or assign an inspection or replacement of the tyre after the vehicle reaches a depot or its destination,” says Watts.
It may be surprising that fleet operators in the region have not yet adopted TPMS as a mandatory safety feature in their vehicles. A tyre safety campaign launched in 2018 by Swaidan Trading Company, the exclusive distributor of Goodyear in the UAE, inspected over 6000 tyres on construction trucks, particularly dump trucks, and found that 60% of the tyres inspected were under-inflated and that they were not monitored for pressure and temperature.
Shameem M.P, general manager, automotive allied products division, Swaidan Trading Co.
Shameem M.P, general manager, automotive allied products division, Swaidan Trading Co., says: “Under-inflation reduces the life and performance of the tyre and is a common operational risk that faces fleet operators in the UAE. If a tyre is under inflated beyond 20% of the recommended limits, the performance of the tyre could reduce by 17% and the fuel consumption could increase at least by 2%. This increases the operating costs unnecessarily.”
In order to stay ahead of the curve, Tristar has been testing TPMS on some of its vehicles for the last two years. The potential long-term savings as a result of such systems could be huge for Tristar, considering that tyre costs are almost double that of vehicle maintenance costs and that Tristar’s fleet uses around 12,000 tyres.
“We manage tyre-related issues ourselves through a process that mandates routine vehicle inspections and maintenance schedules. In addition, we are evaluating the TPMS installed on some of our vehicles to determine how much they could add to our savings,” says Baikady.
Baikady indicates that tyre manufacturers and dealers could play a larger role in helping fleet operators minimise NRT.
Shameem agrees: “As tyre dealers, we have the responsibility to change mindsets about technology and return on investment. As an example, tubed tyres have dominated this market for years. We’re noticing that customers are willing to shift to tubeless tyre technology when they realise its long-term operational benefits such as improvement in mileage and longer life. We realise that we need to expand the scope of our services from tyre supply to fleet management solutions. One of the expected outcomes of this transition will be to help customers reduce vehicle breakdowns and NRT.”
Goodyear is expanding its tyre management solutions with the aim to shift the conversation from tyres alone to the services and technologies around tyres. One of these new developments is an automated inspection technology called the Goodyear drive-over-reader, a ground-mounted sensor that can inspect vehicles in less than 20 seconds when they’re driven over the sensor. The drive-over-reader measures tyre pressure, remaining tread depth, axle load and total weight. Goodyear along with Swaidan Trading is testing the drive-over-reader in a pilot programme with a UAE government fleet of over 500 vehicles.
“The drive-over reader is a very exciting proposition for fleet operators. A depot requires only one of these devices to analyse vehicles in few seconds, compared to the 15-20 minutes that was required previously for manual measurements. There’s no need to install additional equipment on the vehicles, and the driver-over-reader is compatible with any type of vehicle or tyre, which makes it a versatile inspection system,” says Watts.
Sonmez Topcu, commercial PBU head-MEA, Goodyear Middle East and Africa, says: “The drive-over-reader has several advantages such as reduction in tyre-related breakdowns and incidents, fuel consumption due to under-inflated tyres, frequency of tyre renewal, tyre maintenance costs, and human errors in manual measurement.”
Sonmez Topcu, commercial PBU head-MEA, Goodyear Middle East and Africa
Watts adds: “Fleet operators should be able to focus on their core business, to provide excellent service and uptime to their customers; consequently, they will get more business with the same assets and increase their return on investment. As tyre experts, we could take the burden off fleet operators by providing the technologies and systems that can monitor as well as predict events that affect their fleet. This requires a new business model and a partnership approach with long-term contracts. The question is how soon fleet operators will change their business models to adopt new processes.”
Baikady shares his wish list for all Tristar’s suppliers: deliver more fuel-efficient vehicles, decrease the response time for maintenance, and offer a centralised platform that can integrate telematics systems from different vendors and allow management of all the data on a user-friendly interface. With regard to tyres, he envisions 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.
“The most important requirement of all”, warns Baikady, “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.”