Why Technology Can Be The Best Friend Of A Fleet Operator?
Being a fleet owner and/or operator in India comes with its own set of challenges. One of the primary ones being the continuous cost pressure they have to endure. If they are a player in the commercial vehicle space, then this challenge takes a totally different proportion. First and foremost, it is universally acknowledged that the cost of logistics in India is very high. Based on the estimate that one would like to believe, it varies anywhere from 14-20% of India’s GDP. The International average is about 10-12% with best-in-class countries operating at about 7-8%. The government has very unambiguously indicated its intent to move this number closer to the international average. This essentially will put pressure across the sector to become more efficient.
Squeeze Will Tighten Further
It is important to understand the key levers that are at play, and why the pressure on cost for a Commercial vehicle operator, is only going to get worse from here on.
- Preferred but a costly mode – Road transport is today the most preferred means for movement of commercial goods in the country. The study done by Transport Corporation of India (TCI) in collaboration with Indian Institute of Management, Calcutta (IIMC), estimates that about 60% of commercial freight in India is carried on roads. The remaining being carried by railways, waterways and airlines. The same study also finds that typically the cost of moving freight by railways is about 30% cheaper than the road. Hence it is obvious that there will be increased pressure in the years ahead to change the mix, and leverage more of multi-modal transport for movement of goods.
- Fuel guzzler – Being a large importer of crude oil, India is always very sensitive about the consumption pattern of its bye-products like petrol & diesel. As per studies conducted, it is estimated that roughly 70% of diesel consumption in the country is on account of the transportation sector. Commercial vehicle transports (trucks & buses) are responsible for roughly 35% of the total diesel consumption. Hence the pressure to look for more efficient options to move people and goods, is going to increase in the coming years.
- Fuel’s high share of operating cost – The last couple of years from 2014-16, presented the best scenario for the transport industry due to relatively lower fuel prices. The scenario has already changed with diesel pricing rising from the lows seen in this period, mirroring the strengthening crude oil prices globally. Most analysts believe that crude prices will probably continue to hover between $ 60-70 per barrel. Given the fact that for a commercial truck operator, fuel constitutes about 55% of the total operating expense in India, this only means added pressure.
- Increased competition – In late 2017, Government of India granted infrastructure status to the logistics sector. While this has been welcomed by the incumbents, it is to be expected that this will also attract newer players to the industry. Already because of a combination of factors, the cost per km for transportation of goods in India is amongst the lowest in the world. If more players enter the fray, without a clear strategy and value proposition, it is bound to have negative pressure on the pricing and cost factors.
Commercial vehicle owners and operators will have to look at various options to bring more efficiency into their operations. It will allow them to continue to drive down the cost without hurting their margins. Some of the key levers are beyond their direct control and they are dependent on external stakeholders like the Government to take the lead. For example, Government’s focus and investment in increasing the coverage and capacity of the National highways is a big fillip. Similarly implementation of GST that enables the concept of “One Nation, One Market” and dismantles many of the previous bottlenecks like commercial tax/octroi check-posts, will also help in increasing the average speed of operations, thereby improving profitability.
Technology To The Rescue
While the above factors will help, there is a lot within the direct purview of the fleet operators that they ought to look at and work on. Till now they have looked at technology as a necessary evil. Going forward, it is important that they look at it as a key enabler in bringing efficiency gains to their operations. It would be pertinent to understand some of the variables that technology can influence to help bring down the cost and improve profitability.
- Reducing operational cost – Most fleet operators understand and review their operational costs at aggregate level. However to successfully and scientifically reduce operational cost, it is important to start capturing, reviewing and analyzing it at a vehicle, driver and route level. It typically involves getting down to specific parameters that influence cost. Fortunately, technologies like vehicle telematics allows tracking these key influencers on a continuous basis and at a granular level. For example, if fuel consumption is the biggest cost item, it is important to understand how average speed, driving style, engine performance, tire pressure etc are contributing to fuel consumption, and get specific recommendations to increase the fuel efficiency. A study shows that a driver’s driving style can influence fuel efficiency by up to 30%. A typical long-haul commercial truck in India runs approximately 80,000 to 100,000 kms in a year. If specific technology-powered recommendations, based on actual vehicle data can help reduce the fuel cost by just 1 Rs/km, it has the potential to bring dramatic cost savings to the fleet operator, and also to the economy in general.
- Enhanced asset utilization – Senior management of any large commercial vehicle operator is well aware of the big role that fleet utilization plays in their operational profitability. As the trucks being to age, they encounter frequent breakdowns. Hence for the operators to meet the SLA committed to their enterprise customers, they need to have extra capacity of trucks in their fleet. By leveraging advanced analytics on vehicle telematics data, an operator can get pro-active and preventive warning on likely breakdowns. This not only eliminates nasty surprises on breakdowns, but also can significantly enhance fleet utilization rate, thereby increasing profitability.
- Handling progressive wear and tear – “A stitch in time saves nine”. While most fleet owners and operators are aware of this proverb, it is seldom acted upon. A big reason for the same is a lack of knowledge of the downstream issues that progressive wear and tear of the asset can cause. By leveraging the power of IoT & Analytics, it is possible for an operator to not only get advance visibility of potential wear and tear issues but also the impact that they can have on operational efficiency. Additionally, by addressing it on a timely basis, it eliminates the need for breakdown repairs which are more expensive to handle.
- Managing return load – A significant factor that influences operational profitability for truck operators is the return truck load. If the truck has to return empty, it is not only a profitability killer for the operator but also increases the cost for the shipper/brand, who had contracted the onward shipment. Hence it is to everyone’s benefit, that the truck gets a return truck load and that too promptly. Apart from the effort of their sales team, the operator can also rely on a number of portals/marketplaces that have come up lately and provide matchmaking between a load owner and a truck operator. Leveraging technology can actually help get the operator much wider and more real- time visibility into possible options, and can also help them secure orders for return load. Additionally, it can also help them do this at-scale with least human intervention and with minimal incremental cost.
Get Your Engines Started
It is clear that technology can really help commercial vehicle operators run a more efficient, profitable, agile and transparent operations. So just as vehicles are becoming more technology enabled, it is imperative that operators increase their affinity for technology and how it can help them in a substantial way. The good news for them is that they can begin to try things out without having to make large upfront investments. As they see the value and results of their initiatives, they can take a more aggressive approach.
At SensiWise, we are committed to helping commercial fleet owners and operators reduce their operational cost and improve their profitability. We do this by leveraging technologies like IoT, Analytics, and Blockchain. Our ready-to- deploy solutions allows them to get started quickly. If you are a player in this segment and would like to understand more on how technology can help your business, do contact us.