By Richard Mallek, Business Development Manager, FLD Remarketing
May 15, 2023
Supply chain nightmares.
The last two years have been a mixed bag of consistent challenges that have plagued the fleet industry pretty much since Covid restrictions fell away. In fact, these challenges seemed so persistent that our team here at FLD Remarketing started wondering: Just how is all of this disruption affecting fleet? And, exactly which of these challenges are causing the most problems for our industry?
Looking to gain deeper insights into these issues, we reached out to the folks at Fleet Management Weekly, to see if they’d be interested in co-sponsoring a series of bi-weekly polls looking for input from their readers. Anxious to gain perspective too, they agreed and in August we kicked off a bi-weekly “Fleet Poll” and spent the next six months gauging the industry’s reaction to the biggest challenges and hottest topics facing fleets.
From questions about gas prices and inflation, to queries about supply chains, raw materials and shortages, the poll provided a snapshot of industry sentiment during one of the most critical and unpredictable periods in fleet’s history. As we thought it might, much of the feedback was decidedly negative as fleets wrestled with a veritable smorgasbord of challenges. Over time we learned a lot, and we were proud to share our findings with readers every two weeks.
To round things out, as well as to provide conjecture to our findings, we asked our Customer Advisory Board (CAB) to weigh in on the poll’s findings. This is a group of highly-seasoned fleet and procurement professionals, with anywhere from just under three-hundred to slightly more than seven-thousand vehicles each. Their insights are backed by over 230 combined years of fleet experience between them. So, what did we learn?
Disruption Popping Up Everywhere
For an industry that stayed largely the same for decades, disruption over the past few years has been especially challenging. So whether it’s a typical business challenge like consolidation – or turmoil being caused by new age issues like EV integration – disruption is the “catchphrase” for a set of challenges the industry is experiencing in rapid fire. As proof, many of the poll responses we received reinforced how negative the effects of disruption have been.
For instance, a full 67% of respondents indicated that at least one vendor – in many cases FMC’s – had gone out of business or been purchased over the past year, negatively affecting their fleet. Another indication was the results of a poll, where nearly 50% of respondents expected the economy would experience a recession in 2023 – while a scant 11% thought it could be avoided. Whether questions about the supply chain, hiring difficulties or something as simple as attending industry events, disruption reared its ugly head no matter what we asked.
Biggest Challenge Facing Fleets: Vehicle Availability
Without a doubt, the number one problem facing fleets, according to our poll, is the lack of vehicle availability. From an inability to plan ahead to being forced to leave aging vehicles in service longer, virtually no corner of the industry has been left untouched by a problem few could have hardly imagined a few short years ago. In those pre-pandemic days, vehicles performed their requisite years of service, made their way through remarketing channels, and the whole process repeated itself in predictable patterns that changed little over decades.
Today, vehicle availability has become a veritable crap-shoot, with even the largest fleets unsure when – or even if – they’ll receive anywhere near the number of vehicles they order. In addition, lack of available vehicles negatively effects every other fleet service from transport to upfitting to remarketing, leaving a black eye on virtually every corner of the market.
According to over 70% of FLD’s customer advisors, vehicle allocations – especially for large fleets – are down anywhere from 30 to 60%. This large number leaves fleets scrambling to find vehicles wherever they can, or simply keep the ones they have in service, potentially raising safety concerns and driving higher maintenance costs.
Two of the customer advisors we spoke with said they received less than 50% of their requested vehicles. They were told that unless they agreed to lucrative long term agreements for ancillary services – many focused on the emerging EV market – they would likely not receive anywhere near their requested allocation. Only one of the eight FLD CAB members told us they received all of the vehicles they needed.
Echoing those sentiments, our poll showed vehicle availability remained a huge concern for the fleet space, with over 80% of respondents pointing to it as the number one problem they face. And while recent statistics show vehicle availability crept back up to 1.8 million units in December for the first time since May of 2021, the massive shortfall, started by pandemic-era chip shortages, will likely take anywhere from three to five years to recover, according to statistics from the Department of Transportation released in April.
EV Integration Will be a Challenge for Decades
Perhaps the biggest long-term challenge facing fleet, according to our poll and the fleet managers we spoke with, EV integration looms as a multi-decade, multi-faceted concern that promises a plethora of unpredictable twists and turns. Only a few years into EV adoption, virtually every fleet finds itself on a different trajectory, spread out on the road to integration at amazingly different points in the journey. As it stands, many fleets – especially in pro-green states – are slated to be as much as 30% electric by 2025. Even more daunting, some fleets are staring down mandates that call for full EV integration by 2030, a likely impossibility for any fleet that isn’t well on its way to EV adoption already.
In fact, five of the eight FLD CAB members we spoke to – especially those with large work fleets – told us that large scale EV integration is likely more than a decade away for their fleets, as concerns around range and infrastructure persist. And while corporate excitement has given credence to the EV phenomenon, the people actually charged with integrating this new age of vehicles have their doubts, including one large work fleet manager, who bluntly called them a “novelty act” at this stage in the game.
Yet another fleet manager we spoke with said excitement would “chill” in his company’s C-suite when executives realized that range issues would cause his fleet to make 15 to 20% fewer deliveries using vehicles that cost 10 to 30% more. Backing up this sentiment, 63% of poll respondents said that EV’s would account for less than 10% of their fleet by 2025, a less aggressive, more practical number that accurately reflects both factual and anecdotal data collected during the six months we conducted the poll.
Supply Chain Woes Continue Unabated
Supply chain problems are hardly just a fleet issue, but for many reasons, they seem to have an outsized effect on our industry. Why?
For starters, a well-oiled supply chain is the lifeblood of our industry. On one hand, fleets benefit from delivering goods to the rest of American business. On the other hand, fleets need a steady supply of raw materials and products to not only keep running themselves, but to manufacture, sell and deliver a wide variety of products and solutions to their own customers. That means that when the supply chain isn’t functioning properly, everything backs up, creating even more problems down the road, a situation many fleet service providers – like upfitters – find themselves experiencing today.
According to government statistics, over 38% of US companies experienced supply chain slowdowns in 2022, while less than 6% experienced a fully operational supply chain. Even worse, 30% of US companies reported that they struggled to find the raw materials and resources necessary to meet customer demand. Considering figures like these, is it any wonder that over 35% of respondents to our poll of fleets biggest challenges said “supply chain issues” were their second biggest problem as of November 2022?
And while things have improved marginally over the last 6 months, not one of the eight fleet pros we spoke to believes their supply chain is anywhere as predictable as it was pre-pandemic, with over 50% of poll respondents – and three of the 8 fleet managers we spoke with – indicating they expected 2023 to be “equal or more challenging” than 2022.
The Economy Continues to Pressure Fleet
As the old saying goes, “it’s the economy, stupid,” and without a doubt the fleet industry can relate. Whether it’s alarming diesel prices at the pump, the rising cost of goods and services, or the difficulties brought on by a tight labor market, the economy has presented constant challenges since the ravages of Covid knocked it for a loop.
One fleet influencer we spoke with summed up popular sentiment when he said it was “as if the economy experienced 10 years of turmoil in just the past year.” According to statistics from the Department of Labor, that isn’t far from the truth. In fact, inflation was up 5% for the 12 months ending in March 2023, and slightly over 6% from March 2021 – historically high numbers and an unsustainable pace that’s left many fleets and the businesses they serve gasping for breath.
Putting these numbers into perspective, six of the eight FLD advisors we spoke with said talk of adjusting their budgets for inflation was not even on the table, and that none of them had received budget increases in keeping with rapid price increases their operations had experienced. Instead, many are being asked to simply do less with more, putting a premium, they say, on existing relationships and pro-active suppliers that require little or no hand holding.
Where Do We Go from Here
While it would likely take a crystal ball to predict where the industry will be in a year, we believe the fleet poll – and the valuable insights we received – can go a long way towards helping our customers both better plan – and prepare – for what’s ahead.
Richard Mallek is Business Development Manager at FLD, a 12-year veteran of fleet, and the rising Remarketing Board Chair for Automotive Fleet Leasing Association (AFLA.) He can be reached at [email protected].