Fleet operators across a broad range of industries are faced with difficult and potentially costly decisions about how they will fuel their vehicles in the future. The long-life nature of these assets makes the decision on fuel choice one that a fleet manager, transportation director and organization, an very consequential one.
Evaluating the full range of options from “conventional” to “alternative” fueled school buses can be a time consuming and confusing effort. Bringing clarity to the decision-making process begins with deciding what you are trying to accomplish and working out the cost differences. This is in contrast to the way we typically see clients evaluate these alternatives, which is to work back from the cost differences to how it might impact them.
All transportation managers are fleet managers. That is a fundamental characteristic of the job that is true but often not acknowledged. It becomes even more true when we think about the incorporation of the support services (“white”) fleet and how that impacts the decision on fueling strategy. Our work with hundreds of fleets across industries as diverse as student transportation, pharmaceuticals, utilities, public works and fire departments, has led us to develop a 10-question process to evaluating fuel choices, and how fleets can decide what is best for them. That process is summarized below.
- What are we trying to accomplish? — One of the fundamental questions fleet operators must answer for themselves is why they are considering the fuel choices they are. Is there an overarching commitment to environmental sustainability? A desire to change the type of fleet technicians that are hired and retained? An interest in investigating technology changes that impact fleet vehicles? Whatever the rationale, transportation and fleet managers should explicitly define what they are trying to accomplish when establishing their fuel choices.
- What are the missions that the fleet must support? — A critical determinant in the viability of an alternative to gasoline or diesel powered vehicles is the types of services that the vehicle must support. A 500-mile per day versus a 50-mile per day demand for equipment, presents a very different range of fueling options.
- What vehicle types would be appropriate for consideration? — Managers must consider the mission-critical nature of services and whether fuel availability would negatively impact the availability of those assets. The identification of units with more flexible or routinized missions present opportunities to incorporate alternative fuels more readily.
For example, could electric drivetrains be appropriate for 60 percent of your buses because of the distances traveled but the other 40 percent would require some other fueling option? Would you have access to alternative fuel sites or vehicles in the event of a failure or an extended maintenance event? As most fleet and transportation managers appreciate, deciding on alternative fuels is not an all or nothing consideration from the perspective of the fleet, but it may be from the perspective of an individual unit.
- What vehicles are due or coming due for replacement? — One of the critical mistakes we see managers make is using a one-year decision horizon versus a 5-10 year decision horizon. Assessing alternative options must begin with designing a replacement schedule that allows for the necessary perspective on when to incorporate alterative fueled vehicles. Also, which specific vehicles would be considered, and what the likely incremental costs of acquisition and operation would be.
- What infrastructure would be required for alternative fuel incorporation? — The capital costs that are associated with developing or retrofitting fuel sites and/or the costs associated with finding commercial alternatives should be explicitly considered, along with the manner in which these costs could or would be financed. This is an area where there are distinct, and mostly unexploited, opportunities for school districts, cities, utilities, and other fleet providers to consider shared infrastructure.
- What offsets might be available to offset any incremental capital costs? — State and federal grant programs, along with “new money” such as the funds available from the Volkswagen settlement, can be used to help close the gap between traditional vehicle costs and any alternative vehicle acquisition costs. While unlikely to eliminate the difference in costs, these offsets can be valuable options to support the policy outcomes identified in Task 1 above.
- What are my financing options for my fleet? — The overwhelming majority of public sector fleets use cash financing to acquire their vehicles. While this feels fiscally prudent because it avoids interest charges, it may be limiting your ability to achieve material improvements in reducing the replacement backlog in your fleet. Given the generally higher per unit costs, it may also be limiting your ability to acquire alternative fuel vehicles. Assessing the full range of financing options—including leasing, sinking fund use, bonding, and other methods that increase your purchasing power—can provide options to support alternative fuel vehicle acquisition.
- What are the operating cost differences that can help reduce the total cost of vehicle ownership? — Most fleet managers understand that operating costs change when fuel types and even vehicles change, but few look to actually calculate the projected difference. In the case of alternative fuels, calculations of the projected change in total cost of ownership often begin and end at increased capital costs and reduced fuel costs.
Fleet acquisition decisions have a long tail to them and need to be made with more of a focus on the total cost. For example, estimates around maintenance costs (including changes to parts costs, labor costs, and third-party vendor costs) and vehicle availability need to be strongly considered. Additionally, the cost of obtaining a temporary replacement asset or maintaining a spare for mission critical vehicles and equipment should be considered.
- What are the potential sustainability benefits of the alternative fuel units? — Recognizing that much of the rationale for pursuing alternative fuel vehicles is related to environmental benefits, part of the decision-making process should explicitly consider what these benefits might be. Crucial to this calculation is a consideration of the changes in issues, such as emissions, under each of the different vehicles or vehicle types you are considering. Beyond sustainability, identify whether there are any other potential benefits or costs to the alternatives that are under consideration.
- What are my alternatives? — If the key motivator in exploring alternatively-fueled vehicles is a desire to improve fleet sustainability, consider modeling the costs and benefits of modernizing the entire fleet, not just integrating some alternative fuel units into it. In many cases, simply improving fleet replacement practices will have a greater impact on a fleet’s carbon footprint than will gradually adding alternative fuel units to it.
As everyone who has ever looked at the oldest and newest school buses in their fleets quickly recognizes, the challenge of managing the bus fleet today is very different than it was, even in the recent past. The rapid “electronification” of the school bus, coupled with add-ons such as GPS, multi-camera systems, student tracking systems and all of the other technology, has greatly increased the capabilities and complexity of the bus fleet. All of these changes are happening at the same time we are thinking about alternative fuels.
Evaluating the impact of alternative fuel vehicles requires transportation and fleet managers to be very familiar with their fleet and its operations. Conducting this type of assessment is a valuable exercise to ensure that is the case. Assessing the life-cycle or total cost of ownership of a vehicle in conjunction with other nonpecuniary benefits will provide the most complete assessment of whether, what kind, and how many options are available to you in evaluating alternatives.