Life Cycle TCO of Class 8 Trucks

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Life Cycle TCO of Class 8 Trucks

The estimated total cost of ownership (TCO) for class 8 trucks is $1.48 per mile. Strategies that help mitigate these costs involve adjusting the fleet size, scheduling preventive maintenance appropriately, strategically reselling older trucks, and going electric. Because itemized details are not available for US-based class 8 trucks, the team provided the latest most valid and itemized figures identified. Additional details about TCO, reduction strategies, and our approach to the research are provided below.

CLASS 8 TCO AVERAGES & COMPONENTS

  • The Dana TCO calculator lists a class 8 TCO figure (regional hauler) as a comparison between diesel and electric trucks. This project uses Dana’s averages since diesel trucks make up 97% of class 8 fleets. A Class 8 diesel regional hauler TCO is $1.48 per mile or $148,000 for one truck (cost per mile; CPM).
    • Fuel: $0.38 CPM
    • Equipment: $0.25 CPM (truck cost $125,000)
    • Maintenance: $0.10 CPM
    • Insurance: $0.02 CPM
    • Taxes: $0.04 CPM
    • Tolls: $0.01 CPM
  • In a 2012 in-depth study, Ernst & Young (E&Y) found that the major cost categories relevant to a TCO measurement include “cost of capital, maintenance, asset depreciation, licensing and vehicle administration.” E&Y found that the TCO for class 8 tractors in 2012 was $0.382 CPM:
    • Financing: $0.17 CPM
    • Maintenance: $0.162 CPM
    • Administration: $0.03 CPM
    • Licensing: $0.02 CPM
  • A KPMG study in 2016 found that for a Class 8 tractor in North America the average cost per mile TCO was $0.58. Because the American Transportation Research Institute (ATRI) noted increases of 1%, 6%, and 7.7% in overall fleet operating costs for 2017, 2018, and 2019, respectively, the team compounded those rates (1%+6%+7.7%=14.7%) and applied them to the 2016 KPMG figure ($0.58 CPM) to get an updated TCO figure of $0.67 CPM.

Additional insights about TCO

  • TCO typically ranges from 0.1% to 5.3% of revenue for US trucks.
  • Experts suggest adding in the cost of downtime as part of TCO calculations.
  • A KPMG report found TCO informative when including “fleet costs related to maintenance, financing, administration, legal/taxes, and other costs (substitutions, roadside assistance, and washes).”
  • While these are the recommended components based on the E&Y study, fleet managers and truck manufacturers may have another mix of components to review. For instance, some look at "acquisition cost, depreciation, fuel economy or fuel expense, maintenance expense, residual value" in order to consistently and easily benchmark components; while others might only review truck price, maintenance, and fuel mileage as TCO.
  • Still, others find “the main [TCO] cost categories for class 8 semi-trucks are the initial investment, operational costs and the periodic costs that occur due to major replacements.”
  • Fuel costs tend to represent 61% of the TCO for class 8 trucks.

STRATEGIES TO REDUCE TCO

1. Buying Electric

  • A report by McKinsey & Company noted that going electric introduces a future component to TCO savings (autonomous driving) the could eventually save on one of the largest operating costs (i.e., driver wages).
  • “A major benefit for electric trucks is the significantly lower operational costs due to two factors: (i) increased energy efficiency for mobility and (ii) similar or lower cost per unit energy for electricity compared to diesel.”

2. Maintenance Schedule

  • Maintenance costs increase exponentially as trucks and equipment get older (the 1st and 7th years are the most expensive). The average repair costs for trucks per vehicle is $14.80 for year one and increases to $68.62 per vehicle after providing service for three years.
  • Small to moderate fleets could also benefit from extending the interval between preventive maintenance checks.
  • Maintenance and repair are noted to be the “highest variable and volatile cost of a fleet operation.”

3. Fleet Size

  • The E&Y study found that “the greater the fleet size, the lower the TCO per unit” (if measuring by cost per mile). The E&Y 2012 study found that a strategy utilizing fleet size for TCO savings is best for fleets in the 100-499 fleet size range. Class 8 tractor fleet size was most cost-effective at the 500+ fleet size (TCO of $0.323 per mile). Depending on the fleet, a TCO reduction of 5-15% might be observed.

4. Strategic Resale

  • Some companies choose to sell vehicles after their 7th year of service in order to avoid the burden of increased maintenance costs and still recoup some of the assets left in the older trucks.
  • Some companies (usually corporate fleets) sell 16% of its vehicles to employees.
  • In fact, Truck Lifecycle Data Index revealed that class 8 sleep model-year 2012 trucks could experience a $26,687 first-year savings to its TCO if switching to an updated 2019 model.

5. Leasing Vs. Owning

  • Other companies looking to save on TCO, study whether their fleet size and other components make sense for leasing vs. owning.

6. Other Strategic Approaches

  • Companies are also advised to heavily weigh the best return on investment in determining which TCO components (longer life vs. lower breakdowns vs. reducing cost elsewhere) are the “most sensible.”
  • Small to moderate fleet sizes might also cut TCO by cutting the miles traveled by drivers.
  • Adjusting routes, reviewing equipment and seasonal and peak demand patterns could also aid in reducing TCO.
  • Reducing the total age of the fleet was another strategic solution operationalized by fleet managers to reduce TCO. It was listed as the most cost-effective compared to hiring more mechanics and maintaining a higher spare factor.

RESEARCH STRATEGY

Despite our best efforts, the team could not locate a US-based class 8 all-truck assessment of the TCO with a breakdown by cost components. We were able to obtain a North American leased class 8 TCO ($1.53 per mile, 15-year ownership period). We located another updated report from ATRI that noted the itemized 2018 marginal cost per mile for tank trucks (class 8) that travel in the United States and Canada. However, this was slightly off-target but did include average per-mile costs for several annual categories (fuel costs, payments, repairs, permits, tires, tolls, wages, and benefits).

In an effort to obtain a valid TCO with itemized components that provided detail into the costs of a class 8 truck in the United States, the research team opted to use the Dana TCO Calculator tool. The Dana tool assesses TCO by truck type (e.g., city delivery, drayage trucks, refuse). In order to strike at class 8 trucks, the team chose the ‘regional hauler’ estimate. All Dana presets/defaults for an average regional hauler were used. It should also be noted that Dana is a US-based global company. The details produced by the Dana calculator are based on “industry data sources and Dana proprietary information.” No other details about the trucks making up the Dana-based TCO averages were located so it is not possible to note whether these are US-based, North American, or global figures.

In the absence of a resource that provided a definitive US-based TCO with itemized cost components, the team also presented a 2012 likely-US-based assessment by E&Y (likely US-based because each of the report authors consults for US divisions) to show how the itemized components were broken down in 2012.
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