Is Your Fleet Prepared for the Next Economic Disruption?

Utility fleet managers have navigated numerous challenges over the past five years – think COVID, supply chain bottlenecks, inflation, the chip shortage and vehicle electrification. Each has had its own economic ripple effects, and now, with the looming prospect of tariffs, the fleet industry could be staring down further economic disruption.

But whether the second Trump administration’s tariffs go into effect or not, the history lesson remains: Utility fleets must always be prepared for disruptions. In recent interviews with UFP, three industry insiders – Matt Gilliland, director of operations and business support for Nebraska Public Power District; Ed Powell, director of consulting services for Holman (www.holman.com); and Tom Aydelotte, Holman’s strategic services director – discussed leading indicators that fleet managers can track to predict potential economic disruptions as well as strategies to help utility fleets remain viable during uncertain financial times.

Leading Indicators
Some economic disruptions directly impact consumer pricing while others create downstream financial consequences. By monitoring leading indicators, including the seven described below, utility fleet managers keep themselves informed so they can avoid being blindsided by unexpected disruptions.

1. Fuel futures. Futures are essentially financial contracts through which buyers agree to purchase a specific amount of something (e.g., oil, gasoline) at a set price on a future date. Volatility in fuel futures prices can signal economic uncertainty; that’s because energy pricing fluctuations often reflect broader economic trends and potential supply chain disruptions.

According to Gilliland, “[NPPD relies] heavily on fuel futures to get an understanding of what is coming down the pike in the U.S. and to do our forecasting. EIA.gov, the website for the U.S. Energy Information Administration, is also a tremendous resource for us.”

2. Tariffs. “Regardless of your perspective on tariffs, the reality is they typically lead to higher prices,” Powell said. “What most fleet operators are really worried about is how much prices may rise, and when, so they can plan and adjust accordingly.”

Gilliland said he won’t put a lot of stock in any potential tariffs until they are fully in place: “If we suspect the tariffs are being utilized purely for negotiation, we don’t pay a lot of attention to them. But when the trade agreements have been signed, now they’re long-term and it makes sense to pay attention.”

3. Labor union activity. Gilliland also watches labor union activity because labor strikes can lead to supply chain disruptions and shortages of materials and vehicles, all of which ultimately increase fleet costs. “We take a concentric circle approach. First, we look at the unions that are making vehicles, like the UAW. From there, you look outward at unions related to materials, like steel. Right after COVID, we started paying a lot of attention to what was happening with port unions to understand supply chain impacts.”

4. Federal Reserve activity. Aydelotte recommended keeping pace with Federal Reserve activity and interest rates. “Depreciation is one of the highest costs for any fleet, so we closely monitor interest rates, because as it fluctuates up or down, it’s going to have a significant impact on our customers.”

5. Government regulations. New and revised regulations can create their own disruptions. Both Powell and Gilliland pointed to the effects that complying with California Air Resources Board (CARB) rules have had on fleets within California and beyond. “Just a few years ago, electrification mandates prompted many fleets to make substantial investments in electric vehicles and the associated infrastructure,” Powell said. “Now, with those mandates shifting, fleets are navigating the financial and operational challenges of these policy changes. So, even with basic policy shifts, you may see a significant impact on long-term planning and resource allocation.”

6. Weather. Beyond the cost of responding to local weather events, natural disasters in other parts of the country can drive up costs for all fleets. Gilliland said NPPD pays “close attention to climate because of the impact of natural disasters on supply and demand for resources. For instance, hurricanes have a tremendous impact on fuel supplies, which can drive up costs.”

7. CPI and PPI. The U.S. Bureau of Labor Statistics’ Consumer Price Index, or CPI, measures the average price changes that urban consumers experience over time for goods and services. While it’s often used as a key economic indicator to track inflation, Powell noted that the “CPI is always really good at telling what happened, but it’s not necessarily going to tell you what’s going to happen and the potential impact.”

The Producer Price Index (PPI), also a product of the U.S. Bureau of Labor Statistics, measures the average change over time in prices received by domestic producers for their output. Gilliland said NPPD tracks PPI more closely than CPI: “We’re able to see price increases and decreases at the producer level before they make their way from manufacturing to sales, then ultimately to the consumer. So, we use that as a looking glass.”

6 Strategies for Stability
Economic disruptions can occur at any time; by employing strategies today that support financial stability, fleet managers help to ensure they will be prepared when the time comes. Here are six strategies to consider.

1. Hedge consumables. Managers can insulate their fleets from volatile price fluctuations by using contracts to fix or cap the cost of specific consumables for defined periods. Gilliland said NPPD buys many consumables this way, including fuel. “In Nebraska, the price of fuel is very seasonal, largely due to farming. So, we have gotten pretty good at finding the right time of year to lock into a long-term, hedge-type arrangement with fuel vendors.”

2. Tie vendor increases to pricing indexes. Negotiate with vendors so pricing increases can’t exceed an agreed-upon CPI or PPI indicator; Gilliland frequently employs this approach with multiyear contracts. Although determining which indicator to use can require some back and forth with a vendor, this practice ultimately helps to shield fleets from severe price hikes.

3. Optimize replacement criteria. An economic disruption could prompt some fleet managers to delay purchasing new assets, but Aydelotte said that prolonged delays could increase costs and create other problems. “When the power goes out, your technicians need dependable vehicles to help restore power for your customers, and when vehicles are 10-plus years old, they tend to break down often. Consistently replacing vehicles and properly maintaining them throughout their life cycle makes a tremendous difference in your ability to effectively service your customers.”

4. Rightsize your fleet. When prices increase, rightsizing could help balance the impact to a fleet’s financial bottom line. Aydelotte pointed to the usefulness of telematics in such circumstances: “When a customer has invested in telematics, it allows them to identify vehicles that are being underutilized and sell them or shift them into other roles within their fleet. We’ve seen this strategy pay dividends.”

5. Take a relationship-based approach to sourcing. Strategic sourcing, Gilliland explained, is a procurement method “that isn’t like the old days of getting quotes and choosing the lowest one. It’s a relationship-based approach where you allow vendors and suppliers to look behind your curtain, and you look behind theirs, so you each have a better understanding of what you’re trying to do long term. Then you ultimately can write long-term agreements around certain pieces of equipment or specific materials that are mutually beneficial, which is pretty rewarding.”

6. Create a backup pool of vehicles and equipment. Doing so can help fleets avoid high prices while continuing to provide services. Gilliland offered this example: “Let’s say prices are so high that it delays your ability to order this budget cycle, and you have to wait until the next cycle. That can lead to scenarios where you have catastrophic engine failures because an asset is staying in the fleet longer than it’s supposed to. With a fleet pool, you have something you can turn to.”

About the Author: Shelley Mika is the owner of Mika Ink, an Omaha, Nebraska-based branding and marketing communications agency. She has been writing about the fleet industry since 2006.