Capital expenditure-heavy business
Having two of the focal points of logistics, namely the truck and the trailer, is key for every logistics company, or even a shipper that wants to control the road freight transport process more tightly. However, there are two main issues that can come with ownership of such assets.
Firstly, the initial capital expenditure can be very high. While one option is to order a significant amount of trucks instantly from a manufacturer, that only decreases the Capital Expenditure (CapEx) per truck, still requiring a significant amount of capital to finalize the order. Unfortunately, following the initial waves of the pandemic, manufacturers have also begun to face issues, namely a shortage of semiconductor chips. As a result, manufacturing processes have slowed down significantly, going as far as completely stopping at some truck-making facilities due to that shortage, or either to COVID-19-associated restrictions, resulting in truck prices shooting up. The fact that other material prices, such as Aluminium (up 44.6% since January 1, 2021, per Business Insider data), as well as Steel (growth of 215% from March 2020 until July 2021), has helped little for the positive downward trend in truck prices. Since demand far outstripped the demand for heavy goods vehicles (HGV), the second-hand market has seen unprecedented trends as well.
Secondly, having proper personnel to operate the vehicles can be resource straining as well, which only has been exacerbated with the onset and continuation of the COVID-19 pandemic. According to Transport Intelligence, while the driver shortage problem is nothing out of the blue, as it was persistently nagging the road freight transport industry within Europe for 15 years, the pandemic has “further exacerbated the already alarming issue of driver shortages.” The report continues to say that “in 2020, the European road freight industry had a driver shortage of around 400,000 drivers.” Although there are short-term solutions to the issue, the main problem-solving decisions to alleviate the shortage will have to come in the long-term future, as drivers who lost employment could have left the industry for good due to the pandemic and the high average age for truck drivers within the bloc. Per Transport Intelligence, the European average for drivers that are below 25 is 7%.
Thirdly, there are other associated costs with having and maintaining a fleet of trucks. There are the usual maintenance, leasing, insurance, and singular costs, such as following an accident that damages the truck or the cargo inside the trailer. Then there are expenses associated with continuously training your drivers, ensuring that they are prepared and ready for not only the current state of regulations and standard practices within road transport but any future changes as well. Managing that fleet comes at a cost as well, as an ill-managed fleet and roster of drivers can hike up operating costs to even higher levels.
A model seen in aviation
Similar to road freight transport, aviation is a business that involves acquiring the main required transport resource, the aircraft, at a high capital cost. While a truck is not as pricey as a freshly manufactured jetliner, the parallels can definitely be drawn.
The commercial aviation business has seen two types of business models to circumvent the high CapEx – dry and wet leasing. Dry leasing an aircraft means paying a lease to an entity that owns the asset, usually a lessor with a huge portfolio of jets. Meanwhile, under a wet lease agreement, a company acquires the aircraft, as well as the crew, the maintenance, and the insurance taken care of for them, leaving them to only manage their operations and attracting enough passengers to pay off their bills.
“The commercial aviation sector has seen massive success of wet lease agreements and we see little reason as to why a similar model could not work in road freight transport,” commented Sigitas Meilūnas, the Chief Operating Officer of Girteka Fleet. Per Meilūnas, the company, which is part of the Girteka Logistics group, has managed to grow sustainably in the past few years, going from around 50 trucks in its second year of operations in 2017, to as many as 900 by 2021. “Various industries that utilize road freight transport, slowly but surely, will come to terms that there are alternative options for their transport needs,” he added.
The company provides several options for its potential customers, including the option to only receive a truck and a driver, or receive the full package of a truck, a driver, and a trailer, with tautliners and refrigerated (box) as a possible rent option.
“The main concern that we see is how a client can ensure the quality of his supply chain transportation without heavily investing cash into assets, such as trucks and trailers, that they have little experience of operating. While we bring the know-how of how to efficiently do the task of driving a truck, they can utilize their know-how of supply chain management to ensure the smooth running of their business,” concluded Meilūnas.
Partnering with such companies as Girteka Fleet makes sense for those businesses that are looking to utilize their experience of managing their supply chain, yet have little experience in managing road transport, or have little incentive to do so. After all, establishing or expanding your supply chain transportation is not easy in the context of the market situation nowadays, as acquiring a truck, as well as a trailer, and a driver is perhaps more difficult than it ever was. Stabilizing a supply chain now, as recovery is on the horizon, could be the factor that will help a company ensure the proper foundation to be competitive in their respective industries and take more and more market share going forward, as the economy stabilizes and begins to tick up.