As we’re already nearing the midway point of Q2/24, there remain a multitude of economic changes creating more challenges for every industry. While this has been top of mind for many ever since the pandemic, equipment finance professionals are cautiously optimistic about the current year and how it may shape up for their portfolios of heavy-duty transportation fleet assets.

Stronger Emphasis on Strategic Planning
The economy in 2024 has been punctuated by a general sense that inflation is stubbornly persistent, and the hope of falling interest rates continues to get pushed off deeper into the year. Eventually, this could be a sign of relief for equipment finance professionals focused on companies with transportation fleets looking to invest in new trucks and equipment, especially as the cost of equipment has become a serious issue for many. Immediately following the pandemic, supply chains made availability a major issue. Today it is no longer about availability and instead more about the cost of entry into new equipment.

Because of this shift, many leading organizations with fleets are focused on building a strategic, multi-year acquisition plan based on a methodical and disciplined approach to life cycle management. A plan that can adapt to changing market conditions and is designed to inject more flexibility into procurement decisions while assigning stronger fundamentals to managing the organization’s TCO and bottom line is a necessity.

Additional Areas to Watch for Economic Indicators
As highlighted by the American Transportation Research Institute (ATRI), various industry issues such as truck parking, fuel prices and driver shortages, remain front and center for these businesses. Despite these ongoing challenges, it remains an exciting yet pivotal time for equipment finance professionals with ties to the transportation industry. Organizations with fleets that leverage a KPI driven asset management plan and focus on shortening their life cycles to create the lowest possible total cost of ownership (TCO) will be the ones that are positioned most competitively at the end of the year, critically important for the equipment finance industry.

Furthermore, observers at ACT Research believe U.S. freight fundamentals will improve in 2024. Entering the year, freight demand was below typical trends, but analysts believe it will continue to recover, driven largely by continued consumer spending and subsequent retail sales activity, according to ACT. What’s more, organizations with private fleets are faring better than for-hire carriers, especially as these businesses face harsher realities of the difficult economy. These are important economic signals for equipment finance professionals to keep a watchful eye on as we progress through the year.

Increased Emphasis on Data and Technology
The use of data and analytics is playing a larger role in helping businesses with fleets make more informed decisions in responding to many of today’s economic drivers. While there remains a lot of chatter in the industry about the use of artificial intelligence (AI) for a variety of business uses, we must not forget that AI doesn’t exist without the actual data. If inaccurate data is used for AI systems, outcomes detrimental to any organization’s business strategy will follow.

Today, the use of this data has expanded to also include predictive modeling, which companies scrutinize to plan out their fleets’ life cycles. Combined with flexible lease options, we’ve seen that companies that are leveraging this approach are some of the most competitively aligned in the industry and ready to weather any changing market conditions. It’s important to ensure your portfolio of transportation fleets are leveraging partners to provide this level of data.

Fleets No Longer Going “All In” on Alternate Fuel
Over the last few years, fleets have felt pressure from constant media headlines about reshaping their vehicle strategy to include electric trucks to adhere to new environmental regulations and mandates. And while it’s important to make decisions that lead with sustainability in mind, many organizations with transportation fleets today are instead focusing on emissions reduction strategies as opposed to simply going “all in” on alternative fuel technology. Clean diesel and even hydrogen are much more in focus today, and they are both playing a significant role in company’s decisioning for emissions reduction strategies.

In a benchmarking survey from two years ago, we asked which type of alternate fuel trucks fleets are most interested in. In that survey, 65% of respondents said they were most interested in electric trucks, while 15% cited hydrogen and 25% CNG. Forty-five percent of the respondents also noted that the time frame to deploy alternative fuel trucks would be five to 10 years.

Almost one year later we are seeing those numbers are shifting, with 33.3% indicating EV over the next five to seven years (29.6% saying another 10 years), and 38.5% indicating hydrogen. This timetable for electric truck adoption continues to change, whereas in the initial survey the majority (54%) said they didn’t plan to deploy electric trucks for five to 10 years.

As more legislation is introduced to mandate the movement toward zero-emission vehicles, fleets are monitoring how these mandates may impact their near-term truck procurement plans. According to the survey, 59% of respondents are either expediting their procurement plans because of CARB pre-buy, or they are closely monitoring to see how it may alter their plans. The timeline and emphasis on CARB pre-buy continue to shift. According to ACT Research, the new standards will result in the largest Class 8 truck prebuy ever leading up to 2027, beginning in 2025 into 2026, with the cost of diesel trucks increasing between $25,000 and $30,000 more per unit, which is another driving reason why organizations must view flexibility as a business strategy, not just a fad.

These trends are critically important for equipment finance professionals with a portfolio of heavy-duty truck assets to understand how to help make accurate finance decisions over the next few years.

Even though 2024 is just entering the second quarter, organizations with fleets will continue to be focused on interest rates and the cost of money throughout the year. Executive leadership teams will continue to rely on proven data and work closely with equipment finance professionals so they can make smart, informed decisions that will have long-term benefits without financial missteps. They must have a larger focus on their business above and beyond what the Fed’s actions are. They must manage their life cycles with the right strategy and multi-year procurement plan. With this in mind, fleets will continue to understand that as they improve the performance of their trucks, they will improve the health of their business while also achieving their sustainability measures in 2024. As these objectives are met, equipment finance professionals will realize their own stronger fleet portfolio results throughout 2024.

Brian Holland, CPA, CTP, CLFP, is the president and CEO of Fleet Advantage, a leading innovator in specialty financing, fleet data analytics, fleet management services, and life cycle cost management. For more information, visit FleetAdvantage.com.