Fleet Success

Fleet management is a fundamental issue for companies in the Middle East. However, are companies making the right decision?

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By  Nadia Khan Published  November 12, 2006

|~|truck1_HR2.jpg|~||~|With so many businesses in the Middle East reliant on effective fleet management as part of their service, the decision of whether to own or outsource your fleet is a crucial one. Fleet ownership has traditionally been seen as the preferred method in the region, with businesses opting to own and control the management of their vehicles inhouse. However, an increasing number of companies are turning to professional fleet management suppliers to provide them with cost productive methods of looking after their vehicles. For most companies, the decision of whether to own or lease is essentially a financial one. “Companies must always ask themselves which option will provide the best return on their investment,” explains Ed Simpson, logistics mentor at Australia’s Logistics Consulting International. “For example, a retailer may decide that rather than investing funds in fleet ownership, putting the funds into merchandise that they can sell yields a greater return on investment.” In the Middle East, he suggests fleet ownership may be more common due to the company’s desire to ‘own’, creating a strong sense of control, rather than being based on a close examination of the return on investment. Adel Alsmadi, logistics manager with National Trading and Developing Establishment (NTDE) Group, also agrees that fleet ownership was the preferred option in the region, with companies regarding their vehicles as part of their assets. “Everybody was under the impression that if you own your vehicles, then you are automatically increasing your assets,” he explains “But actually managing movable assets like vehicles can be a nightmare.” As one of the leading distributors of world-class branded products in the Middle East, NTDE’s Alsmadi admits that owning your fleet can sometimes prove to be a bit of a “headache”. With spiralling costs across Dubai, owning and maintaining a fleet of 630 vehicles is proving a time-consuming, costly business, even for a medium sized company such as NTDE. For other larger sized companies, Alsmadi adds, ownership can prove far too expensive an option due to the interest rates involved in the fleet purchase and maintenance costs. In fact, the size of a company is one of the major factors behind the decision of whether to outsource fleet management. Simpson argues that the larger the company, and the more developed a region, the more likely they are to favour outsourcing and leasing of fleets. “Larger companies tend to focus on their core business or core competency. You never outsource your core business or competency,” he explains. “So, if you are a large retailer and your core business and competency is selling, you may find internal fleet operations a distraction”. For a company with a smaller fleet requirement, ownership may not be such an onerous prospect. United Parcel Service, or UPS as it is better known, claims to be the largest express carrier and package delivery company globally. The company owns around 90% of the UPS vehicles used for operations in the UAE, a total 80 vehicles to date. John Tansey, country manager of UPS (UAE), maintains that with fleet ownership the company has direct control over the vehicles and their maintenance, mileage and fuel usage. “Another advantage for our company is that we can maintain a uniform look for all our vehicles, keeping in line with the corporate identity of the company,” he adds. “With leasing, the vehicles can be inconsistent and variable in their look and model, and their size or capacity may not always meet our logistic and delivery needs.” Nonetheless Tansey concedes that due to economies of scale, it may not always be feasible or economical for a company to own its own fleet. In many ways, the benefits of outsourcing your fleet management appear to be better suited to the current competitive financial climate than ownership. By outsourcing part or all of the day-to-day management of their fleet, companies can instead focus more on the internal strategic and management issues relating to their core business. There is no need to get tangled up in the time-consuming issues that are insurance, repair and maintenance, accident management and vehicle disposal or re-sale. With so many ticked boxes in its favour, outsourcing of fleet management seems to be the way forward for many companies. For the region however, a major stumbling factor is the perceived absence of proven and effective fleet management services to which companies can trust something as invaluable and central to their service provision as their vehicles. As Alsmadi of NTDE points out, this lack of an appropriate alternative in the market is probably why many companies have to own their vehicles in the Middle East. “If you are looking to outsource your vehicles for a middle sized company like ours, I would have difficulty finding a provider with the same sort of tracking system I’ve got or the same sort of inside preparation for the truck I need,” he explains. “In America or Australia I can find what I need, and it’s cheaper for me to lease than own it.” He believes that if reliable fleet management services were available in the region, then most companies would prefer to outsource. To some degree, this is a double-edged sword. Without efficient fleet management service providers in the Middle East, many companies are left with no choice but fleet ownership. An increase in availability of professional outsourcing and leasing services in the region, on the other hand, would result in more and more businesses choosing to outsource their fleet management. Gargash Enterprises, the official distributor of Mercedes-Benz in Dubai and the Northern Emirates, has also recognised this gap in the market. It recently launched a new commercial vehicle rental company operating across the UAE, under the brand Silver Star Van & Truck Rental. “This is a UAE first,” emphasises Robert Norris, leasing, contract hire and rental manager at Gargash Enterprises. “A dependable and branded commercial vehicle rental company, with a variety of commercial vehicles, from vans to cement mixers and tractor units. The vehicles are available on a daily, weekly or monthly basis, providing flexibility during busy periods.” Whilst Gargash Enterprises promises a step towards more professional commercial vehicle rental services, an example of where fleet leasing is already working successfully in the region is for the express logistics company, DHL UAE. Recent years have seen the DHL fleet expand and improve considerably, with more businesses using the company to manage their express needs. Earlier this year, the company added a new fleet of six Ford walk-through vans from Al Tayer Motors to its fleet. DHL have leased the Ford Transit 330S models to be used for shipments and deliveries originating from the 6000m2 express logistics facility in Jebel Ali Free Zone. The new vans, equipped with reverse sensors, ABS, air bags and alarms are an addition to their existing fleet of over 120 vehicles. For DHL, the decision to lease in the UAE has not always been an easy one. “When I came out here six years ago, we were using a car hire company to lease our vehicles. It was not very professional and we weren’t getting the service you would expect,” recalls Geoff Walsh, DHL’s country operations manager. “We then went directly to the only dealer in the country for the vehicles we used. There we found the service we were looking for; a 24-hour service, where the lease conditions suited us, the prices suited us, and the type of vehicle was what we were looking for. We now have a very professional service provider.” This shows that where such a professional relationship in fleet management can be developed, it can hold a lot of advantages for both parties. DHL still has a significant input in the management of its fleet – appointing a fleet manager and assistant to take care of the day-to-day running, monitoring and servicing of the fleet. Leasing, rather than owning, does mean that other aspects of the fleet management can then be dealt with through the outsourced company. “They do take away some of the headaches,” Walsh explains. “We don’t have to worry too much about the registration or insurance of the vehicles. We can get spare vehicles when the vehicles are in for servicing and they will do servicing through the night when your vehicles aren’t being used. They are very good with the parts supply of the vehicles being serviced, because you are going direct to the actual supplier rather than through a third party.” On a positive note, Walsh does believe that the market in the UAE is maturing, with more professional and efficient fleet suppliers and management services entering the industry. Whether companies prefer to manage their own fleet inhouse or outsource all or some aspects of their fleet management, at the end of the day it’s all about what is best for each respective company. For the most effective fleet management, as Simpson of LCI concludes, “there is no single solution. Each business, in each industry, in each region, must weigh the factors that apply to them - and make the decision that is right for them.” With the region offering so much potential business to fleet management services in the future, companies should soon find themselves having more competitive options regarding the management of their fleet. ||**||

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